· Fall in US and Europe base oil export prices so far this year widens their discount to other regions.· Lower base oil export prices cut their premium to competing and feedstock prices.· Price trends create unusual arbitrage opportunities that highlight differentiators such as competitive feedstock costs and freight rates, and strategy of buying before selling.· India’s January base oils imports include rare and unusually large cargo of Russian origin..· Shipment was first cargo-sized volume from Russia to India in more than two years and the largest in more than seven years.· Cargo was likely lined up before sharp fall in Europe’s Group I export prices in H1 Jan 2024.· Cargo was lined up at a time when it faced less competition from supplies from Europe.· Cargo coincided with and covered for slowdown in Group I base oils supply from Asia at end-2023 and early 2024.· Asia’s Group I supply fell because of combination of a plant closure, scheduled maintenance work and stock-building in China before lunar new year holidays..· In the premium-grade market, South Korea’s January base oils exports included rare and unusually large cargo to Nigeria..· Shipment was second from South Korea to Nigeria in as many months.· Shipment was the fourth from South Korea to Nigeria in more than a decade and the largest ever..· Cargo was lined up at a time when the premium of fob Asia Group II very-light grade prices to regional diesel prices had fallen sharply in late-2023.· The premium of cfr India Group II N70 prices over Asia gasoil prices fell to around $120/t in Dec 2023, from more than $220/t in H1 Nov 2023.· The N70 premium to gasoil extended its fall in Jan 2024 and Feb 2024 to less than $100/t.· Excluding freight costs to India, the N70 premium to Asia gasoil prices was even narrower..· The narrower gap between Group II N70 base oil prices and Asia gasoil prices made more feasible the opportunity to procure the supplies more rapidly and to manage the risk of procuring the supplies.· Arbitrage cargo trades typically take place when the price gap between the origin and destination markets is wide enough to cover the various costs involved in the shipment.· Arbitrage cargo trades typically consist of back-to-back deals that cut the price exposure and risk for the various parties involved.· The recent pick-up in less common arbitrage cargo trades show signs of reflecting some of those trends.· They also show signs of tapping other tools that simultaneously create more flexibility and still manage exposure to risk.· This flexibility boosts competitiveness and increases market activity and liquidity.· Improved flexibility and a pick-up in market activity and liquidity is likely to be increasingly valuable as the base oils market faces a further rise in structural supply over the coming year..Global base oils margins outlook: Week of Feb 26
