Global base oils arb outlook: Week of 16 June

·         US Group III 4cSt base oils price rises in June to highest level in almost nine months.

·         US Group III 4cSt price rises relative to Group II base oils, relative to feedstock prices and relative to other regions.

·         US Group III price-strength coincides with tighter global Group III supply-demand fundamentals and growing number of signals reflecting those tighter fundamentals.

·         US Group III 4cSt base oils price-premium to Group II N100 rises to highest since May 2024.

·         Group III 4cSt premium to Group II N100 previously held unusually low and in narrow range since late-2024.

·         US Group III 4cSt base oils price premium to vacuum gasoil rises in early-June to highest since Sept 2024.

·         US Group III 4cSt base oils price flips to premium to FOB Asia price in early June for first time in ten months.

·         US Group III 4cSt base oils price discount to Europe Group III price strengthens to narrowest level in almost two months.

·         US Group III price-strength follows similar but earlier rebound in Europe Group III 4cSt (low) price levels.

·         Europe Group III 4cSt (low) price begins to recover relative to Group II N150 from mid-March 2025 after falling to weakest level in almost four years.

·         Europe Group III 4cSt (low) price discount to Group III 4cSt (high) price begins to narrow from around mid-April, before extending trend over following weeks to narrowest level since H1 Feb 2025.

·         Firmer Europe Group III prices coincide with heavy round of Group III plant maintenance in Middle East in Q2 2025, as well as maintenance work in South Korea.

·         Europe faces exposure to that plant-maintenance work.

·         Group III base oils imports from Middle East and South Korea account for some 45% of Europe’s supply of the premium-grade base oils in 2024 and 49% in Q1 2025.

·         Europe’s firmer Group III prices partly reflect impact of the maintenance work even as supply from other sources cushions its impact.

·         US also faces exposure to plant maintenance work in Middle East and South Korea.

·         Group III base oils imports from Middle East and South Korea account for close to 80% of US’ total imports in 2024 and Q1 2025.

·         That share rises to 84% of US imports in April 2025.

·         US Group III base oils price maintains discount to Asia and Europe prices throughout most of past year.

·         US Group III base oils price maintains discount despite reliance on imports for most of its Group III supplies.

·         US Group III price discount instead incentivizes overseas refiners to move more shipments to other markets rather than US.

·         Overseas refiners’ incentive to move more shipments to other markets complicates moves to build stocks in US market to cover requirements during plant-maintenance work in Q2 2025.

·         Later rise in Group III prices in US than in Europe could point to reluctance to build stocks in face of weak demand and concern about extent of slowdown in activity in automobile sector.

·         Either way, US’ reliance on imports for most of its Group III supplies, and belated rise in its Group III prices, raise prospect of magnifying impact of tighter supply caused by plant-maintenance work.