Americas/EMEA base oils supply outlook: Week of 24 Feb

·         US base oils price premium to VGO/heating oil continues to hold steady in narrow range.

·         Extension of trend would leave margins bottoming out earlier and higher this year than in Q1 2024.

·         Upcoming plant maintenance and seasonal rise in demand likely to curb pressure on refiners to seek outlets for surplus volumes.

·         Rangebound US export prices from end-2024 already point to signs of more limited pressure from surplus supply.

·         US Group II export-price discount to domestic prices stays narrower than in Q1 2024.

·         Narrower discount adds to signs of more limited pressure from surplus supply.

·         Ongoing shipment of supplies to markets like West Africa keeps supply at more manageable levels.

·         More limited surplus puts onus on overseas buyers to raise prices to make arbitrage feasible.

·         Wider CFR India Group II N500 premium to US export prices reflects that dynamic, with higher outright CFR India prices.

·         Fall in  US exports to key markets in Africa in Dec 2024 adds to signs of more manageable surplus by year-end and early this year.

·         Fall in exports follows surge in shipments to Africa markets like Nigeria earlier in H2 2024.

·         Surge in shipments boosts US’ share of global exports to key Africa markets to more than 32% of total in Q3 2024 and Q4 2024, from less than 20% in H1 2024.

·         Surge in shipments over more extended period and from earlier in the year helps to limit volume of surplus to clear at year-end and early this year.

·         Latin America’s base oils supply could be tighter early this year, with more limited surplus carried over from end-2024.

·         Dynamic puts onus on regional refiners to maintain higher output.

·         Pick-up in exports from Argentina shows signs of extending through end-Feb 2025, providing regional buyers with additional source of Group I base oils.

·         Flow of arbitrage shipments from Asia to Latin America slows at start of 2025.

·         Slowdown in shipments from markets like South Korea leaves buyers in Latin America more reliant on supplies from US for premium-grade base oils.

·         US and Europe’s Group III base oils supplies from Asia could be lower in Feb 2025 after slump in South Korea’s exports to the two markets in Jan 2025.

·         Steep fall in shipments to both markets simultaneously is unusual.

·         Fall in shipments helps to cushion impact of seasonal slowdown in demand in both markets during winter months, curbing size of any supply-build.

·         Smaller supply-build would trigger earlier requirement for replenishment supplies.

·         Shipments from South Korea to US duly rise sharply in Feb 2025. 

·         Europe’s base oils supply could start to tighten amid seasonal pick-up in demand and smaller surplus to clear at start of the year. 

·         Firm Group I export prices and closed arbitrage to outlets like India and Middle East add to signs of more limited surplus supply.

·         Europe’s Group II base oils supply shows signs of starting new year at lower-than-usual level following dip in imports at year-end.

·         Europe’s imports from markets producing Group II base oils fall to eight-month low in Dec 2024.

·         Slowdown cushions impact of regional output likely holding at firmer levels, especially vs same period a year earlier.

·         Europe’s Group III base oils supply could get support from signs of slowdown in shipments from Asia to the region at start of 2025.

·         Any slowdown would follow drop in Europe’s Group III base oils supply at end-2024.

·         Lower volume adds to drop in Europe’s Group III supply by 8% in 2024 from year earlier to lowest in more than five years.

·         Lower Group III supply contrasts with steadier Group I base oils supply and smaller drop in Group II supply in first eleven months of 2024.

·         Group III prices extend slide vs Group I/II base oils in 2024 and early this year even with larger fall in Group III supply.

·         Dynamic suggests Group III supply continues to exceed demand.

·         Dynamic suggests that Group III base oils market faces largest impact of Europe’s shrinking lube consumption.