Global base oils arb outlook: Week of 17 Feb

·         Base oils prices hold unusually steady in US, Europe and Asia so far in 2025.

·         Steady base oils prices contrast with more typical fall in prices at start of the year as weak demand complicates moves to clear surplus supply.

·         Steady base oils prices add to signs of smaller-than-usual imbalance between supply and demand at start of 2025.

·         Smaller-than-usual supply-demand imbalance limits opportunity for blenders in some markets to build stocks ahead of spring oil-change season.

·         US/Europe export base oils price premium to vacuum gasoil shows signs of bottoming out earlier and at higher level at start of this year than in 2024.

·         Firmer base oils margins earlier in the year coincide with dip in US base oils exports at end-2024.

·         Dip in exports could reflect less feasible arbitrage and build-up of domestic supplies.

·         Dip in exports could instead reflect more limited availability of supplies for overseas markets.

·         Dip in exports contrasts with surge in US shipments to Mexico in Dec 2024 close to highest in at least a decade.

·         Surge in US exports to Mexico points to availability of surplus volumes.

·         Surge in US exports to Mexico cuts volume of shipments for other markets to five-month low.

·         Dip in shipments to other outlets coincides with steadier-to-narrower US export price discounts to prices in markets like Europe and India.

·         Steadier export price discounts point to waning pressure to adjust prices to make arbitrage more feasible.

·         Dip in shipments to other outlets puts pressure on buyers in markets like India to target other sources instead.

·         Like US and Europe prices, Asia Group II heavy-grade base oil premium to Singapore gasoil shows signs of bottoming out earlier and at higher level than in early 2024.

·         Firmer base oils margins earlier in the year coincide with dip in Asia’s base oils exports at end-2024.

·         Dip in exports coincides with unusually firm lube demand in southeast Asia and India at end-2024.

·         Dip in exports and firm demand at end-2024 cuts supply-overhang carried into start of 2025.

·         Asia’s lube demand likely get seasonal boost in coming months.

·         Seasonal rise in demand set to coincide with protracted round of plant maintenance in Asia in H1 2025.

·         Limited volume of surplus arbitrage shipments from US at end-2024 curbs opportunity for blenders in Asia to build stocks ahead of rise in demand and plant maintenance work.

·         Steady US export prices so far this year suggest availability of surplus arbitrage shipments likely to remain more limited.

·         Dynamic leaves Asia market facing seasonal pick-up in demand, combined with tighter supply in the region, and tighter supply in other markets like US.