Global base oils arb outlook: Week of 26 May

·         US Group II heavy-grade base oils prices stay unusually weak relative to CFR India prices for the time of year.

·         Persistent US price-discount to CFR India prices coincides with steady flow of heavy-grade base oils shipments from US to India and especially to Pakistan.

·         Arbitrage shipments highlight persistent surplus of heavy-grade base oils in US market.

·         Persistent surplus of US heavy-grade base oils coincides with steep premium of heavy-grade base oils relative to light grades in recent years.

·         Persistent surplus of US heavy-grade base oils contrasts with tighter availability of light grades, resulting in narrowing spread between US light- and heavy-grade prices over past year.

·         Premium of US heavy-grade base oils prices over light grades remains high, especially relative to other regions, even after narrowing sharply.

·         High heavy-grade price-premium continues to incentivize refiners to boost output of the product.

·         Asia’s Group II light-grade price slips relative to US Group II export price in May 2025 to weakest level in seven months.

·         Asia's widening price discount to US export prices coincides with growing surplus availability of light-grade base oils.

·         Growing availability of Group II light grades contrasts with tighter availability of heavy grades, resulting in increasingly wide spread between Asia light- and heavy-grade base oils prices.

·         Asia heavy-grade premium over light grades moves higher than US heavy-grade premium over light grades in May 2025 for first time since 2021.

·         Asia's higher premium highlights contrasting price dynamics in the Asia and US markets.

·         Premium of Asia heavy-grade base oils over light grades rises after holding at much narrower level in the two years to early-2024.

·         Narrower heavy-grade premium over light grades before 2024 curbed incentive for refiners to boost output of heavy-grade base oils.

·         Recent completion of Group II plant maintenance work in US raises prospect of rise in surplus heavy-grade supplies in domestic market and need for outlets to place those volumes.

·         Tighter availability and firm prices for heavy grades in Asia add to the attraction of moving more supplies from US to that market.

·         Recent completion of Group II plant maintenance work in Asia raises prospect of rise in surplus light-grade supplies in regional market and need for outlets to place those volumes.

·         Tighter availability and firm prices for light grades in US add to attraction of moving more supplies from Asia to that market.

·         Any such scenario raises prospect of US and Asia’s Group II base oils prices adjusting accordingly to make those arbitrage flows more feasible.