Americas/EMEA base oils supply outlook: Week of 21 April

·         US domestic Group II base oils price premium to feedstock prices holds at more elevated levels.

·         Firm base oils margins incentivize refiners to maintain higher production levels.

·         Outright US domestic Group II prices fall in April 2025, at a time of year when prices typically hold steady or rise.

·         Lower prices point to ongoing surplus supply.

·         Any ongoing surplus supply would coincide with seasonal rise in demand and round of plant maintenance work.

·         Signs of ongoing surplus suggest rise in demand is more muted than usual.

·         Removal of surplus supply in overseas markets could get more complicated amid recent drop in FOB Asia cargo prices.

·         Any further fall in FOB Asia cargo prices would boost feasibility of lining up arbitrage shipments from Asia rather than from US to markets like Latin America.

·         US’ tighter availability of Group II light grades and healthier availability of heavy grades contrasts with Asia’s tighter availability of heavy grades and plentiful availability of light grades.

·         US’ growing share of Pakistan’s Group II heavy-grade base oils imports reflects repercussion of that dynamic.

·         Dynamic could similarly incentivize moves for Asia suppliers to target Americas market with surplus light-grade base oils.

·         Such a scenario could become more attractive amid likely seasonal slowdown in Asia’s base oils demand in coming months.

·         US Group III base oils supply from Asia could dip in coming weeks amid signs of slowdown in shipments from South Korea.

·         Slowdown would follow pick-up in South Korea’s exports to US in Feb-March 2025.

·         Pick-up in shipments likely to boost US’ Group III supplies at start of Q2 2025.

·         Signs of slowdown in South Korea’s exports to US so far in April 2025 would precede plant maintenance in South Korea later in Q2 2025.

·         Any sustained slowdown in shipments would provide opportunity for suppliers from Middle East to fill any shortfall and expand their share of US market.  

·         Scheduled Group III plant maintenance in the Middle East in Q2 2025 could complicate any such moves.

·         Overlapping plant maintenance in Middle East and Asia could instead trigger sharper slowdown in Group III shipments to US.

·         Europe’s base oils prices hold firm vs feedstock/competing fuel prices.

·         Firm margins incentivize refiners to raise or maintain higher output.

·         Europe’s Group I export prices hold at premium or at narrow discount to domestic prices.

·         Narrow gap between export and domestic prices points to still-limited surplus availability of Group I base oils.

·         Tighter regional availability shows signs of curbing flows to other markets like southeast Asia, where Group I supply is also unusually tight.

·         Europe’s Group II base oils supply shows signs of healthy availability from regional and overseas sources.

·         Europe Group II base oils prices strengthen vs VGO, vs Group I prices and vs US and Asia prices in H2 April 2025.

·         Europe’s Group II price-strength points to firm supply-demand fundamentals, incentivizes overseas suppliers to eye Europe as increasingly attractive outlet for surplus cargoes.

·         Regional demand would need to be sufficiently strong to absorb any such additional shipments.

·         Alternative could be rise in surplus supplies.

·         Europe’s Group III base oils supply could tighten in coming months because of overlapping plant maintenance in Asia, Middle East and North America.

·         Europe Group III prices hold steadier-to-firmer vs Group II prices, vs US prices and vs VGO in recent weeks.

·         Steady-to-firmer price differentials could reflect more balanced supply-demand fundamentals.