Americas/EMEA base oils - week of Oct 16: Supply outlook

·        Diesel price premium to crude oil holds at levels that incentivize refiners to focus on producing more middle distillates.

·        US base oils price premium to heating oil/VGO stays low vs levels over past year, well above levels in mid-Sep 2023.

·        Recent recovery in price premium could curb incentive to trim base oils run-rates.

·        US Group I base oils supply likely to stay tighter amid plant maintenance work.

·        US Group II base oils supply could trend higher amid lack of scheduled plant maintenance work.

·        US Group III base oils imports show signs of rising in Sep 2023 from previous month, before slowing in Oct 2023.  

·        US’ August base oils exports fall to six-month low on dip in shipments from Mobile, Alabama and Port Arthur, Texas.

·        Drop in shipments contrasts with surge in exports this year that cushioned impact of lower domestic demand.

·        Drop in August exports could reflect tighter domestic supply at a time when base oils margins were unusually weak.  

·        Drop in August exports could reflect firmer-than-usual domestic demand as higher posted prices incentivized blenders to replenish stocks before higher prices came into effect.

·        Either way, drop in August exports increased importance of US’ domestic market in limiting size of any supply-build.

·        Several cargoes load from US in September bound for North/West Africa, suggesting refiners continue to focus on both export and domestic markets to manage supply.

·        US’ August base oils exports to Europe slump, extending pattern of sharp rise then fall in shipments to Europe every month since April.

·        Trend shows signs of extending into September amid signs of pick-up in US shipments to Europe.

·        US exports to Europe fall so far in 2023 even with volatile flows.

·        Trend helps to maintain more balanced premium-grade supplies in Europe so far this year.

·        Trend relies on pick-up in shipments to other regions like Latin America.

·        Trend likely to continue while demand in Europe stays weak and arbitrage from Asia to Americas stays more limited than last year.

·        Americas’ July base oils output rises on higher production in US and Latin America.

·        Any extension of that trend would put pressure on regional lube demand to keep pace, especially as higher US prices make arbitrage less feasible to outlets like India.

·        Europe’s Group I base oils supply likely to improve on closed arbitrage, recovery in Italy supplies.

·        Improvement in Europe’s Group I base oils prices vs gasoil/VGO over past month ease pressure on refiners to cut production.

·        Europe’s Group II base oils supply shows signs of slowdown in shipments from US in October.

·        Still-weak Europe Group II prices vs VGO maintain incentive for refiners to focus on boosting output of other products like diesel.

·        Europe’s Group III base oils supply from Mideast Gulf shows signs of improving in Oct 2023 vs previous month.

·        Turkey’s base oils supply rises sharply in 2023 amid rising imports and domestic base oils production.

·        Rising base oils supply coincides with slowing economic growth, high inflation and high interest rates.

·        Rising supply and signs of slower demand raise prospect of pick-up in Turkey’s base oils exports or drop in imports or domestic production over coming months.

·        Turkey’s exports of premium-grade base oils surge since June 2023, despite country’s lack of premium-grade production capacity.

·        Destinations for premium-grade supplies from Turkey include Nigeria, Spain and US.

·        Average price of premium-grade exports is at steep discount to price of Group I base oils exports.

·        Price suggests the exports are unlikely to be conventional premium-grade base oils.