Global base oils arb outlook: Week of 12 Aug

·        US Group II heavy-grade base oil price premium to light grades falls to narrowest in almost two years.

·        Asia’s Group II heavy-grade price premium to light grades rises to widest in more than two years.

·        Contrasting price trends reflect different supply-demand fundamentals and create growing arbitrage opportunities.

·        US Group II heavy-grade premium to light grades narrows more because of strength of outright Group II N100/120 prices than any heavy-grade weakness.

·        US Group II light-grade prices get sustained support from unexpectedly tight supply since start of Q2 2024.

·        Supply tightens because of combination of plant maintenance, rise in Group III base oils output, surge in exports in Q1 2024 and stock-building in Q3 2024. 

·        Asia’s Group II heavy-grade premium to light grades widens more because of strength of outright Group II N500 prices.

·        Asia’s Group II heavy-grade prices get sustained support from firm marine lube demand, and as buyers switch away from Group I heavy neutrals as its availability tightens.

·        Sustained demand for Group II heavy grades shows signs of changing typical pattern of widening then narrowing Group II heavy-grade premium to Group I heavy neutrals.

·        Asia’s Group II heavy-grade premium gets additional support from lower outright prices for light-grade base oils.

·        Group II light-grade prices face pressure from healthy supply and seasonal slowdown in demand in key outlets like India.

·        Availability of Group III base oils supplies at competitive prices adds to pressure on Group II light grades.

·        Weaker fundamentals and lower Group II light-grade prices in Asia contrast with firmer fundamentals and rising Group II light-grade prices in US.

·        Gap between Asia and US Group II light-grade domestic and especially export prices duly grows in Aug 2024 to widest since Q4 2022.

·        Increasingly feasible arbitrage to Americas would help to trim Asia’s light-grade supply surplus and to ease US light-grade supply-tightness.

·        Any such arbitrage shipments would leave Asia’s light-grade supply more balanced before seasonal pick-up in demand and start of plant-maintenance work in the region from end-Q3 2024.  

·       Asia’s Group II heavy-grade premium to light grades could then start to narrow in response to more balanced light-grade supply.

·       US Group II heavy-grade premium to light grades could then start to widen in response to more plentiful light grade supply.