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The global base oils surplus narrowed for a second straight month in June as supply disruptions more than offset slower demand growth
Global base oils demand rose for a 12th straight month in June, but growth slowed to less than 5% for a second month from an average of more than 15% in the seven months to March
A smaller surplus and ongoing disruptions could limit the usual third-quarter build, leaving fewer arbitrage shipments available heading into the fourth quarter
The global base oils supply surplus narrowed in June for a second straight month as ongoing supply disruptions more than offset slower demand growth, leaving the market with a smaller-than-usual overhang heading into the third quarter.
The start of the third quarter typically brings a seasonal slowdown in demand and a growing supply surplus, leaving more supply available for shipment to other regions. This year, supply entered that period tighter than usual and under pressure from ongoing disruptions.
The surplus fell to less than 150,000 tonnes in June from more than 220,000 tonnes in May, the second-lowest level in three years, EIA, ANP, METI, Petronet and other government data showed.
The lowest point during that period came in March, when a temporary surge in demand from buyers covering against supply disruptions squeezed the surplus even further.
The June squeeze came from falling supply rather than a surge in demand, as demand growth slowed sharply from the pace seen earlier in the year.
Key Highlights
· Demand across the Americas rose 4%, as a rebound in US consumption offset a 7% drop in Latin America.
· Europe's lubricants demand fell 4% in June, a second straight monthly decline, after rising for three straight months to April.
· Asia's lubricants demand outside China fell 2% in June, a second straight monthly decline.
· The global surplus edged up in the second quarter from the first, but was still the second-lowest quarterly level since the start of 2022.
· The second-quarter surplus of less than 680,000 tonnes fell from 900,000 tonnes a year earlier to the smallest volume for that period in at least five years.
· The surplus has peaked in the third quarter in four of the previous five years and rose by more than 40% from the second quarter in each of the previous two years.
Market Repercussions
The third quarter has typically been when the market's surplus peaks, as supply outpaces seasonally slower consumption.
A smaller surplus at the start of the quarter and ongoing supply disruptions leave less room for that seasonal build this year. That could leave the market heading into the fourth quarter from a lower base, with less surplus to clear after the summer lull.
Fewer excess barrels would reduce the need for and availability of arbitrage shipments during that period, leaving markets with tighter balances more exposed should local supply fall short.
