· US base oils demand shows signs of staying lower than usual at a time of year when it usually rises more strongly.
· More muted seasonal pick-up in demand cushions against impact of tighter availability of some base oils grades.
· US domestic Group II light-grade base oils prices strengthen vs heavy-grade prices, vs export prices, vs Group III prices and vs prices in overseas markets.
· Outperformance of US domestic Group II light grades points to tighter supply-demand fundamentals for the grade.
· Muted demand suggests supply is the key driver behind firmer light-grade prices.
· US spot price discount to US posted prices stays unusually wide even with firmer light-grade prices.
· Wide discount complicates price visibility, adds to buyers’ incentive to maintain lower stocks.
· Recent slide in crude oil and diesel prices could curb demand further after refiners previously cited higher feedstock costs for recent rise in posted prices.
· Muted domestic demand keeps pressure on refiners to displace imports with more Group III base oils or to cut supply.
· Base oils and lube exports account for more than 50% of total US demand in Feb 2024 for twelfth straight month.
· Exports’ high share of demand helps to cushion against impact of shrinking domestic consumption.
· Still-muted domestic demand in Q2 2024 keeps pressure on refiners to maintain high export volumes or to trim supply.
· Firmer US export prices vs other regions like India and Europe could dampen demand for more arbitrage shipments in those markets.
· Brazil’s demand for overseas base oils supplies could stay more muted after imports rebound in March 2024.
· Rise in imports raises prospect of country carrying large supply surplus into Q2 2024.
· Europe’s domestic Group II base oil price premium to Group I base oils slips to narrowest since Q4 2023.
· Europe’s Group III 4cSt (low) price premium to Group I SN 150 slips to lowest since H2 2022.
· Narrowing premium-grade price premium to Group I prices boosts incentive for Europe's blenders to procure more premium-grade base oils instead of Group I base oils.
· Europe’s increasingly tighter Group I supply and more plentiful premium-grade supplies add to incentive for blenders to procure more premium-grade supplies.
· Europe’s Group III 4cSt (low) premium to US Group III prices rises to widest since mid-2023.
· Widening premium boosts attraction of moving more Group III shipments to Europe.
· Expectations of improving availability of Group II and Group III base oils give buyers the leverage to continue to procure smaller volumes more frequently.
· Overseas demand for Europe’s Group I base oils could face slowdown in face of tighter supply and less competitive prices.
· US Group I brightstock prices flip to discount to Europe export prices in recent weeks for first time since 2022, reflecting that trend.
· Group II demand in Middle East for supplies from Asia-Pacific could stay higher than usual amid signs that flows from Saudi Arabia to the UAE remain lower than usual.
