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

·         US base oils demand likely to get support from seasonal pick-up in requirements that coincides with round of plant maintenance work.

·         Mostly-steady outright base oils prices so far this year contrast with higher prices in other markets.

·         Steady export base oils values vs VGO so far this year contrast with slump, then surge in base oils values from H2 March 2024.

·         Any extension of steady prices and steady margins could point to weaker-than-expected seasonal pick-up in demand.

·         Seasonal rise in demand could be more muted ahead of expected imposition of additional tariffs in early-April 2025.

·         Scheduled plant maintenance work and concern about tariff-related trade disruptions could conversely incentivize buyers to lock in more supplies of some products like Group III base oils.

·         Ongoing shipment of large cargoes from US to markets like West Africa point to persistent surplus volumes even at a time when fundamentals are typically tighter.

·         Removal of those surplus volumes could provide refiners with more leverage to adjust prices in response to firmer domestic supply-demand fundamentals.

·         Latin America’s base oils demand for US cargoes could get support from competitive prices vs other regions and tight supply in those regions.

·         Buying interest could get further boost from signs of firm supply-demand fundamentals in the region.

·         Latin America’s lube demand exceeds base oils supply in Jan 2025 for third month.

·         Supply shortfall likely to leave blenders with depleted stocks early this year, speeding up their moves to replenish inventories.

·         Concern about impact of any tariffs on economic growth in markets like Mexico instead boosts incentive for buyers to maintain lower inventories.

·         Concern about impact of any tariffs or other trade-related disruptions incentivizes buyers to curb any over-reliance on a single supply source.

·         Any such moves could limit size of any pick-up in demand for additional supplies from US.

·         Any such moves could be more feasible over coming year following expected improvement in availability of supply in Asia especially.

·         Any such moves to line up more supplies from Asia would also require arbitrage to open.

·         FOB Asia Group II cargo prices maintain narrow discount or premium vs US export prices, keeping arbitrage shut.

·         South Korea’s base oils exports to Latin America stay low in Feb 2025 for fourth time in five months, reflecting impact of closed arbitrage.

·         Dynamic suggests that any pick-up in arbitrage shipments from Asia to Latin America is unlikely to materialize at least for several more months.

·         Dynamic complicates any immediate moves to trim reliance on US for supplies.

·         Mexico’s base oils demand for finished lubricants production could face pressure from concern about extended drop in consumption.

·         Mexico’s lube demand already falls in Jan 2025 for eighth time in nine months on sustained dip in industrial oils consumption.

·         Uncertainty about tariff-related costs, and forecasts of slower economic growth, raise prospect of prolonging the slowdown in lube consumption.

·         Europe’s base oils demand likely to get support from seasonal pick-up in requirements, firm prices and relatively balanced supply.

·         Some signs of steadier lube consumption and improving confidence about economic outlook could provide further support.

·         Demand for Group III base oils could get additional support from prices that stayed unusually competitive vs Group II base oils since late-2024.

·         Europe’s Group I brightstock price stays unusually high relative to VGO, relative to other grades and relative to other regions.

·         High price incentivizes blenders to seek to adjust formulations in a way that cuts brightstock requirements and increases consumption of other grades instead.

·         Base oils demand in Middle East could rise in coming weeks after end of Ramadan and Iranian new year holidays.

·         Demand for supplies from Asia-Pacific could stay more muted after surge in shipments from South Korea to Middle East in Feb 2025.

·         Rise in shipments enables blenders to replenish lower stocks ahead of any pick-up in regional demand.

·         Rise in shipments gives blenders more leverage to hold back from locking in additional supplies at price levels that they deem to be too high.

·         Even so, buyers likely to be more reliant on pick-up in cargo volumes from Asia amid signs of lower-than-usual arbitrage flows from US and Europe.

·         Buyers also likely to need to procure additional supplies more frequently after drop in arbitrage flows slashes global exports to Middle East at end-2024 and early this year.

·         Drop in shipments curbs opportunity for buyers to build stocks with supplies at competitive price levels.

·         Dynamic could trigger more frequent procurement of smaller volumes over coming months.