Americas/EMEA base oils demand outlook: Week of Feb 26

·        Moves by some US refiners to raise US posted prices coincide with a time of year when domestic demand typically gets a seasonal boost.

·        Moves to raise posted prices often trigger pick-up in demand as buyers seek to lock in more supplies before price increases take effect.

·        Moves by some US refiners to raise posted prices instead point to a response to squeezed margins or refinery-specific factors rather than a recent pick-up in domestic demand.

·        Any pick-up in domestic demand would likely initially impact availability for export and support firmer US export prices.

·        Fall in US base oils export prices in Feb 2024 point to ongoing availability of surplus supplies.

·        Any signs of ongoing availability of export cargoes, and any signs of still-cautious domestic demand, could complicate moves to raise posted prices.

·        Any signs of more widespread posted-price-increases could by contrast complicate buyers’ decision to hold back.

·        Demand for US export cargoes likely to hold firm amid unusually competitive export prices.

·        US Group III price premium to Group II base oils holds at widest in four months, contrasting with narrowing Europe Group III premium to Group II prices.

·        Firmer premium curbs attraction for blenders to consume more Group III base oils.

·        Brazil’s base oils demand for overseas supplies could ease after a surge in US shipments to the country at end-2023.

·        The rise in shipments coincided with rising domestic supply and lower lube demand in Brazil at end-2023.

·        Brazil had provided key outlet for surplus US supplies during H2 2023.

·        Any slowdown in Brazil’s demand for overseas supplies would force US shipments to target other markets instead, and at prices that made the shipments competitive.

·        Mexico’s demand for base oils from the US could face pressure as lower lube consumption at year-end compounded a rise in surplus supplies from the US.

·        Surplus of US base oils exports over Mexico’s lube consumption rose in Dec 2023 to widest level in three months.

·        Surplus remained much lower than in Jan-Sep 2023, suggesting that US base oils exports to Mexico have completed most of their correction to more sustainable levels.

·        Chile’s January lube/base oil imports hold firm from Dec 2023, extend strong rise since Oct 2023 from year-earlier levels.

·        Higher imports coincide with expectations of firmer economic growth this year.

·        Europe’s Group I heavy-grade premium to VGO extends fall, suggesting supply remains sufficient and demand remains muted.

·        Europe’s Group III base oils price-premium to Group I/Group II prices continues to narrow, moving closer to levels in Q2 2022.

·        Narrower gap between Group I/II and Group III prices boosts incentive for blenders to consume more Group III base oils.

·        Germany’s November domestic lube demand falls at its slowest pace in fourteen months as engine oils consumption rises and process oils demand steadies.

·        Any signs of steadier consumption would add to a sustained recovery in lube demand in Mediterranean markets like Spain and Italy that shows signs of extending into the start of this year.

·        Such a trend would likely support steady-to-firmer lube consumption in Europe.

·        Any pick-up in demand could require that blenders adjust their procurement strategy that was partly based on a sustained fall in consumption. 

·        Nigeria’s base oils demand for overseas supplies could ease after a rebound in shipments to the country that began late last year extended into Feb 2024.

·        Nigeria’s demand for supplies from the US could hold firmer amid expectations of a further drop in surplus availability from Europe.

·        A growing reliance on shipments from the US could boost Nigeria’s buying interest in supplies from other sources like Mideast Gulf.

·        Other African markets like Egypt could also seek more supplies from other regions in the face of tighter surplus availability and less competitive prices for shipments from Europe.