Americas/EMEA base oils - week of July 31: Supply outlook

·        Diesel prices rise faster than higher crude oil prices, pushing up their premium to crude to highest since Jan 2023.

·        Rising diesel premium to crude contrasts with base oils’ falling premium to diesel.

·        Trend incentivizes refiners to cut base oils output or pour light-grade base oils back into diesel pool.

·        US base oils exports to Latin America rise to record-high in first five months of 2023.

·        Trend coincides with steady-to-lower base oils imports in key Latin American markets.

·        Trend reflects US base oils’ rising share of Latin America’s base oils imports.

·        Extension of that trend would likely help to limit repeat of supply-build that US refiners faced in 2022.

·        More US supplies likely to move to Latin America in response to firmer-than-expected demand and upcoming plant maintenance in the region over coming months.

·        South Korea’s June base oils exports to US fall to lowest since beginning of February 2021.

·        Slowdown coincides with plant-maintenance in South Korea and weaker US Group III prices and demand.

·        Still-weak US prices and demand in Q3 2023 could incentivize South Korean refiners to maintain lower shipments to the region even after completion of plant maintenance work.

·        South Korea’s June Group III base oils exports to Europe fall to five-month low.

·        Slowdown in shipments follows restart of Group III unit in Spain after maintenance work, and large flow of shipments from Mideast Gulf to Europe.

·        Shipments to Europe could rise in Q3 2023 following restart of Group III unit in South Korea after maintenance work.

·        Any additional flows to Europe could add to signs of oversupply of Group III base oils in the region.

·        Europe’s Group I base oils supply could tighten amid planned/extended plant maintenance work, rise in shipments to Ukraine, loss of Russian shipments, and weak margins.  

·        UK’s May base oils exports extend fall to Europe, extend rise to Africa.

·        Trend reflects structural market change as Europe consumes more premium-grade base oils and Africa lines up alternative supplies following fall in shipments from Russia and Europe.

·        UK’s domestic supply shows signs of rising through Q2 2023.

·        Europe/Baltic base oils exports to Nigeria fall to one-year low in May, reflecting more limited surplus supply and complication of Russian base oils shipments to Africa.

·        Slowdown likely reflects structural change, forcing Nigerian buyers to turn to other markets to cover base oils requirements.

·        Italy’s May base oils output falls to three-month low, lags domestic demand as plant maintenance begins.

·        Pause in surplus base oils exports from Europe since May highlight role of Italy as key marginal supplier of Group I base oils for the region.

·        Trend shows Italy’s lower output leaves regional supply tight; any rise in output leaves region with surplus.