Americas/EMEA base oils demand outlook: Week of 29 July

·        US base oils demand likely to be mixed.

·        Blenders and distributors face challenge of balancing weak finished lube demand with need to have sufficient stocks in diverse locations to cover for any supply disruptions.

·        Stock-building could take longer to complete amid more limited surplus availability.

·        Demand likely to stay weak in overseas outlets that typically absorb surplus US supplies, like India, with arbitrage tightly shut.

·        Demand likely to hold firm in overseas outlets like Latin America that are reliant on US supplies and where the supply-demand balance is already tight.

·        Those fundamentals show signs of staying tight, with Brazil’s lube demand rising in June 2024 for fifth time in six months.

·        Demand gets boost from recovery in consumption in Rio Grande do Sul, following sharp contraction in lube demand in the state in May 2024.

·        Brazil’s firm lube demand keeps pressure on domestic base oils output and imports to stay at higher levels.

·        Firm requirements for base oils imports could add to country’s interest in seeking supplies from other markets besides US to reduce its reliance on that source.

·        Brazil's firm consumption cushions impact of weak demand in Argentina, whose lube consumption extends fall in June 2024 for eighth month.

·        Steeper demand contraction in June than in May raises uncertainty about timing of any recovery.

·        Ongoing slide in demand sustains incentive for blenders to trim output and maintain low stocks of finished lubes and base oils.

·        Argentina’s lube production duly falls more steeply than demand in June 2024, cutting stocks.

·        Trend cuts base oils demand in short term, but lower stocks raise prospect of sharper recovery in demand when consumption revives.

·        Europe’s base oils demand could get support as buyers start to eye supplies for delivery in final weeks of Q3 2024.

·        Demand could get further support as steady outright base oils prices and firm margins point to limited surplus supply.

·        Regional blenders likely to continue to procure smaller volumes more frequently amid signs of still-weak finished lube consumption.

·        Blenders’ lower stocks, and more frequent procurement of smaller volumes, could cushion size of slowdown in demand over coming weeks.

·        Firm Group I prices and tighter supply incentivize blenders to minimize consumption of Group I base oils and to use more premium-grade base oils instead.

·        Narrow gap between Group II and Group III base oils prices incentivizes buyers to use more Group III base oils.

·        Wide gap between Group III low and high prices incentivizes blenders to maximise consumption of premium-grade base oils without full OEM approvals.

·        Overseas demand for Europe’s base oils supplies is likely to remain muted even if slower regional demand frees up surplus volumes for export over the coming weeks.

·        High Europe export prices relative to overseas markets likely to dampen any buying interest.

·        Italy’s lube demand falls in June 2024 for third time in four months as industrial oils consumption slumps.

·        Italy’s lube demand had led a recovery in consumption in southern Europe in H2 2023.

·        Italy’s shrinking lube consumption removes key support for Europe’s steadier lube demand this year.

·        Italy’s shrinking lube demand could be precursor of more widespread slowdown in demand in southern Europe.

·        Lack of any sustained recovery in demand incentivizes blenders to maintain low finished lube and base oils inventories, and to procure smaller feedstock volumes more frequently.

·        Trend puts onus on base oils distributors rather than blenders to maintain sufficient stocks, and the costs and price- and demand-risk that entails.