Global base oils arb outlook: Week of 15 July

·        US base oils export prices hold firm vs domestic prices and versus prices in other regions.

·        Firm export prices keep arbitrage shut to outlets like Africa and India.

·        Europe’s base oils export prices hold firm versus prices in other regions, keeping arbitrage shut.

·        Firm prices and closed arbitrage point to more limited volume of spot cargoes to clear.

·        Surplus supply often starts to build in US, Europe and Asia in response to seasonal dip in demand during summer months.

·        Prices in those markets typically fall relative to prices in destination markets to open the arbitrage and remove the surplus.

·        More limited surplus supply could ease pressure on prices in those source markets to adjust in order to open the arbitrage.

·        More limited arbitrage shipments could instead put pressure on buyers in those outlets to adjust strategies to secure supplies.

·        US export price discount to domestic prices stays narrower since end-Q1 2024.

·        US export Group II price premium to CFR India prices continues to widen, contrasts with steep discount to CFR India prices in five months to late-May 2024.

·        Firm US export prices keep shut the arbitrage to outlets like India.

·        Firm export prices vs domestic prices and closed arbitrage to overseas markets point to tighter surplus supply.

·        US base oils/lube exports fall in April-May 2024 vs Q1 2024, reflecting that dynamic.

·        US base oils/lube exports fall in May 2024 to lowest in seven months as plant maintenance and firmer domestic demand tighten supply.

·        Domestic buyers’ moves to pad stocks to cover against weather-related supply disruptions likely to support demand well into start of Q3 2024.

·        Europe’s Group I export prices stay unusually firm vs domestic prices heading into Q3 2024.

·        Europe Group I export prices maintain premium to prices in outlets like Middle East and India.

·        Europe’s Group I base oil exports to markets outside EU already trend lower in first four months of 2024 as refiners focus on regional demand.

·        A drop in arbitrage shipments from US and Europe in Q3 2024 would curb supply options in markets like Africa and India ahead of seasonal pick-up in demand at end of the quarter.

·        Dynamic would limit pressure on FOB prices to adjust in source markets like US and Europe.

·        Dynamic would instead put pressure on CFR prices to adjust in destination markets in order to open the arbitrage.