Global base oils arb outlook: Week of 31 March

·         US base oils export price-discount to US domestic prices stays narrower in Q1 2025 vs year-earlier.

·         Narrower export price-discount points to more manageable supply surplus at end-2024 and early this year, when domestic demand faced seasonal slowdown.

·         More manageable supply surplus follows firm export volumes through H2 2024 and early this year.

·         Firm exports reflect surge in shipments to Mexico and Africa, countering fall in supplies to other key markets.

·         Surge in shipments to Mexico and Africa cuts US reliance on open arbitrage to outlets like India to clear surplus volumes during winter months.

·         US Group II export prices weaken vs CFR India prices since Sept 2024, but price differential in Q1 2025 stays firmer than year-earlier levels.

·         India’s imports from US stay lower than usual at end-2024 and early this year, reflecting less attractive arbitrage and lower surplus to clear.

·         US’ reduced reliance on India curbs impact of any slowdown in that country’s imports from US as planned start-up of new domestic production over coming year boosts its self-sufficiency.

·         US’ reduced reliance on India contrasts with growing reliance on Mexico and Africa.

·         Mexico’s logistical proximity and absorption of increasingly large volumes from US adds to its attraction and importance.

·         Mexico accounts for more than 40% of US’ total exports in 2024, up from 37% share the previous year and less than 25% in 2022.

·         Mexico’s importance as key outlet for growing share of US exports in turn magnifies impact of any drop in shipments to that market.

·         Any such drop in shipments could be a repercussion of any change in import taxes between US and Mexico.

·         Any such drop in shipments to Mexico could force large volume of surplus US supplies to target other markets instead.

·         Any such move would require export prices that make feasible the arbitrage to those other markets.

·         Any such move could put pressure on relative strength of US base oils export prices versus US domestic prices at end-2024 and Q1 2025.