Global base oils arb outlook: Week of 17 March

·         US Group II base oils export prices mostly stay in narrow range vs vacuum gasoil so far this year.

·         US’ steady price premium contrasts with strong rise in Asia Group II base oils export price premium to Singapore gasoil prices so far this year.

·         US Group I brightstock price rises vs vacuum gasoil so far this year.

·         Rising price premium contrasts with surge in Europe Group I brightstock export price premium to VGO so far this year.

·         Base oils price premiums in US, Europe and Asia stay firmer so far this year than in early 2024 amid signs of smaller supply-build at end-2024 and early this year.

·         US base oils stocks rise in Dec 2024 at much slower pace than usual at year-end as high export volumes in H2 2024 limit pace of supply-build.

·         Trend extends into early 2025, with US export volumes holding firm.

·         Europe’s Group I base oils supply dips in Q4 2024 amid lower output and rise in exports.

·         Asia’s base oils supply surplus falls at start of 2025 amid lower regional output and dip in exports from markets like South Korea.

·         Supply surplus falls at a time of year when it usually rises.

·         Signs of more manageable supply surplus supports base oils price premiums in US, Europe and Asia early this year that outperform year-earlier levels.

·         Base oils prices in Europe and Asia also outperform US prices early this year, pointing to other factors providing additional support, such as demand.

·         Asia’s lube demand rebounds at end-2024 and continues to rise early this year.

·         In Europe, firm prices, more balanced supply, blenders’ low inventories and prospect of seasonal rise in lube consumption support pick-up in region’s base oils demand.

·         Improving sentiment about Europe’s economic outlook could provide further support.

·         Investor sentiment and expectations in eurozone rebound sharply in March 2025, according to latest Sentix survey.

·         Rising base oils margins in Asia and Europe point to some such signs of firmer supply-demand fundamentals.

·         In US, steady domestic prices, more balanced supply, blenders’ low inventories and prospect of seasonal rise in lube consumption similarly provide strong basis for pick-up in domestic base oils demand.

·         Buying interest could instead be more cautious amid growing signs of uncertainty about economic outlook and impact of any tariffs.

·         University of Michigan consumer sentiment for US falls in March 2025 to lowest since late-2022 amid growing uncertainty about policy and economic outlook.

·         Any concern that seasonal pick-up in base oils demand could lag expectations would incentivize blenders to limit their procurement plans.

·         Steadier base oils margins in US point to some such signs of supply-demand fundamentals that are more muted than expected, curbing refiners’ leverage to target prices that support higher margins.