Global base oils arb outlook: Week of 4 August

·         Group II heavy-grade base oils premium to light grades is almost the same in US, Europe and Asia markets at same time and for first time in more than five years.

·         Similar price-spreads in all those markets contrast with diverging fundamentals driving those similar price-spreads, especially in Europe.

·         Similar price-spreads in US vs other markets follow sustained weakness of US heavy-grade prices because of persistent surplus supply.

·         US Group II heavy-grade price also weakens relative to other grades and other regions.

·         US Group II heavy-grade price flips from May 2025 to increasingly wide discount to US Group I heavy-neutrals prices.

·         More competitive Group II price incentivizes domestic buyers to use more Group II base oils instead of Group I.

·         US Group II heavy-grade export price maintains steep discount to prices in key outlets like India and Middle East since early this year.

·         Competitive price incentivizes overseas buyers to procure more US Group II base oils instead of supplies from other regions.

·         Similar Group II light-heavy-grade price-spreads in Asia vs other regions follow recent weakening of Asia heavy-grade prices.

·         Heavy-grade prices fall amid easing supply-tightness and slowdown in demand.

·         Asia Group II heavy-grade price also weakens relative to other grades and other regions.

·         Asia Group II heavy-grade price-premium to Asia Group I heavy neutrals falls in July 2025 to lowest level in a year.

·         Competitive price incentivizes regional buyers to use more Group II base oils instead of Group I.

·         Asia Group II heavy-grade price discount to prices in Europe continues to grow in July 2025 to widest level since early-Q4 2024.

·         Competitive price incentivizes buyers in Europe to procure more Group II base oils from Asia.

·         Weaker heavy-grade premium to light grades in US and Asia also reflects firm prices and tighter supply-demand fundamentals for light grades in both markets.

·         Europe is the outlier.

·         Similar Group II light-heavy-grade price-spreads in Europe vs other regions follow recent strengthening of Europe heavy-grade prices.

·         Europe Group II heavy-grade prices also strengthen relative to other grades and other regions.

·         Europe Group II heavy-grade price-premium to domestic Group I SN 500 widens in July 2025 to highest level in more than two years.

·         Wider premium incentives regional buyers to use more Group I heavy neutrals instead of Group II.

·         Europe Group II heavy-grade price premium to prices in US and Asia widens further in July 2025.

·         Wider premium incentivizes regional buyers to procure more Group II base oils from overseas markets.

·         Similar price-spreads between Group II light and heavy-grade base oils in US, Europe and Asia could reflect Europe catching up with persistently-higher heavy-grade price-strength in those other markets.

·         Either way, weaker heavy-grade price differentials in US and Asia create multiple avenues for sellers to clear surplus volumes.

·         Firmer heavy-grade price differentials in Europe complicate any such moves if and when the region has surplus volumes to clear.