Americas/EMEA base oils demand outlook: Week of 7 Oct

·        US base oils demand likely to stay more muted as buyers’ moves to trim stocks outweigh impact of recent crude price volatility.

·        Seasonal slowdown in demand in domestic and overseas markets, and still-hard-to-work arbitrage to many of those markets, raise prospect of rise in surplus supply in domestic market.

·        Expectations of rising supply give buyers leverage to hold back even with recent jump in crude oil prices.

·        Demand also loses boost from stock-building that provided artificial support to demand in early-Q3 2024.

·        Stock-building in US market helps to boost demand in July-Aug 2024, countering fall in domestic and overseas demand.

·        Stock-building helps to absorb rise in surplus supply in July 2024.

·        Additional demand for stock-building flips to additional supply in recent weeks as buyers move to cut inventories.

·        Domestic demand unlikely to balance out loss of stock-building moves as market prepares for seasonal slowdown at year-end.

·        Dynamic puts onus on overseas demand to absorb rising volumes in order to curb any major supply-build over coming months.

·        Overseas demand likely to improve in response to lower US export prices.

·        US export prices remain at steep premium to prices in markets like India even after recent fall in outright US prices.

·        Overseas demand likely to rise more strongly if US export prices were closer to or at a discount to imported cargo prices in those markets.

·        Another cargo moves from US Gulf coast to India in early Oct 2024, following a similar shipment a month earlier.

·        Shipments point to some cargo prices at levels that are sufficient to attract buying interest from India.

·        US export Group II price differential to Europe prices slips further to widest discount since May 2024.

·        Widening discount boosts feasibility of moving more arbitrage shipments to Europe.

·        Latin America’s lube demand faces seasonal dip in demand in Q4 2024 followed by recovery from start of next year.

·        Latin America’s base oils demand could fall even more sharply because of lack of plant maintenance work in the region over coming months, especially compared with last year.

·        A sharper fall in base oils demand would further curb import requirements.

·        The scenario would complicate moves by overseas refiners to target the region with surplus volumes.

·        The scenario could instead prompt overseas refiners to move more supplies to other regions instead.

·        Europe’s base oils demand likely to stay cautious against backdrop of sufficient supply and weak finished lube consumption.

·        Blenders’ low stocks likely to sustain steady buying interest, even if for lower volumes.

·        Europe’s Group I export prices stay unusually firm relative to domestic prices.

·        Price-strength points to firm fundamentals, with tight supply and strong overseas demand.

·        But fundamentals are less firm.

·        That dynamic, and concern about exposure to an adjustment in export prices, could incentivize overseas buyers to hold back.

·        Europe’s Group II base oils price premium to Group I prices stays close to highest in more than a year and at narrow discount to Group III prices.

·        Dynamic could incentivize buyers to use more Group I and Group III base oils rather than Group II base oils.