Americas/EMEA base oils - week of Sep 11: Supply outlook

Americas/EMEA base oils - week of Sep 11: Supply outlook

·        Diesel prices stay unusually firm versus crude oil, even if down from recent peak in late Aug.

·        Firm diesel prices contrast with weak base oils values, incentivizing refiners to focus on middle distillates production.

·        Americas market faces plant maintenance work in coming weeks affecting Group I supplies.

·        US market faces possibility of weather-related supply disruptions during peak period of Atlantic hurricane season.

·        US refiners show signs of limiting supply-build during Q3 2023 amid high export volumes.

·        US’ June base oils/lube supply already lags demand for fifth time in six months.

Supply lags demand
Supply lags demandEIA

·        Supply shortfall reflects impact of plant maintenance work throughout most of 1H 2023 and as firm exports cushion domestic demand weakness.

·        Supply shortfall leaves market more balanced ahead of seasonal slowdown in demand during Q3 2023.

·        US’ July base oils exports rise close to record-high levels.

Exports rebound
Exports reboundUS Census Bureau

·        High volumes counter seasonal slowdown in domestic demand, add to prospect of more balanced supply in Q3 2023.

·        Brazil’s July base oils supply stays high, maintaining surplus over demand close to nine-month high.

·        Higher-than-usual surplus for second month triggers supply-build ahead of scheduled plant maintenance in the country.

·        Europe’s base oils market shows signs of staying tight for Group I supplies, contrasting with readier availability of Group II and Group III base oils.

·        Europe’s June Group I base oils supply falls to multi-year low on slump in output, dearth of imports from Russia.

Group I supply slumps
Group I supply slumps

·        Lower supply balances out impact of weak regional demand, curbs surplus volumes for other markets, raises prospect of balanced-to-tight supply in Q3 2023, when demand faces seasonal slowdown.

·        Group II base oils accounts for record-high share of Europe’s base oils supply in June, while Group I accounts for record-low share.

Group II share rises
Group II share rises

·        Trend highlights region’s ongoing transition from Group I to Group II base oils.

·        Netherlands’ June base oils supply lags demand for second month.

Supply lags demand
Supply lags demandCBS Statline

·        Supply shortfall in June mirrors other key markets in Europe, adding to signs of balanced-to-tighter regional supply heading into Q3 2023, when demand typically slows.

·        Trend raises prospect of smaller regional supply-build in Q3 2023.

·        UK’s June base oils supply lags demand by widest margin since Jan 2020.

Shortfall surges
Shortfall surgesDepartment for Business, Energy and Industrial Strategy, HMRC

·        Surge in UK’s supply shortfall reverses supply-build in April and May, leaves fundamentals more balanced at start of Q3 2023.

·        Sharp reversal in UK’s supply-demand dynamics highlights speed with which sellers can clear surplus even at a time of weaker demand.

·        Trend highlights more muted competition for access to Africa market amid slowdown in shipments from Russia.

·        Europe’s Group III base oils supply shows signs of easing as drop in premium-grade exports from Spain in August coincide with lower volumes from Asia-Pacific.

Exports drop
Exports dropPort data

·        Lower supply would follow weaker regional Group III prices in recent months in face of slack demand, healthy availability.

·        Lower supply would help to rebalance Europe's weaker supply-demand fundamentals in recent months.

Americas/EMEA base oils - week of Sep 11: Supply outlook
Global base oils - week of Sep 11: Price outlook - arbitrage

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