Americas/EMEA base oils - week of Aug 28: Demand outlook

·        US weekly gasoline demand rises in 2H Aug 2023, after levelling off in 1H August.  

·        Seasonal rise in US base oils demand could get additional support from signs of smaller US supply surplus, firmer prices and prospect of stormy weather over coming weeks.

·        Latin America’s monthly lube demand likely holds rangebound in Q3 2023 ahead of seasonal dip in consumption in Q4 2023.

·        Prospect of slowdown in Latin America's lube demand in Q4 2023 could have smaller impact on US refiners if their stocks are at manageable levels and the arbitrage to Latin America remains open.

·        Steady flow of arbitrage shipments from US to Latin America so far this year likely to curb size of surplus volumes to clear in final months of 2023.

·        Plant maintenance in Latin America in 2H 2023 likely to sustain demand for US base oils supplies even with seasonal slowdown in demand.

·        Competitive US export base oils prices vs other regions likely to add to Latin America's demand for US base oils.

·        Steady demand from Latin America would balance out signs of less feasible arbitrage to move US supplies to markets like India.

·        Brazil’s firm lube demand growth continues through July 2023 on rising PCMO and transformer oils consumption.

·        Firm demand contrasts with weaker consumption in other markets and prospect of lower domestic base oils supply in coming months.

·        US imports of Group III base oils from Asia-Pacific likely to stay lower than usual through Q3 2023 amid weak demand, lower supplies.

·        Rising surplus Group III supplies in Europe, and pick-up in base oils output in South Korea, likely to increase need for pick-up in US demand for Group III base oils amid limited alternative outlets.

·        Any further Group III demand weakness in US could force overseas refiners to cut run-rates or to cut prices in order to incentivize buyers to switch away from Group II base oils.

·        Europe’s lube demand shows signs of staying stronger in Mediterranean region in Q3 2023.

·        Regional demand likely to get support from stock-replenishment, more limited surplus supply.

·        Nigeria’s base oils demand shows signs of holding firm amid steady flow of supplies from Europe/US even with currency/payment issues.

·        Nigeria provides valuable outlet for surplus supplies from US especially.

·        Europe’s base oils/lube demand shortfall vs supply narrows in May but stays wide.

·        Europe’s demand lags supply in seven of the last eight months to May.

·        Trend points to ongoing structural surplus even amid tighter availability of Group I base oils.

·        Surplus in Jan-May 2023 contrasts with shortfall during same period in 2022. But surplus falls sharply from same period in 2021.