Global base oils arb outlook: Week of March 4

·        Several US refiners raise base oils posted prices in 2H Feb 2024.

·        Market signals and change in supply-demand fundamentals typically raise expectations of this kind of posted-price adjustment well before the price-adjustments take place.

·        There were fewer such signals this time.

·        Posted-price adjustments like this typically trigger wave of similar moves by other refiners.

·        Such moves by other refiners have yet to materialize this time.

·        Rise in posted prices in 2H Feb 2024 coincides with time of year when US' domestic demand typically starts to revive after lull in consumption during winter months.

·        Trend typically triggers rise in domestic spot prices relative to refiners’ posted prices.

·        Strength of any revival in domestic demand so far remains insufficient to trigger rise in domestic spot prices.

·        Discount of US Group II spot prices to posted prices stays unusually wide, with little sign of narrowing so far.

·        A rise in posted prices and usual trend of seasonal pick-up in demand typically coincide with or raise prospect of tighter base oils supply in US domestic market.

·        US export prices typically strengthen relative to domestic spot prices when surplus supply tightens.

·        US export price-discount to domestic spot prices stays unusually wide during Feb 2024.

·        Unusually wide discount points to ongoing availability of surplus volumes that refiners seek to remove from domestic market.

·        US export prices typically strengthen relative to prices in other regions when sellers face less urgency to keep arbitrage open to clear surplus shipments.

·        US Group II export prices maintain discount to CFR India prices, and unusually steep discount to domestic Europe prices.

·        Wide discount coincides with signs of ongoing availability of surplus supplies for export over coming weeks.

·        Premium of US light-grade domestic prices to feedstock prices falls in early 2024 to narrowest in almost two years.

·        Posted price-premium to feedstock prices falls to lowest since Q3 2023.

·        Lower price premium incentivizes refiners to cut output when supply-demand fundamentals are weak, or to raise prices when supply-demand fundamentals are strong, in order to support firmer margins.

·        Moves to raise posted prices suggest current supply-demand fundamentals are steady-to-firm.

·        Current supply-demand fundamentals in US coincide with signs of ongoing surplus availability, a wide gap between domestic spot and posted prices, and an open arbitrage to overseas markets.