Global base oils arb outlook: Week of 15 April

·        Europe’s Group II base oils price premium to US export prices surges in Q1 2024.

·        Surging premium boosts attraction of moving more arbitrage shipments from US to Europe.

·        Prospect of more arbitrage shipments coincides with shutdown of Europe’s sole Group II base oils unit for maintenance work during Q1 2024.

·        Surging premium and prospect of more arbitrage shipments coincide with seasonal dip in demand in Europe in early 2024.

·        Surging premium to US prices and weak demand coincide with steady fall in Europe’s Group II price premium to feedstock prices through Q1 2024.

·        Fall in Group II premium to feedstock prices points to weak demand and sufficient supply in Q1 2024, even with shutdown of Group II base oils unit. 

·        Those factors affecting supply-demand dynamics now show signs of reversing, with recent rebound in US prices, signs of seasonal pick-up in regional demand, and restart of Group II unit in Europe.

·        Europe’s Group II N150 premium to US export prices falls to close to $300/tonne in H1 April 2024, from more than $400/tonne in March 2024.

·        Narrowing Group II premium cuts attraction of lining up more arbitrage shipments from US to Europe.

·        Volume of US shipments to Europe shows signs of staying steady-to-low in Q1 2024 even with wide-open arbitrage during that period.

·        Relatively low volumes from US and Group II plant shutdown in Europe likely keep region’s Group II supply lower than expected during Q1 2024.

·        Europe’s Group II light-grade base oil premium to feedstock prices falls to five-month low in March 2024 even with tighter-than-expected supply.

·        Weaker Group II base oil premium to VGO coincides with seasonally weak demand at start of the year.

·        Weaker Group II base oils premium to VGO could also reflect impact of Europe’s steep Group II premium to US prices and expectations of sharper pick-up in supplies from US.   

·        Europe’s steep Group II premium to US prices and expectations of sufficient supply in Q1 2024 complicate any moves to adjust prices during that period.

·        Europe’s narrowing premium to US prices in recent weeks, signs of tighter-than-expected Group II supply in Q1 2024 and a seasonal pick-up in demand could reverse some of those complications.

·        Recent restart of Europe’s Group II base oils unit conversely raises the prospect of boosting regional supply and countering impact of any slowdown in US shipments to Europe.

·        Even so, with less competition from supplies in US and Asia, fundamentals factors in Europe rather than in other regions are likely to have a larger impact on Europe’s Group II prices over the coming months.