· US Group II base oils export price premium to feedstock prices stays unusually low.· Widening US export price discount to prices in other regions points to ongoing supply surplus.· Weak margins and ongoing supply surplus incentivize US refiners to trim run rates.· Persistent supply surplus so far this year points to scant moves to trim run rates.· Scant moves to trim run rates suggest that profitability of products like Group II heavy grades for domestic market remains sufficient to counter price weakness of other grades. .· US already sees inventories rebound at end-2023 even with surge in exports..· Trend highlights importance of exports to limit pace of supply-build, and that exports alone are insufficient to prevent supply-build if output stays high.· Rising stocks even with high exports highlights need for refiners to adjust output accordingly to limit size of supply-build.· Any lingering supply surplus could muffle impact of any pick-up in domestic demand over coming months.· US Group III base oils could stay well supplied amid signs of pick-up in flows from Mideast Gulf, countering slowdown in flows from South Korea..· Rise in US base oils output at year-end adds to surge in Americas’ base oils supply to seven-month high in Dec 2023..· Rise in supply contrasts with slump in demand, triggering surge in surplus volumes to multi-year high.· Trend adds to pressure on US refiners to maintain high exports or to cut production..· Brazil’s January base oils supply rises to highest since early 2021 on surge in domestic production and imports..· Surge in supply likely to curb Brazil’s requirements for overseas shipments as it works through the overhang.· Any slowdown would cut demand from a market that was a key outlet for surplus US supplies during H2 2023.· Slowdown would instead force US refiners to redirect more supplies to other markets..· Europe’s Group I base oils supply likely to continue to trend lower amid weak margins and imminent plant closure.· Europe’s Group I supply falls to multi-year low in Q4 2023, reflecting the ongoing trend..· Europe’s December Group I supply delays the trend, rebounding from muti-year low in Nov 2023.· Recovery in supply contrasts with fall in supplies of Group II base oils at end-2023.· More plentiful Group I supply and its more competitive price would typically incentivize blenders to use more Group I base oils.· Seasonal slowdown in demand curbs such moves, magnifying price-impact of rise in Group I supply..· Europe’s Group II prices maintain steep premium to US export prices.· Trend keeps arbitrage wide open at a time when regional plant maintenance work and a closed arbitrage from Asia increase Europe’s reliance on supplies from US.· Europe’s Group II base oils supply falls to nineteen-month low in Dec 2023 even before regional maintenance work begins.· Drop in Europe’s Group II supply in Q4 2023 cuts supply-build carried into start of this year..· Drop in Europe’s Group II supply complicates moves to build stocks ahead of scheduled plant maintenance work in Q1 2024.· Drop in supply increases Europe’s reliance on shipments from US to cover Group II requirements.· Drop in supply incentivizes blenders to use more Group I and/or Group III supplies instead.· Drop in supply supports firmer Group II prices vs Group I/Group III prices, adding to incentive to use other grades instead.· Trend highlights attraction for blenders to have flexibility to switch between grades in view of intermittent supply tightness of different grades..· Europe’s Group III 4cst (low) price premium to Group I SN 150 holds steady since Dec 2023, after sustained slide in premium from Q2 2023.· Steadier premium could point to more balanced Group III supply-demand fundamentals.· UK’s December base oils supply stays lower than usual as slump in imports from Netherlands counters recovery in domestic output..· UK’s December supply switches to surplus, balancing out shortfalls during previous two months.· UK’s surplus in Q4 2023 duly falls sharply from Q3 2023 and from Q4 2022.· Trend leaves UK carrying smaller surplus into start of 2024, complicating its ability to provide additional supplies for markets like southeast Asia..Americas/EMEA base oils demand outlook: Week of March 11.Asia base oils supply outlook: Week of March 11.Global base oils margins outlook: Week of March 11.Global base oils arb outlook: Week of March 11
· US Group II base oils export price premium to feedstock prices stays unusually low.· Widening US export price discount to prices in other regions points to ongoing supply surplus.· Weak margins and ongoing supply surplus incentivize US refiners to trim run rates.· Persistent supply surplus so far this year points to scant moves to trim run rates.· Scant moves to trim run rates suggest that profitability of products like Group II heavy grades for domestic market remains sufficient to counter price weakness of other grades. .· US already sees inventories rebound at end-2023 even with surge in exports..· Trend highlights importance of exports to limit pace of supply-build, and that exports alone are insufficient to prevent supply-build if output stays high.· Rising stocks even with high exports highlights need for refiners to adjust output accordingly to limit size of supply-build.· Any lingering supply surplus could muffle impact of any pick-up in domestic demand over coming months.· US Group III base oils could stay well supplied amid signs of pick-up in flows from Mideast Gulf, countering slowdown in flows from South Korea..· Rise in US base oils output at year-end adds to surge in Americas’ base oils supply to seven-month high in Dec 2023..· Rise in supply contrasts with slump in demand, triggering surge in surplus volumes to multi-year high.· Trend adds to pressure on US refiners to maintain high exports or to cut production..· Brazil’s January base oils supply rises to highest since early 2021 on surge in domestic production and imports..· Surge in supply likely to curb Brazil’s requirements for overseas shipments as it works through the overhang.· Any slowdown would cut demand from a market that was a key outlet for surplus US supplies during H2 2023.· Slowdown would instead force US refiners to redirect more supplies to other markets..· Europe’s Group I base oils supply likely to continue to trend lower amid weak margins and imminent plant closure.· Europe’s Group I supply falls to multi-year low in Q4 2023, reflecting the ongoing trend..· Europe’s December Group I supply delays the trend, rebounding from muti-year low in Nov 2023.· Recovery in supply contrasts with fall in supplies of Group II base oils at end-2023.· More plentiful Group I supply and its more competitive price would typically incentivize blenders to use more Group I base oils.· Seasonal slowdown in demand curbs such moves, magnifying price-impact of rise in Group I supply..· Europe’s Group II prices maintain steep premium to US export prices.· Trend keeps arbitrage wide open at a time when regional plant maintenance work and a closed arbitrage from Asia increase Europe’s reliance on supplies from US.· Europe’s Group II base oils supply falls to nineteen-month low in Dec 2023 even before regional maintenance work begins.· Drop in Europe’s Group II supply in Q4 2023 cuts supply-build carried into start of this year..· Drop in Europe’s Group II supply complicates moves to build stocks ahead of scheduled plant maintenance work in Q1 2024.· Drop in supply increases Europe’s reliance on shipments from US to cover Group II requirements.· Drop in supply incentivizes blenders to use more Group I and/or Group III supplies instead.· Drop in supply supports firmer Group II prices vs Group I/Group III prices, adding to incentive to use other grades instead.· Trend highlights attraction for blenders to have flexibility to switch between grades in view of intermittent supply tightness of different grades..· Europe’s Group III 4cst (low) price premium to Group I SN 150 holds steady since Dec 2023, after sustained slide in premium from Q2 2023.· Steadier premium could point to more balanced Group III supply-demand fundamentals.· UK’s December base oils supply stays lower than usual as slump in imports from Netherlands counters recovery in domestic output..· UK’s December supply switches to surplus, balancing out shortfalls during previous two months.· UK’s surplus in Q4 2023 duly falls sharply from Q3 2023 and from Q4 2022.· Trend leaves UK carrying smaller surplus into start of 2024, complicating its ability to provide additional supplies for markets like southeast Asia..Americas/EMEA base oils demand outlook: Week of March 11.Asia base oils supply outlook: Week of March 11.Global base oils margins outlook: Week of March 11.Global base oils arb outlook: Week of March 11