· Rising diesel values on outright basis and relative to crude incentivize refiners to produce more middle distillates and cut base oils output.
· US refiners’ moves to raise posted prices for the second time in as many months set to boost base oils values versus feedstock and competing fuel prices.
· Firmer base oils premium would incentivize refiners to maintain or increase production.
· Such a move would coincide with a seasonal slowdown in base oils/lube demand during the final months of the year.
· Demand dynamics suggest that refiners should maintain lower output even with firmer base oils margins.
· Americas Group I base oils supply set to tighten over coming weeks because of overlapping plant maintenance work in US and Brazil.
· US Group II base oils market shows signs of avoiding major supply-build during Q3 2023 on firm exports and as price-increases spur domestic demand.
· US Group II supply could rise in coming months amid lack of scheduled Group II maintenance work and slowdown in arbitrage opportunities.
· US Group III supply shows signs of improving in September as more cargoes from Asia and Mideast move to the country.
· Americas’ June base oils supply falls to three-month low amid sustained slowdown in output throughout region
· Fall in supply outpaces drop in regional demand, curbing build-up of any surplus volumes ahead of seasonal slowdown in consumption in Q3 2023.
· Prospect of higher supply and lower Americas demand in Q3 2023 boosts need for exports to maintain supply-demand balance.
· Pick-up in US base oils exports in July reflects such moves, slowing again any build-up of surplus volumes.
· US’ July base oils exports exceed imports by third-widest margin in sixteen months.
· Trend slows any build-up of surplus supplies in domestic market.
· Trend will need to continue to sustain more balanced supply-demand dynamics in Q4 2023.
· US’ July base oils exports to Europe rebound from June, stay below year-earlier levels amid growing diversification of outlets for US supplies.
· Slowdown in US exports to Europe coincides with/balances out rise in regional Group II supply in Europe, limiting any major supply-build in the region.
· Both trends limit any major supply-build in both markets, limiting downward price-pressure in both markets.
· Trends highlight benefit of larger number of outlets for US supplies, and of responding to clear signs of rising regional supply in Europe.
· Pick-up in US exports to Africa in July reflects its growing importance as source of arbitrage supplies for West African buyers.
· Regularity of those supplies remain susceptible to US prices and to availability of surplus supplies.
· US flows to South Africa likely to hold steadier at higher levels unless Group II suppliers in other regions increase their market share in the African country.
· Europe’s Group I base oils supply likely to stay tight, curbing flow of arbitrage shipments for other markets.
· Europe’s Group II base oils supply likely to get boost from arrival of large shipments from US.
· Europe’s Group III base oils supply gets boost within region, faces prospect of slowdown in flows from Mideast Gulf in September.
· UK’s July base oils exports slump to three-year low; shipments to Africa fall to 35-month low.
· Drop in total exports could reflect more limited surplus supplies after wave of shipments in June.
· Slowdown in flows to Africa highlights more limited supply sources in Europe for the region, and need for buyers to line up alternative sources like US.
· Shipments from UAE and China account for 6pc of UK’s total imports in July.
· Share is record-high and contrasts with almost no supplies from those markets before this year.
· Trend highlights UK’s rising consumption of premium-grade base oils, and overseas suppliers’ growing interest in tapping that rising consumption.