Americas/EMEA base oils - week of July 10: Supply outlook

·        Diesel prices hold firm relative to higher crude oil prices, well above lows in April 2023.

·        Firmer diesel values and weaker base oils values vs diesel incentivize refiners to limit base oils surplus.

·        Planned plant maintenance set to be lighter over coming months.

·        Atlantic hurricane season raises prospect of unplanned plant shutdowns over coming months.

·        Arbitrage to move shipments to US/Americas stays hard to work, limiting flow of additional supplies to the region.

·        Arbitrage to move shipments to Europe stays more feasible, and curbs outlets for any surplus European supplies.

·        Rise in US base oils exports through Q2 2023 helps to curb supply-build, contrasts with signs of slowdown in overseas shipments from Europe.

·        US’ April base oils output stays lower than usual amid extended plant maintenance.

·        US base oils prices face ongoing pressure through Q2 2023 even with lower US base oils supply in first four months of 2023.

·        Trend reflects impact of unusually weak domestic demand.

·        Any further rise in supply and extension of demand weakness would put more pressure on prices.

·        Wave of US exports in Q2 2023 likely cushions impact of weak domestic demand, curbs size of surplus at start of Q3 2023.

·        Brazil faces another base oils supply shortfall in May as muted output and imports contrast with firm demand.

·        Trend raises prospect of firm demand for supplies from US especially to avoid shortage.

·        Wave of US exports in Q2 2023 contrasts with less workable arbitrage for European exports amid limited surplus supplies.

·        Signs of rising surplus in Europe at start of Q3 2023 would need reciprocal price or output adjustment to avoid supply-build.

·        Surge in Netherlands’ base oils supply in early Q2 2023 mirrors rise in output in other European markets even amid more muted demand.

·        Trend reflects plentiful availability of premium-grade base oils, boosting attraction for European blenders to use more of the product in place of Group I base oils.

·        Trend highlights ongoing risk of build-up of surplus supplies and need to clear surplus through overseas markets.

·        Closed arbitrage makes those moves more complicated.

·        Surplus throughout Europe likely to be higher as blenders take longer to consume supplies.

·        Surplus volumes counter impact of regional plant maintenance work during Q2 2023.

·        Europe’s premium-grade supplies get additional boost from rising flows from US in Q2 2023.

·        Lingering surplus volumes likely to keep pressure on region’s premium-grade prices until supply-demand fundamentals balance out.

·        Netherlands’ unusually large base oils imports from Turkey in early Q2 2023 coincide with changing trade flows throughout region.

·        Any repeat of that trend would raise prospect of unexpected additional supplies moving to Europe.

·        UK’s net base oils supply surplus rises at start of Q2 2023 to 28-month high.

·        Surge in net surplus partly reflects slowdown in exports to markets outside Europe, mirroring similar trend in Netherlands.

·        Trend suggests regional refiners are focusing on demand in European market, where prices are higher than in overseas markets.

·        But demand in European market is insufficient to absorb regional supply, especially in Q3 2023.

·        Rising supply surplus eases impact of regional plant maintenance in Q2 2023, raises prospect of need to clear surplus volumes in coming months unless output falls.

·        Like India and China, Turkey’s base oils production could benefit from lower costs of feedstock of Russian origin combined with sales at market prices.

·        Europe’s supply of Group III base oils with approvals likely to recover in Q3 2023 after sharp slowdown in shipments during Q2 2023.

·        Limited outright supply of Group III base oils with approvals likely to provide some price support.

·        Rising supply of Group III base oils with no or limited approvals set to attract more buyers, cutting demand for supplies with approvals.

·        Trend likely to put pressure on Group III prices with approvals.