Americas

Americas/EMEA base oils - week of Jan 8: Supply outlook

Iain Pocock

·        Steady flow of US arbitrage shipments could limit size of supply-build in US at end-2023/early 2024.

·        US prices send mixed signals to refiners – firm domestic prices vs feedstock/competing fuel prices incentivize refiners to maintain or raise output; weak export prices incentivize lower production.

·        US export prices should have growing influence on production plans amid sustained rise in shipments to overseas markets.

·        US Group III supplies likely to remain plentiful amid wave of shipments from Asia, Mideast Gulf.

·        US’ October base oils supply stays low as plant maintenance work cuts base oils output.

Supply stays low

·        Output likely stayed lower than usual in Nov 2023 amid gradual resumption of normal operations following completion of maintenance work.

·        Low US supply and firm demand curbs speed of any build-up of surplus volumes in Q4 2023, raises prospect of smaller overhang at start of Q1 2024 compared with year-earlier levels.

·        Prospect of pick-up in US base oils imports in Dec 2023 could counter impact of lower domestic production in Q4 2023.

·        Any such trend could result in more plentiful availability of Group III base oils, smaller surplus of other grades.

·        Brazil’s November base oils supply holds firm as higher-than-usual imports cushion low domestic production.

·        Brazil’s November base oils output rises month-on-month for first time in five months, likely to extend recovery following completion of prolonged round of plant maintenance work.

Output edges up

·        Resumption of normal production set to curb Brazil’s requirements for overseas supplies.

·        Brazil’s surge in imports in 2H 2023 had provided a valuable outlet for shipments from the US.

·        Prospect of slowdown in imports set to leave rise in US shipments needing to target other markets instead.

·        Europe’s Group I supply surplus carried over from 2023 likely to be smaller than year-earlier levels.

·        Europe’s Group II supply could get boost as firm prices relative to other markets increases attraction of moving more supplies to the region. 

·        Europe’s Group III supply could get boost from signs of pick-up in shipments from Spain.

·        Shipment of more Group I supplies from Europe to southeast Asia at end-2023 likely to limit size of any surplus of the grade at start of this year.

·        Shipment contrasts with end-2022, when supplies from Europe to southeast Asia consisted of cargoes from Netherlands rather than from Italy.

·        Italy’s October base oils supply rises to 30-month high as output recovers to highest since April 2023.

Output rebounds

·        Italy’s October base oils stocks still fall on firm consumption and exports.

·        Lower stocks and pick-up in flows to Asia curb build-up of Italy’s surplus supplies in Q4 2023, raise prospect of extending that trend into early 2024.

·        Europe typically faces surplus of Group I cargoes at start of each year and need to offer the supplies at competitive prices to clear the shipments.  

·        Any deviation from that trend could curb downward pressure on regional base oils prices.

·        UK’s October base oils supply falls as output slumps to nineteen-month low.

Output slumps

·        Lower output coincides with firm exports to non-Europe markets like Africa.

·        Trend leaves Group I supply tighter in UK and in Europe, countering impact of seasonal slowdown in demand.

·        Trend raises prospect of smaller-than-usual regional Group I supply surplus in Q4 2023 and in early 2024.

·        Europe’s Group II prices move to increasingly steep premium to US export prices, ICIS data shows.

·        Europe’s Group II light-grade differential to US domestic prices rises sharply, adding to attraction of moving more US supplies to Europe.

·        Widening Europe Group II premium to fob Asia prices could attract more supplies from that region too.

·        Netherlands’ October base oils supply falls to seventeen-month low.

Output falls

·        Lower output cuts regional Group II base oils supply at a time of year when regional demand faces a seasonal slowdown.

·        Lower output raises prospect of curbing speed and size of any build-up of surplus supplies in Q4 2023, leaving market better balanced at start of 2024.

Turkey’s July base oils exports rise

China’s Aug base oils output edges up

Pakistan July base oil supply holds firm

Indonesia’s July base oils imports rise

Asia’s lube demand set to slow in Q4