Global base oils arb outlook: Week of 30 Sept

·        Europe’s exports of Group I base oils to southeast Asia rise strongly so far this year, despite closed arbitrage during most of that period.

·        Europe’s exports of Group I base oils to Middle East fall amid even less feasible arbitrage to that region.

·        Change in cargo flows from Europe to Asia and to Middle East coincides with sustained weakness of Middle East Group I SN 500 price relative to FOB Asia price.

·        Change in cargo flows could also point to differing objectives for each of those markets.

·        Unusually large cargo of Group I base oils loads from Italy in July 2024 before heading to Singapore; shipment arrives in Sept 2024.

·        Cargo adds to sustained pick-up in shipments from Europe to Singapore so far this year.

·        Europe’s base oils exports to Middle East also rise strongly in July 2024.

·        Composition of those shipments changes markedly from recent years, with slump in supplies from Italy and UK and surge in supplies from Netherlands.

·        Italy and UK are key producers of Group I base oils in Europe; Netherlands is the sole source of virgin Group II base oils in Europe.

·        Rise in Group I shipments from Europe to southeast Asia follows and helps to cushion impact of closure of two plants in Japan in recent years and upcoming closure of a plant in China in Oct 2024.

·        Rise in Group I shipments to southeast Asia coincides with and helps to cover for sustained pick-up in Singapore’s bunker fuel demand since late last year.

·        Singapore’s rising bunker-fuel demand points to pick-up in marine lube consumption, and to subsequent pick-up in demand for Group I brightstock to produce marine lubricants.

·        Fall in Group I shipments from Europe to Middle East partly reflects dwindling availability of spot cargoes in Europe and uncompetitive prices for any spot supplies that are available.

·        Shrinking bunker fuel demand in Fujairah this year and its smaller size relative to Singapore also curbs the need to move additional Group I term shipments to the region.

·        The dynamic compounds tight availability of higher-quality Group I supplies in Middle East and incentivizes blenders to speed up switch to alternative grades.

·        Rise in shipments from Netherlands to Middle East this year could tap such moves.

·        Any such moves would help to build market share ahead of expected rise in Group II supply in India and southeast Asia in coming year.

·        Dynamic suggests Europe’s rise in Group I shipments to southeast Asia is focused more on covering existing market requirements.

·        Dynamic suggests rise in premium-grade shipments from Europe to Middle East is focused more on building market share of future requirements.