Global base oils arb outlook: Week of 13 May

·        Europe’s Group I base oils export prices rise sharply since early March 2024.

·        Export prices rise faster than Europe’s domestic prices and faster than prices in other regions.

·        Prices rise because of tighter availability of surplus Group I base oils supply for export.

·        Europe’s higher prices and prospect of supply staying tighter incentivize buyers in overseas markets to line up alternative shipments from other regions.

·        Unusual flow of shipments from suppliers like US and China to outlets like Africa point to initial signs of such a structural change in trade flows.

·        Europe’s Group I base oils exports prices surge relative to domestic prices; brightstock flips to steep premium to domestic prices.

·        Export prices rebound as closure of Group I plant in Italy adds to increasingly tight regional supply of Group I base oils.

·        Europe’s rebounding export prices and tight supply curb arbitrage opportunities to overseas markets.

·        Europe’s export price for Group I SN 500 flips back to widening premium to CFR India SN 500 prices, from a steep discount in Q1 2024.

·        Widening premium and tighter supply boosts attraction for Indian buyers to line up Group I supplies from other sources like Russia.

·        India’s base oils imports from Russia duly surge in Q1 2024.

·        Europe’s rebounding export prices and tight supply facilitate arbitrage opportunities from other regions.

·        Premium of Europe Group I SN 500 export price over US Group II heavy-grade export price holds close to highest since mid-2022 even after recent recovery in US export prices.

·        Europe’s Group I brightstock export price flips to premium to US bright stock price in recent weeks for the first time since 2022, from discount of more than $300/tonne in Q1 2024.

·        Europe’s widening Group I base oils premium to US Group I and Group II prices boosts attraction for buyers in markets like Africa to secure supplies from other sources instead, like US, China and Saudi Arabia.

·        US’ February base oils exports include largest cargo to Kenya in more than eight years.

·        US’ March base oils exports include second unusually large cargo to Morocco in five months.

·        US exports to Morocco totalled less than 500 tonnes in the eight years before Nov 2023. 

·        Europe is typically the largest supplier for markets like Morocco, Egypt and Kenya.

·        China’s March base oils exports include shipment to Egypt for first time in at least seven years.

·        Unusual trade flows likely to become more regular as shipments cover for the fall in Europe’s structural base oils supply.

·        Changing trade flows in turn provide valuable opportunity for refiners in other markets to develop new outlets in a structurally oversupplied global market.