Global base oils arb outlook: Week of 3 June

·        US base oils prices rebound in May 2024 amid steady demand, tighter supply.

·        India’s Group II imported base oils cargo prices fall in H2 May 2024 as wave of imports replenish blenders’ stocks.

·        Falling imported cargo prices contrast with rising FOB US cargo prices and firm FOB NE Asia cargo prices.

·        Diverging price trends trigger fall in India’s imported light-grade cargo prices to discount to US and Asia prices.

·        Closed arbitrage to markets like India, Middle East and China likely to have more immediate impact on FOB Asia cargo market, followed by US market.

·        FOB NE Asia Group II N150 discount to domestic Chinese prices narrows to around $270/tonne in May 2024, from close to $400/tonne in Jan 2024.

·        Less feasible arbitrage to China prompts regional refiners to target other markets such as southeast Asia and India with more shipments in Q2 2024.

·        FOB NE Asia Group II N150 price flips to premium to CFR India prices in May 2024 for first time in years, from discount of more than $70/tonne in March 2024.

·        Firmer FOB NE Asia Group II prices relative to prices in India and Middle East make that arbitrage less feasible too.

·        Less feasible arbitrage leaves Asia’s refiners facing build-up of surplus supplies over coming months unless they cut production or move shipments to more distant markets like Latin America.

·        Recent rebound in US base oils prices makes more feasible the arbitrage to move Group II shipments from Asia to Latin America, especially for heavy grades.

·        Any additional rise in US domestic and export prices would further facilitate such moves and curb the size of any adjustment in FOB Asia prices to make arbitrage workable.

·        US Group II N600 export prices flip back to premium of more than $50/tonne to FOB NE Asia cargo prices in May 2024, from discount of more than $120/tonne in March 2024.

·        Premium of US Group II N600 domestic prices to FOB Asia prices recovers to more than $430/tonne, halting a sustained slide since early 2024.

·        Widening US heavy-grade premium adds to feasibility of moving shipments from Asia to Latin America.

·        An extension of current price trends and any such arbitrage flows would limit build-up of surplus heavy-grade supplies in Asia, curbing downward pressure on prices.

·        Any additional arbitrage shipments from Asia to Latin America would cover a larger share of requirements in that region, repeating a similar trend in H2 2022.

·        Any additional arbitrage shipments of heavy grades from Asia to Latin America could in turn compound any build-up of surplus supplies in US market over the coming months, also repeating a similar trend in H2 2022.

·        US Group II export light-grade prices revert to premium to FOB Asia prices in H2 May 2024 and for first time since beginning of Feb 2024.

·        US Group II domestic light-grade premium to FOB Asia price edges up, stays much lower than US heavy-grade premium to FOB Asia cargo prices.

·        Price trends and less feasible arbitrage to clear surplus Group II light grades from Asia raise prospect of build-up of surplus volumes in the region unless output or prices fall.

·        A lack of any additional arbitrage shipments of light grades from Asia to the Americas would leave that region more reliant on supplies from the US, whose Group II light-grade availability tightened in Q2 2024.