Global base oils arb outlook: Week of April 1

·        Europe Group I base oil export prices rise in March 2024, while domestic prices hold steady.

·        Discount of Europe export prices to domestic prices narrows in response.

·        US Group II base oils posted prices and export prices rise in March 2024, while domestic prices hold steady.

·        Premium of posted prices to domestic prices widens further, and export price discount to domestic prices narrows in response.

·        Export prices often fall relative to domestic prices when suppliers face surplus volumes to clear in overseas markets.

·        Export prices often rise relative to domestic prices when surplus volumes dwindle, curbing need to keep arbitrage open.

·        Rising export prices relative to domestic prices in Europe and US coincide with prospect of seasonal pick-up in lube demand in both markets over the coming weeks.

·        Rising export prices relative to domestic prices point to more limited surplus volumes for overseas markets, especially in Europe.

·        Prospect of tighter supply, firmer demand and growing attraction of diverting more supplies to export market gives sellers in Europe more leverage over domestic prices.

·        Europe’s Group I brightstock export price flips to premium to domestic price for first time in almost two years.

·        Brightstock export price surges from discount of more than $200/tonne to domestic price as recently as Feb 2024.

·        Brightstock export price premium incentivizes refiners to boost supplies for export market, cut supplies for regional market.

·        Europe’s Group I light and heavy-neutrals export prices maintain discount to domestic prices.

·        But discount shrinks to narrowest since September 2022.

·        US Group II export price discount to domestic prices narrows at end-March 2024.

·        Unusually wide Group II export price discount since Q4 2023 reflected persistent surplus supply in US market.

·        Unusually wide Group II export price discount and persistent surplus curbed incentive for domestic blenders to lock in additional supplies.

·        Group II export price discount stays wide. But narrower discount points either to firmer overseas demand, or to tighter surplus supply, or to refiners’ preference to hold onto supplies.

·        US refiners’ Group II posted price premium to domestic spot prices rises further in March 2024, with light-grade posted price premium moving to widest level in at least eight years.

·        Wider gap between posted prices and domestic prices typically precedes fall in posted prices or rise in domestic prices.

·        Recent rise in posted prices and US export prices suggest that posted prices are unlikely to fall any time soon.

·        Size of posted price premium to domestic prices and size of export price discount to domestic prices remains unusually wide.

·        Wide posted/export price differential to domestic prices points to still-sufficient supply and still-cautious domestic demand.

·        Trends between domestic and export prices in Europe and US follow similar trajectory.

·        Price signals in Europe, where some export prices are higher than domestic prices, point to tighter fundamentals.

·        Price signals in US, where export prices remain at a steep discount to domestic prices, point to ongoing pressure from surplus supply.