Global base oils arb outlook: Week of 27 October

·         Asia’s Group II base oils cargo prices hold firm versus US export prices so far in Q4 2025.

·         Firm prices complicate arbitrage to move surplus supplies to markets like Latin America, suggesting Asia’s supply-demand fundamentals remain balanced to tight.

·         Asia’s Group II base oils price-premium to Singapore gasoil price stays at similar levels so far in Q4 2025 to end-Q3, even after recent rebound in crude/gasoil prices.

·         Firm margins add to signs of balanced-to-tight fundamentals.

·         US Group II base oils export prices strengthen vs prices in Europe and Asia in recent weeks.

·         Firmer export prices make less attractive the arbitrage to Europe and Asia, suggesting US supply-demand fundamentals remain relatively balanced.

·         US Group II base oils export-price premium to vacuum gasoil (VGO) holds firm.

·         Firm US margins add to signs of balanced-to-tight fundamentals.

·         Europe’s Group I heavy-grade base oils cargo prices strengthen vs prices in Middle East and Asia in recent weeks.

·         Firmer prices complicate arbitrage to move surplus supplies to those markets, suggesting Europe’s supply-demand fundamentals remain balanced to tight.

·         Europe’s Group I heavy-grade price premium to fuel oil holds firm so far in Q4 2025.

·         Firm margins add to signs of balanced-to-tight fundamentals.

·         Signs of less workable arbitrage opportunities, firm margins and balanced-to-tight fundamentals in all key markets incentivize refiners to maintain or raise output.

·         Those dynamics contrast with signs of rising supply in Asia, whose base oils exports climb to 30-month high in Sept 2025.

·         In Europe, Group I base oils exports fall in Aug 2025 even as output holds firm in markets like Italy.

·         Base oils exports fall even in face of seasonal slowdown in regional lube consumption and persistently anaemic demand growth throughout Europe.

·         Lower exports and anaemic lube demand growth contrast with steady base oils output in markets like Italy, triggering rise in stocks. 

·         In US, domestic demand typically falls in month of November from October amid seasonal slowdown in consumption at year-end.

·         Slowdown in demand in month of November would coincide with expected restart of major Group II base oils unit after maintenance work.

·         Firm global base oils margins and less feasible arb opportunities point to tighter fundamentals and incentivize refiners to maintain high output.

·         Scenario could trigger larger rise in surplus supply in coming months if fundamentals are less tight than prices imply.