Americas/EMEA base oils - week of May 8: Supply outlook

·        Diesel premium to crude oil holds at lowest in more than a year.

·        Weak diesel premium contrasts with high base oils premium to diesel, incentivizing refiners to boost output of the lubricant feedstock.

·        Any additional rise in US base oils output raises prospect of adding to surplus supply.

·        US supply surplus likely to shrink on wave of arbitrage shipments to markets like India, upcoming plant maintenance later in Q2 2023, and firmer domestic demand.

·        US supply-surplus lingered into Q2 2023 even with drop in output in Q1 2023.

·        US base oils stocks barely fell in February even as plant maintenance work slashed output.

·        US producers previously cleared surplus supplies early in the year, giving them more leverage to raise prices in late Q1/Q2.

·        Large lingering surplus supply removed that leverage this time – highlighting importance of removing surplus volumes earlier in the year.

·        Signs of lower Latin America base oils production gives US producers opportunity to move more supplies to that region.

·        Brazil’s March base oils supply falls to thirteen-month low at same time as demand rises.

·        Argentina’s March base oils output falls to five-month low, increasing need for imports to make up shortfall.

·        Signs of ongoing arbitrage flows from Asia to Latin America curb benefit for US producers to plug shortfall.

·        Trend highlights ongoing impact of arbitrage flows from Asia to Latin America and need for longer-term strategic response by US producers. 

·        Europe’s supply surplus clears faster than US surplus, leaving refiners with more leverage to target higher prices in Q2 2023.

·        Europe’s more balanced supply coincides with likely pick-up in demand to cover rising lube consumption.

·        Trend adds to refiners’ leverage over prices.  

·        Drop in Europe base oils output in Q1 coincided with slump in prices that boosted overseas demand.

·        Drop in US base oils output in Q1 coincided with less competitive US prices, curbing overseas demand and slowing clear-out of surplus supplies.

·        Netherlands’ February base oils supply fell as imports dipped and output fell to eight-month low.

·        UK’s February base oils output fell to five-month low.

·        Lower supply added to regionwide fall in base oils output in February, curbing impact of weak demand and leaving market more balanced in Q2 2023.

·        Regional base oils prices started to stabilize in February, reflecting impact of dwindling supply surplus.

·        Europe’s Group II supply likely fell sharply in March at same time as demand began to revive.

·        Slowdown in European arbitrage shipments to markets like India/Mideast Gulf/Africa reflect more limited surplus supply.

·        Drop in European cargoes provides opportunity for US producers to target all those markets instead.

·        European producers will need to regain access to those outlets when supply surplus starts to build again.