Global base oils arb outlook: Week of 13 October

·         Asia Group I heavy-neutrals price falls vs ex-tank UAE price since early-August to widest discount in more than two years.

·         Wider price-discount facilitates arbitrage to move surplus supplies from Asia to Middle East.

·         Asia’s surplus Group I supplies rise amid pick-up in imports from other regions like Europe, as well as recovery in output in markets like Thailand after plant-maintenance work.

·         Thailand’s surplus of Group I supply over demand rises to three-year high in Aug 2025, reflecting that dynamic.

·         Rapid adjustment in Asia’s Group I prices relative to other markets helps to remove surplus supply from the region.

·         Rapid adjustment in Asia’s Group I prices complicates arbitrage opportunities to clear any surplus Group I supplies from Europe.

·         FOB Europe Group I SN 500 price weakens vs CFR India price throughout most of Q3 2025, before strengthening from H2 Sept 2025.

·         Europe’s firmer Group I export prices relative to other regions in recent weeks could point to more balanced supply-demand fundamentals and easing pressure to clear any surplus.

·         Any such balanced fundamentals would contrast with signs of persistent surplus Group I supply throughout Q3 2025.

·         Rise in Group I supply at start of Q3 2025 precedes seasonal fall in demand over following weeks, reflecting that dynamic.

·         Europe’s firmer Group I export prices could alternatively reflect reluctance to offer supplies at price-levels required to be competitive vs shipments in other regions.

·         Any such reluctance to adjust export prices could help to maintain rangebound export-price-differentials vs Europe's domestic prices, limiting downward pressure on domestic prices.

·         Any such reluctance to adjust export prices would also limit arbitrage opportunities, leaving more surplus supplies lingering in Europe for longer.

·         Persistent surplus within Europe could still put more downward pressure on region’s domestic prices.

·         Europe’s domestic Group I prices weaken vs export prices in Sept 2025 amid pressure from persistent surplus in regional market.

·         Scenario suggests that sellers face choice of Group I export prices holding firmer vs other regions, with more manageable downward pressure on domestic prices.

·         Scenario would raise prospect of Group I base oils output holding firmer and market facing more persistent surplus supply.

·         Alternative choice is more competitive Group I export prices vs other regions that help to remove surplus supplies from Europe.

·         Scenario would raise prospect of more squeezed base oils margins and more pressure to adjust output accordingly.