Global base oils arb outlook: Week of 21 Oct

·        Asia’s Group II base oils prices strengthen relative to US prices in recent weeks.

·        Price strength coincides with signs of tighter-than-usual supply in Asia at end-Q3 2024.

·        Asia’s base oils supply surplus falls sharply in Aug 2024 from previous month, after already staying low in Q2 2024.

·        Asia’s base oils supply surplus likely tightened even more in Sept 2024 as plant maintenance work in South Korea cut output.

·        South Korea’s base oils exports fall in Sept 2024 to lowest in more than a decade, reflecting drop in supply.

·        Tighter supply in Asia curbs typical wave of arbitrage shipments that market often faces during third quarter to clear surplus volumes.

·        Lack of arbitrage shipments curbs opportunity for buyers in markets like India and Middle East to replenish stocks at competitive prices.

·        CFR India Group II prices instead rise relative to FOB NE Asia prices in recent weeks.

·        CFR India Group II prices also strengthen relative to US export prices in recent weeks, narrowing their discount to US prices.

·        US market also shows signs of smaller-than-expected surplus at end-Q3/early Q4 2024.

·        Tighter-than-expected availability in Asia and US could boost interest in supplies from Europe.

·        Europe’s base oils supply outpaces demand in July 2024 for third month in a row.

·        Europe’s lube demand extends steep contraction in Aug 2024.

·        Trend raises prospect of Europe’s base oils supply continuing to outpace demand in Aug 2024.

·        Europe’s premium-grade base oils prices maintain steep premium to prices in other regions like US and Asia in early Q4 2024.

·        Firm prices sustain attraction for overseas refiners to move more supplies to Europe, where demand is shrinking.

·        Dynamic could extend rise in Europe’s surplus supplies beyond Aug 2024.

·        Any such sign of rising surplus supplies could attract interest from buyers facing tighter-than-expected supplies from refiners in Asia and US.

·        Any such sign of rising surplus supplies could trigger more price adjustments that make arbitrage flows more feasible from Europe to those buyers’ markets.