Global base oils arb outlook: Week of 3 March

·         UAE’s imported base oils cargo prices hold steadier since start of the year vs Europe Group I and US Group II export prices.

·         Steadier price differentials follow strengthening of CFR UAE prices vs Europe and US export prices through most of H2 2024.

·         UAE price differentials vs Europe and US base oils prices stabilize early this year at narrower levels than in Q1 2024.

·         Narrower price differentials contrast with CFR UAE’s price premium to Europe and especially US prices in Q1 2024.

·         Wider price premium facilitated arbitrage shipments, coincided with surge in exports to Middle East in Q1 2024.

·         CFR UAE price discount to Europe export prices and smaller premium to US export prices in Q1 2025 complicates similar flow of arbitrage shipments this year.

·         Less feasible arbitrage partly reflects steadier Europe and US export prices amid more limited pressure from surplus supply.

·         More limited surplus supply curbs pressure on sellers to trim prices.

·         More limited surplus supply puts onus on buyers to raise bids if they need additional volumes.

·         Less feasible arbitrage from Europe and US coincides with slump in Asia’s base oils exports to Middle East at end-2024 and early this year.

·         Asia’s base oils exports could remain lower than usual until completion both of plant maintenance work and of seasonal rise in demand in Asia over coming weeks.

·         Less feasible arbitrage from Europe and US, even with slump in Asia shipments to Middle East, suggests that supply in the Middle East region is sufficient to meet demand.

·         Supply from Saudi Arabia shows signs of staying lower than usual in recent weeks after dip in country’s exports in Jan 2025.

·         Supply from Iran faces slowdown during month of Ramadan and ahead of and during Iranian New Year holidays in H2 March 2025.

·         Even if supply in UAE is sufficient to meet demand, inventory levels are likely to trend lower, especially compared with H1 2024.

·         Lower inventory levels would support firmer buying interest over following months.

·         A recovery in surplus supply in Q2 2025 would enable buyers to replenish depleted stocks.

·         Lack of any such recovery in supply would complicate buyers’ ability to replenish depleted stocks.

·         Dynamic reflects impact of tighter surplus supply in US, Europe and Asia early this year vs Q1 2024.

·         Markets that are typically regular outlets for surplus volumes, such as UAE, face larger repercussions of the tighter supply.