Global base oils arb outlook: Week of 30 June

·         Global Group II heavy-grade base oils prices stay at elevated levels relative to feedstock and competing fuel prices.

·         Group II heavy-grade prices maintain steep premium to Group I heavy-neutrals prices in Asia and especially in Europe.

·         Group II heavy-grade price-strength extends to markets like India, even with recent strength in Group I prices in that market.

·         Group II heavy-grade price-strength points to persistently tight supply and firm demand fundamentals.

·         Group II heavy-grade price-strength could face pressure in response to any improvement in supply and/or drop in demand.

·         In Europe, recent rise in Group II heavy-grade price premium to Group I base oils coincides with round of Group I plant-maintenance, tightening availability of Group I heavy neutrals.

·         Availability of Group I base oils likely to improve following completion of plant-maintenance in markets like Italy and Poland.

·         Italy’s base oils output pauses in March 2025 before beginning recovery in April 2025 following completion of maintenance work.

·         Any recovery in supply of Group I heavy neutrals, combined with its steep discount to Group II heavy grades, could spur pick-up in demand for Group I supplies.

·         In India, demand for overseas supplies of Group II heavy grades gets support from tighter domestic supply during round of plant maintenance.

·         India’s Group II heavy-grade imports rise to multi-year high in May 2025, reflecting that dynamic.

·         India’s domestic supply likely to improve following expected completion of plant-maintenance work by start of Q3 2025.

·         India’s imports of Group I heavy neutrals fall to five-month low in May 2025, adding to demand for Group II heavy grades.

·         Any extended drop in supplies of Group I heavy neutrals from Iran could sustain additional buying interest in Group II heavy grades.

·         Resolution of Israel-Iran conflict for now eases prospect of such a scenario.

·         In Asia, regional Group II base oils supply likely to extend recovery at same time as demand faces seasonal slowdown over coming months.

·         Any softening of Group II heavy-grade supply-demand fundamentals in Europe and Asia could put pressure on current price levels.

·         Any such scenario could in turn put pressure on US Group II heavy-grade export prices to respond in kind in order to keep open the arbitrage from US to markets like Europe and India.