Americas/EMEA base oils - week of Jan 8: Demand outlook

Americas/EMEA base oils - week of Jan 8: Demand outlook

·        Americas’ base oils demand could be more mixed as competitive US export prices cushion impact of likely slowdown in regional requirements.

·        Domestic US demand could remain more muted as steep US export price discount to domestic prices points to sufficient surplus supply, raising expectations of downward pressure on domestic prices.

·        Expectations of sufficient supply, steady-to-lower prices curb any urgency to replenish stocks.

·        US posted price premium to domestic spot prices stays wider than usual, ICIS data shows.

·        Wide premium raises expectations of rise in spot prices or fall in posted prices.

·        Weaker fundamentals at start of year make fall in posted prices more likely than rise in spot prices, adding to buyers’ incentive to hold back.

·        Demand in Latin America for heavy-grade base oils from Asia could see slowdown as Asia price discount to US Group II export prices narrows sharply.

·        Trend boosts attraction of US supplies instead.

·        US’ October base oils/lube demand outpaces supply for fifth time in six months as sustained rise in exports counters weak domestic demand.

Demand exceeds supply
Demand exceeds supplyEIA

·        Trend reflects US refiners’ increased focus on export markets to maintain supply-demand balance.

Exports' share of demand stays high
Exports' share of demand stays highEIA

·        Strong overseas demand in turn reflects benefit of competitive US export base oils prices, especially compared with prices in 2022.

·        Trend highlights importance of maintaining competitive prices to sustain firm overseas demand and to avoid a major supply-build at end-2023/early 2024.

·        Argentina’s November lube demand falls for fourth time in five months.

Demand falls
Demand fallsMinistry of Economy

·        Lube consumption likely to extend slowdown over coming months in face of even slower economic growth.

·        Slowdown would coincide with fall in Mexico’s demand for base oils from overseas markets and likely drop in Brazil’s demand for base oils imports following completion of plant maintenance work.

·        Synchronised slowdown in demand in Latin Americas’s largest markets would complicate any moves by US refiners to move more surplus base oils supplies to the region.   

·        Europe’s base oils demand faces pressure from buyers’ typical caution at start of new year.

·        Demand could get support earlier than usual amid signs of more balanced fundamentals than same time a year ago.

·        Europe’s October lube demand rises for first time in fourteen months.

Demand rises
Demand risesVarious government, industry data

·        Demand rises on shrinking pace of slowdown in Germany and France, combined with firm consumption in Mediterranean market.

·        Steadier demand in Europe would contrast with end-2022 and curb prospect of significant build-up of surplus base oils supplies at year-end.

·        Italy’s November lube demand rises for sixth month.

Demand extends rise
Demand extends riseMET

·        Sustained recovery in lube demand in Mediterranean region cuts blenders’ feedstock inventories.

·        Blenders’ moves to maintain lower feedstock inventories likely to trigger faster moves to replenish stocks in response to recovery in lube demand.

·        Blenders and refiners had previously adapted to slowdown in lube demand.

·        Firmer consumption in Italy highlights ongoing disparity between state of lube demand in Mediterranean region and in northern European markets like Germany.

·        Germany’s October lube demand falls for twenty-eighth month.

Demand extends slide
Demand extends slideBAFA

·        Prolonged fall in demand sustains blenders’ incentive to maintain lower stocks.

·        Germany’s October lube demand lags consumption in Spain and Italy combined by the largest amount in more than eight years.

Med demand outpaces Germany demand
Med demand outpaces Germany demandVarious government data

·        Trend incentivizes refiners and blenders to target south Europe with more supplies.

·        Arbitrage to move Group I cargoes from Asia to Mideast Gulf gets harder to work, adding to closed arb from Europe, ICIS data shows.

·        Trend raises prospect of Mideast Gulf buyers seeking Group I supplies from alternative sources or switching to consume more Group II base oils.

Americas/EMEA base oils - week of Jan 8: Demand outlook
Global base oils - week of Jan 8: Price outlook - margins
Americas/EMEA base oils - week of Jan 8: Demand outlook
Global base oils - week of Jan 8: Price outlook - arbitrage
Americas/EMEA base oils - week of Jan 8: Demand outlook
Asia base oils - week of Jan 8: Demand outlook

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