Americas/EMEA base oils - week of Oct 9: Supply outlook

·        Diesel price premium to crude holds at lowest in more than two months, even if still much higher than historical levels.

·        Lower outright diesel prices contrast with steady/firm base oils prices.

·        Trend cuts incentive for refiners to redirect surplus base oils/feedstock supplies back into diesel pool.

·        Any subsequent pick-up in supply would coincide with seasonal slowdown in demand.

·        US Group II supply already likely to trend higher amid limited plant maintenance work in Q4 2023.

·        Group I supply in Americas likely to stay tighter because of plant maintenance work.

·        Firm US Group I prices relative to other markets show signs of attracting supplies from European region.

·        US’ July base oils output stays lower than usual even as it rises from June.

·        Lower-than-usual output coincides with slowdown in base oils imports, capping rise in US’ total supply.

·        Muted rise leaves supply lagging demand for sixth time in seven months and US base oils stocks falling to eleven-month low.

·        Drop in supply and stocks at start of Q3 2023 eases concern about supply-build amid seasonal slowdown in demand.

·        Tighter supply gives refiners more leverage to raise prices in response to squeezed margins.

·        US refiners duly raised posted prices in August 2023.

·        Argentina’s August base oils supply falls to seventeen-month low on lower domestic output and imports.

·        Drop in output and imports gives market time to absorb surge in supplies in June and July, easing prospect of large build-up of surplus volumes.

·        Country likely to need to rely more on domestic production to cover Group I requirements amid dearth of arbitrage shipments compared with same time last year.

·        Slowing domestic lube demand boosts attraction for buyers to tap supplies from domestic sources by shortening time between procurement and delivery of supplies.

·        Less feasible arbitrage leaves Argentina more reliant on US to cover requirements from overseas suppliers.

·        Surplus Group I base oils supply around Europe shows signs of improving amid pick-up in flows from Italy, Turkey and Algeria.

·        Flow of Group II supplies from US to Europe shows signs of slowing in recent weeks after surge in shipments in early Sep 2023.

·        Flow of Group III supplies from Mideast Gulf reaching Europe shows signs of rising strongly in Oct 2023 after slowdown in Sep 2023.

·        Europe’s July Group I base oils supply stays lower than usual even as it recovers from June.

·        Tighter supply coincides with lower Group I base oils values versus diesel during Q3 2023, ICIS data shows.

·        Trend points to weak regional demand during that period.

·        Trend suggests prices would have faced even more pressure if supply had been higher.

·        Trend raises prospect of prices facing more pressure if supply rises and demand stays weak.

·        Europe’s July base oils supply from regional markets and from imports from other regions rises from June but stays lower than usual.

·        Total supply stays lower as slide in imports counters pick-up in regional supply.

·        Lower supply cushions impact of seasonal slowdown in regional demand.

·        Trend would need to continue to sustain supply-demand balance.

·        Netherlands’ July base oils supply rises to three-month high on higher domestic output.

·        Supply falls from year-earlier levels as slump in imports outweighs higher domestic output.

·        Drop in imports puts pressure on overseas suppliers to redirect shipments to other markets.

·        Trend likely to continue while Netherlands’ domestic output stays high.

·        Netherlands’ July supply exceeds demand for first time in three months, triggering rise in stocks to three-year high.

·        Rising supply adds to signs of recovery in Europe’s base oils supply in Q3 2023 following slump in output at end-Q2 2023.

·        Europe’s Group II base oils account for largest share of region’s base oils supply in July for first time.

·        Trend likely to continue as Group I market share shrinks.