Americas/EMEA base oils - week of Aug 7: Supply outlook

·        Diesel premium to crude oil extends rise to highest since Q1 2023, to levels well above pre-2022 levels.

·        Strong diesel premium to crude, and sliding base oils premium to diesel, incentivizes refiners to cut base oils output.

·        Light-grade base oils supply could tighten more as refiners redirect supplies back into diesel pool.

·        Any moves to boost diesel or cut base oils output would cushion impact of pause in scheduled plant maintenance work in US over coming weeks.

·        Weak base oils margins could incentivize Europe refiners to extend maintenance work affecting several plants.

·        European supply could get boost from signs of pick-up in flows from Turkey.

·        US’ May base oils supply extends rebound to seven-month high following completion of plant maintenance work.

·        Rise in supply in May increases importance of sustaining open arbitrage and large exports to overseas markets to counter weak domestic demand.

·        US arbitrage shipments to markets like Africa and India continue through June and July.

·        Steady arbitrage shipments point to ongoing surplus, and rapid removal of some of the surplus.

·        Rise in May supply coincides with firmer base oils margins in Q2 2023; slump in margins in Q3 2023 cut incentive to maintain high output.

·        Argentina continues to rely mostly on imports to cover base oils requirements in Q2 2023.

·        Almost all its imports originate from US in Q2 2023, contrasting with lower share in Q1 2023.

·        Trend reflects closed arbitrage from Europe and Asia and competitive US prices in Q2 2023.

·        Trend likely to continue in Q3 2023, with US prices still competitive, Europe prices uncompetitive and Asia prices less competitive than last year.

·        Netherlands’ lower base oils supply in May falls below typical levels, partially balancing out surge in supplies in April.

·        Still-competitive US Group II prices versus Europe prices raise prospect of larger-than-usual shipments to the region.

·        Trend would keep pressure on Netherlands’ base oils supply to stay lower to avoid supply-build during seasonal slowdown in demand during Q3 2023.

·        Netherlands’ May base oils supply includes unusually large volume of Group III base oils from Mideast Gulf and southeast Asia.

·        Repeat of those flows would be more problematic in Q3 2023 following restart of Group III base oils unit in Spain in June 2023.

·        Netherlands’ May base oils supplies include steady, even if low, volumes from China.

·        Before March 2023, Netherlands had previously imported almost no base oils from China.

·        Any extension or expansion of that trend would be structural change that would impact other more established supplies.

·        UK’s May base oils supply rises to highest since Q4 2020, even amid weak domestic and regional lube demand.

·        Rising supply includes pick-up in Group I base oils output at a time when Europe and Africa are seeking to cover for loss of supplies from Russia.

·        Rising Group I base oils output taps firm regional Group I base oils prices in Q2 2023, especially relative to export prices.

·        Rising Group I base oils output coincides with/cushions impact of drop in Group I output in Italy.

·        Rising Group I base oils output reflects widespread repercussions of change in trade flows and production plans to cover demand.

·        UK’s May base oils surplus of supply over demand rises to highest since 2018.

·        Surplus likely to consist more of premium grades than Group I base oils.

·        UK’s rising base oils surplus in Q2 2023 likely to be harder to clear in Q3 2023 when demand faces typical seasonal slowdown.

·        Any lingering surplus could add to slowdown in demand, put more pressure on prices.

·        Group III base oils exports from Spain rebound in July to four-month high.

·        Wave of premium-grade shipments from Mideast Gulf and Asia cushion fall in exports from Spain during plant-maintenance in May-June.

·        Shipments from Mideast Gulf and Asia will need to fall, following resumption of normal exports from Spain in July, to avoid oversupply of Group III base oils in Europe.