Americas/EMEA base oils demand outlook: Week of 28 Oct

·        US base oils demand set to fall as blenders focus on clearing finished lube stocks rather than producing additional supplies.

·        Steady fall in base oils prices adds to attraction of holding back.

·        Lower crude oil prices likely to add to expectations of further fall in base oils prices.

·        Demand could get support from signs of smaller-than-expected base oils surplus so far in Q4 2024.

·        Smaller surplus curbs risk of sharper price adjustment, supporting steadier procurement.

·        Overseas demand for US supplies likely to start to improve as lower prices make arbitrage more feasible to outlets like India.

·        Steady flow of Group I/II base oils shipments to markets like Nigeria and India in recent months points to prices that were already at levels that attracted buying interest.

·        Brazil’s lube demand rises in Sept 2024 for sixth month from year-earlier levels.

·        Pace of growth slows markedly in Aug-Sep 2024 from 7% growth rate in Jan-July 2024.

·        Any extension of trend would compound likely seasonal dip in Brazil and especially Latin America’s lube consumption in final months of 2024.

·        Brazil’s strong lube consumption growth in first seven months of the year previously balanced out demand weakness in other markets like Mexico and Argentina.  

·        Argentina’s lube demand falls in Sept 2024 for eleventh month, outpaces drop in lube production for second month.

·        Slower drop in lube production shows signs of trimming base oils stocks.

·        Extension of any such move would put pressure on base oils demand in short term, before boosting requirements in several months’ time.

·        Any such pick-up in requirements in several months’ time would likely coincide with time of year when global base oils prices are typically lower because of pressure from surplus availability.

·        Europe’s base oils demand likely to stay muted amid signs of sufficient supply of all grades, while finished lube demand flatlines at best.

·        Prospect of seasonal slump in lube consumption in month of December adds to incentive for blenders to maintain low stocks and procure small volumes as and when required.

·        Muted consumption could curb any boost to buying interest for Group I base oils in response to their more competitive prices vs Group II base oils.

·        Overseas demand for Europe base oils likely to stay muted even with recent drop in export prices.

·        Europe prices remain at levels that still make arbitrage hard to work, with buyers focusing on shipments to overseas markets from other sources like the US.

·        Europe’s domestic Group II heavy price rises relative to Group II light-grade price and relative to Group I heavy grades.

·        Firmer Group II heavy-grade premium incentivizes blenders to use Group I heavy grades instead.

·        Ongoing strength of Group II heavy-grade premium points to supply-demand fundamentals that are firm enough for now to outweigh incentive to switch to other grades.

·        Europe’s Group III base oils prices stay firm relative to prices in Asia and especially US even as outright prices fall.

·        Trend points to firmer supply-demand fundamentals relative to those other markets.

·        Trend sustains incentive for overseas refiners to move more Group III shipments to Europe.

·        Europe’s Group III base oils imports from Middle East exceed volumes bound for US and Asia in Aug 2024, reflecting that dynamic.

·        Rise in shipments coincides with persistent fall in Europe’s lube demand.

·        Dynamic raises prospect of demand lagging supply, triggering growing surplus.