Global base oils arb outlook: Week of 24 June

·        Europe’s Group I domestic base oils prices outperform Group II prices and Group III prices in Q2 2024.

·        Strength of domestic Group I prices relative to other grades reflects increasingly tight supply fundamentals that outweigh demand.

·        Europe’s domestic Group I prices maintain or revert to relatively small premium to Group I export prices in Q2 2024.

·        Relative strength of Group I export prices reflects signs of even tighter Group I supply fundamentals for overseas markets.

·        Refiners’ focus of prioritising domestic market shows signs of extending to other markets where Group I supply is tighter.

·        Trend raises prospect of magnifying impact of tighter Group I availability in markets that are reliant on imports of the product to cover requirements.

·        Europe’s Group I domestic SN 150 discount to Group II and Group III base oils narrows in Q2 2024, reflecting tighter supply fundamentals compared with premium grades.

·        Europe’s Group I domestic SN 500 premium to export prices steadies at less than $100/tonne in June 2024, down from average levels of around $220/tonne in Q1 2024 and more than $150/tonne in Q4 2023.

·        Smaller domestic premium reflects even tighter supply-demand fundamentals for export market as refiners prioritise requirements in regional market.

·        Italy’s base oils exports account for at least 86% of country’s total consumption of domestic base oils in 2021-2023, when surplus supply was more plentiful.

·        Italy’s base oils exports’ share of country’s total consumption falls to close to 80% in Q1 2024 as surplus supply tightens.

·        Focus on domestic market extends to other markets where Group I supply has tightened, such as Asia.

·        Asia’s Group I base oils exports from Japan, Indonesia and Thailand fall by almost 50% in first four months of 2024 from year-earlier.

·        Japan’s base oils exports slump in 2024 following Group I plant closure in Q4 2023.

·        Japan’s base oils exports account for 20% of country’s output in first four months of 2024, versus 25% share in 2023 and 31% share in 2022.

·        Tighter availability of Group I base oils curbs supply options for buyers in other markets that produce Group I base oils like Singapore and Thailand.

·        Thailand’s base oils demand absorbs more than 25% of country’s domestic Group I base oils output in first four months of 2024, up from 21% share in 2023.

·        Drop in exports from key Group I producers in Europe and Asia cushions impact of tighter Group I supply for local buyers as refiners prioritize domestic market.

·        Drop in exports instead compounds impact of tighter Group I supply for overseas buyers.

·        Narrower price-spread between domestic and export prices in markets like Europe reflects the tighter supply for overseas buyers.

·        Larger impact on export markets adds to incentive for overseas buyers to line up alternative supplies in place of Group I base oils.