Americas/EMEA base oils - week of Sep 4: Supply outlook

·        Diesel price premium to crude oil prices corrects lower after sustained surge from early July.

·        Diesel premium to crude stays well above Feb-June 2023 levels, and well above typical levels.

·        Firm diesel premium to crude and weakening base oils premium to diesel/VGO incentivizes run-cuts/extension of plant shutdowns.

·        Squeezed margins likely to have biggest impact on light-grade base oils supplies.

·        Low margins and wide gap between domestic and export base oil prices incentivize refiners to produce sufficient supply to meet term commitments only.

·        Lack of any moves to trim output could trigger rise in US Group II base oils supply.

·        Signs of less workable arbitrage from US to markets like India could increase impact of any such rise in supply.

·        Expected plant maintenance in Americas in coming weeks set to mostly affect Group I base oils.

·        Repeated extension of plant shutdown in Italy raises uncertainty about timing of restart.

·        Any imminent restart of plant would likely boost supply in few weeks’ time, raise prospect of surplus supply during final weeks of year.  

·        US plant maintenance triggers resumption of fall in US’ base oils/lube output in June.

·        Drop in output coincides with fall in base oils imports, cutting US base oils supply in June to third-lowest since early 2021.

·        Drop in supply leaves US refiners better positioned to manage seasonal slowdown in demand during Q3 2023.

·        Argentina’s July base oils supply rises to eighteen-month high on rebound in domestic production.

·        Higher domestic base oils output boosts Group I supplies, covers for closed arbitrage from Europe and Mideast Gulf.

·        Argentina’s higher base oils supply contrasts with slowing domestic lube demand, raising prospect of supply-build and either a drop in domestic output or slowdown in requirements for overseas supplies.

·        Argentina’s Group I requirements likely to sustain minimum domestic base oils output levels.

·        Any slowdown in supply more likely to focus more on premium-grade supplies from overseas markets.

·        Netherlands’ June base oils supply edges up from May, extends sharp fall from year-earlier levels as imports slump.

·        Netherlands’ supply-surge in 1H 2022 weighed on markets through rest of last year, with weak demand compounding impact of overhang.

·        More balanced supply in 1H 2023 raises prospect of avoiding repeat of same scenario in 2H 2023.

·        Singapore takes delivery of more shipments from Netherlands in July and August, after pause in such flows since February.

·        Shipments move to Singapore despite closed arbitrage from Europe to Asia.

·        Shipments could reflect moves to maintain supply-demand balance in Europe market.

·        Spain’s June base oils supply falls to two-year low as dip in Group I output coincides with Group III plant maintenance work.

·        Drop in Group I supply coincides with slump in Italy’s Group I base oils output, raising prospect of tighter-than-usual supplies in Mediterranean market in Q3 2023.

·        UK’s June base oils output falls to fifteen-month low, reversing recent surge in country’s supply in April and May.

·        Firm base oils imports cushion’s UK’s drop in June supplies amid surge in shipments from Netherlands.

·        Trend helps to absorb more supplies from Netherlands and cut surplus supply in both markets ahead of seasonal slowdown in demand in Q3 2023.

·        Group III base oils supplies from Mideast Gulf extend rise in Q2 2023 at same time as demand ebbs.

·        Asia market absorbs growing share of Mideast Gulf Group III supplies in Q2 2023, amid weaker prices in Europe/US.

·        Trend less likely to extend through Q3 2023 as Asia Group III prices fall relative to Europe/US prices.