US base oils and lube stocks rose in July to a five-month high as a slump in domestic demand countered lower output and surging exports.
Base oils and lube inventories of 11.47mn bl (1.62mn t) in July rose by 778,000bl from 10.69mn bl the previous month, according to the EIA.
The size of the increase was the largest in 11 months.
The rise in supplies left total inventories up 20pc from year-earlier levels.
US base oils and lube stocks rose at a time of year when inventories typically build amid a seasonal slowdown in activity during the summer-holiday months.
Concern about weather-related supply disruptions during the Atlantic hurricane season added to the incentive to hold more supplies.
Inventories rose this July even as base oils and lube output fell and exports rose to their highest in more than four years.
A slump in domestic base oils and lube demand to a record-low outweighed the impact of the drop in volumes.
The trend showed signs of extending into the following months.
Expectations that base oils prices had peaked curbed buyers’ urgency to secure more supplies and instead added to a preference to hold off.
Falling crude and diesel prices during the third quarter of the year contrasted with steady domestic base oils prices. The trend widened the base oils premium to diesel and crude even as inventories rose.
The widening base oils premium increased the incentive for refiners to produce more base oils and for buyers to hold back.
Easing supply tightness in overseas markets and a pick-up in arbitrage cargoes to markets like Latin America and Africa raised the prospect of trimming demand for base oils shipments from the US.
Plant-maintenance work in the US in the coming months is expected to curb the size of any supply surplus.
At the same time, US stocks still rose in July even with ongoing plant maintenance work.
