Americas/EMEA base oils demand outlook: Week of 8 July

·        US’ domestic base oils demand likely to get support from buyers’ moves to build larger stocks as insurance against weather-related supply disruptions.

·        Unusually active start to the Atlantic hurricane season adds to concern about such supply disruptions over the coming months.

·        Firmer demand would extend seasonal pick-up in domestic consumption at start of Q2 2024.

·        Domestic demand would typically face slowdown once buyers have completed stock-building, and as market faces seasonal slowdown in consumption around this time of year.

·        Demand would then need to rely more on export markets to avoid risk of any supply-build.

·        Overseas demand likely to be more muted following steep rise in US base oils prices relative to prices in overseas markets in recent months.

·        Active start to Atlantic hurricane season raises uncertainty about extent and speed of any supply-build in US market.

·        Any smaller-than-expected supply-build, or difficulty with meeting existing requirements in overseas markets, could trigger rise in demand in those markets for supplies from other sources.

·        US base oils/lube exports continue to account for more than 50% of total demand in April 2024 even with surge in domestic consumption.

·        Large share highlights importance of export market in maintaining supply-balance in US, and importance of US shipments as source of supplies for those export markets.

·        Demand from Latin America could be more mixed as high US export prices cut attraction of procuring base oils for other purposes besides lubricants production.

·        Demand could also get support from buyers seeking to ensure stability of supply for their lubricants production during hurricane season.

·        Brazil’s demand for overseas base oils supplies likely to hold firm amid signs the country’s firm consumption is keeping surplus supply tight, even with imports staying unusually high.

·        Any sustained strength in Brazil’s base oils imports requirements would contrast with last year, when domestic plant shutdowns in H2 2023 boosted requirements for overseas supplies.

·        Any sustained strength in Brazil’s imports would instead reflect more the steady rise in the country’s base oils requirements so far this year.

·        Argentina’s lube demand falls in May 2024 at its slowest pace in five months.

·        Any extension of the trend could point to demand starting to bottom out.

·        Any subsequent improvement in base oils demand could be delayed after Argentina’s lube production exceeds demand in May 2024 by largest volume in four months.

·        Trend triggers rise in country’s lube stocks to highest this year.

·        Higher lube stocks could incentivize blenders to curb output over following months as they first work down existing inventories.

·        Europe’s base oils demand typically starts to slow down in months of July and August.

·        Trend could differ this year for Group I base oils in view of tighter availability in recent months.

·        Even so, mixed signals on recovery in region’s lube consumption likely to incentivize blenders to maintain lean inventories.

·        Group I light-grade base oils price discount to Group II prices shrinks further to narrowest since H2 2022.

·        Narrower discount and tight Group I supply add to incentive for blenders to use more premium-grade base oils instead.

·        Signs of healthy availability of Group II/III base oils add to attraction of using more premium-grade base oils.

·        Persistent strength of Group I prices relative to premium-grade prices points to ongoing underlying demand for Group I base oils.

·        Italy’s blenders show signs of boosting base oils supplies from other markets amid dwindling domestic Group I supply and more plentiful availability of premium grades.

·        Italy’s domestic base oils sales fall sharply in first five months of 2024, contrasting with smaller slowdown in total lube consumption, reflecting that dynamic.

·        Morocco shows signs of taking delivery of more supplies from US in recent weeks, adding to recent pick-up in shipments from US to the North African country.

·        Nigeria sees pick-up in shipments reaching country since late-June 2024, following signs of sharp slowdown in supplies during previous two months.