Global base oils arb outlook: Week of 2 Dec

·        Group II heavy-grade price premium to Group II light grades stays wide or widens further globally.

·        Price-strength of Group II heavy grades points to persistently firm supply-demand fundamentals.

·        Price strength incentivizes refiners to boost output of the product to tap firm margins.

·        Sustained price-strength of Group II heavy grades suggests supply remains tight even with incentive to boost output.

·        Sustained price-strength of Group II heavy grades incentivizes blenders to seek alternative grades instead when such supplies are available.

·        CFR India Group II N500 premium to Group I SN 500 rises in Q4 2024 to highest level in more than two years.

·        Rising Group II heavy-grade premium boosts incentive for blenders to cut consumption of Group II base oils and maximise consumption of alternatives like Group I base oils.

·        India’s imports of Group II heavy grades accounts for little more than 70% of its total Group I and Group II heavy-grades imports in Oct 2024.

·        Share falls from close to 90% in Aug 2024 to close to lowest in at least three years, partly because of drop in Group II shipments from South Korea.

·        Share falls further as Indian buyers procure more Group I base oils instead.

·        Steady availability and competitive prices add to attraction of procuring more Group I base oils.

·        Switch away from Group II base oils in India in recent months contrasts with rising flow of Group II heavy grades to Pakistan from Asia and US throughout the year.

·        Rise in shipments partly reflects unusual surge in imports from US in 2024, with most of those supplies consisting of Group II heavy grades.

·        South Korea’s base oils exports to Pakistan rise strongly in Sept-Oct 2024.

·        South Korea’s exports to Pakistan rise even as plant maintenance slashes total exports in Sept 2024.

·        Large portion of supplies bound for Pakistan likely also consist of Group II heavy grades.

·        Ongoing global Group II heavy-grade price-strength points to still-tight supply-demand fundamentals.

·        Any signs of more widespread or prolonged moves to switch away from Group II heavy grades would ease buying requirements.

·        Availability is also already sufficient for suppliers to move more shipments to markets like Pakistan.

·        Those supply and demand signals suggest the sustained Group II heavy-grade price strength is starting to succeed in rebalancing tight market fundamentals.