Americas/EMEA base oils demand outlook: Week of 24 June

·        US domestic base oils demand likely to hold steady as buyers balance out concern about weather-related supply disruptions with prospect of seasonal slowdown in demand during summer months.

·        Moves to build stocks as buffer against supply-related disruptions contrasts with blenders’ more recent strategy of maintaining lower stocks.

·        Moves to build stocks brings forward future demand, boosting current demand.

·        Moves to build stocks would cushion supply and demand impact of any supply disruptions.

·        Moves to build stocks would leave blenders with surplus volumes to consume if there are no supply disruptions.

·        Any such scenario could repeat similar trend in H1 2023, when blenders’ existing stocks covered seasonal pick-up in demand.

·        Signs of balanced supply-demand fundamentals for now and firmer crude oil/heating oil prices curb prospect of price-cuts.

·        Expectations of steady-to-firm prices likely to provide additional support to demand.

·        Overseas demand for US supplies could ease as higher US prices make arbitrage less feasible or unfeasible to outlets like Europe and India.

·        Americas' demand could instead increase for supplies from Asia as higher US export prices widen their premium to Group II cargo prices in Asia.

·        Latin America’s April lube demand climbs to eight-month high, and unusually rises from month of March.

·        Region’s unexpectedly firm lube demand sustains its requirements for additional base oils supplies from overseas markets.

·        Including US base oils exports to Latin America, region’s smaller base oils supply surplus over demand in March 2024 and April 2024 likely to support steady demand for overseas supplies.

·        Latin America's buyers likely to continue to prioritize base oils shipments from US even after rise in US export prices in Q2 2024.

·        Brazil’s lube demand shows signs of holding firm in May 2024 despite disruption caused by floods in Rio Grande do Sul.

·        Europe's tighter Group I supply could impact typical seasonal slowdown in demand for the grade in the months of July and August.

·        Tighter Group I supply curbs prospect of any build-up of surplus volumes during those months.

·        Europe’s tight Group I supply and firm prices relative to Group II/III base oils boost incentive for blenders to use more premium-grade supplies.

·        Strength of Group I prices relative to other grades suggest demand for Group I base oils remains firm even with higher prices.

·        Recovery in Europe’s lube demand shows signs of ongoing volatility, deterring blenders from building larger stocks.

·        Seasonal pick-up in Europe’s lube demand this year moves to month of April instead of March.

·        Delayed pick-up in demand could reflect blenders’ and end-users’ focus on maintaining low stocks amid uncertainty about outlook.

·        Delayed pick-up in demand cushions impact of tighter Group II supply in Q1 2024.

·        Delayed pick-up in demand magnifies impact of tighter Group I supply in Q2 2024.

·        Strength of pick-up in demand at start of Q2 2024, and blenders' low inventories, could trigger moves to replenish base oils and lubricants stocks.

·        Key markets in Africa face ongoing reliance on Europe for most of their base oils supplies as shipments from other sources stay more sporadic.

·        Global base oils exports to key markets in Africa recover to three-month high in April 2024 on pick-up in flows from US and Saudi Arabia.

·        Irregular flows from both those sources contrast with steady volumes from Europe.

·        Europe’s tightening base oils production capacity raises prospect of making flows from that market more volatile too.

·        South Korea’s May base oils exports to UAE fall to four-month low.

·        Exports slow as Middle East market first absorbs surge in global shipments to the region in Q1 2024.

·        Global exports to Middle East stay relatively high in April 2024 even as they fall from previous two months.

·        Firm exports likely to sustain plentiful supplies in the region for longer, pushing back the timing of any moves to replenish stocks.  

·        CFR UAE Group II base oils premium to FOB NE Asia prices widens in May and June 2024.

·        Wider premium makes arbitrage more feasible, could point to moves to target supplies for delivery later in Q3 2024.

·        Any extended pick-up in flows from Saudi Arabia to the UAE could limit any revival in demand for supplies from Asia.