Americas/EMEA base oils – week of July 3: Supply outlook

·        Diesel prices hold steady versus crude oil, well up from recent lows in April, well down from highs in 2022.

·        Firmer diesel values and weaker base oils export prices incentivize refiners to focus more on middle distillates production to limit base oils surplus.

·        US supply shows signs of rising in early Q2 2023, reflecting importance of export market to clear persistent surplus.

·        US base oils supply likely to get boost in coming weeks following completion of plant maintenance work and as domestic demand faces seasonal slowdown.

·        US market likely enters Q3 2023 with smaller supply surplus than at start of Q2 2023 after wave of exports cuts supply overhang.

·        US refiners would need to maintain lower output or higher exports to counter impact of seasonal slowdown in domestic demand.

·        Argentina’s base oils supply falls to ten-month low in May on simultaneous drop in domestic production and imports.

·        Slowdown in imports highlights closed arbitrage from markets like Asia and Mideast Gulf, leaving Argentina reliant on US for almost all its overseas supplies.

·        Slowdown in Argentina's base oils production could reflect recent dip in domestic lube demand.

·        Signs of artificial pick-up in Argentina’s lube demand in Q2 2023 could leave base oils supply tight.

·        Europe’s Group I base oils supply likely to stay lower in Q3 2023 amid plant maintenance work at several plants in Mediterranean region, combined with loss of Russian supplies.

·        Europe’s base oils supply shows signs of rising in early Q2 2023, cushioning impact of subsequent plant maintenance work.

·        Italy’s April base oils output rises at same time as demand stays lower, leaving more surplus supplies to move to outlets like West Africa.

·        Italy shows signs of persistent large surplus of Group I base oils when domestic production operates normally.

·        Trend points to structural base oils surplus and boosts attraction of cutting production capacity.

·        Extended shutdown or closure of Group I base oils capacity in Italy leaves European market short, especially following removal of Russian supplies from regional market.

·        Trend creates dilemma for refiners targeting firmer margins and for blenders seeking stable supplies.

·        Prospect of drop in surplus Group I supplies from Italy creates dilemma for buyers in West Africa as they seek alternative cargoes in place of shipments from Russia.

·        Spain’s April Group I base oils output falls as refiners boost production of diesel.

·        Refiners face conflicting signals as strong base oils values versus diesel and crude incentivize higher output, while weak lube demand incentivizes lower output.

·        UK’s April base oils exports rise to EU, slump to non-EU markets like Africa.

·        Trend coincides with steep premium of Europe base oils prices vs export prices, incentivizing refiners to focus on regional demand.

·        Persistence of wide regional base oil premium vs export prices into start of Q3 2023 set to maintain incentive for European refiners to limit exports to more distant markets.

·        Slowdown in UK base oils exports contrasts with surge in UK’s April base oils supply, raising prospect of supply-build to clear over following months.