Global base oils arb outlook: Week of 4 Nov

·        Europe’s Group III base oils prices fall in recent weeks amid weaker supply-demand fundamentals.

·        Europe’s Group III price premium to prices in Asia falls to narrowest in almost four months; premium stays wide vs US prices.

·        Europe’s wide Group III base oils premium vs US and Asia in Q3 2024 boosts attraction for overseas suppliers to move more shipments to Europe.

·        Europe’s Group III base oils supply duly rises to multi-year high in Aug 2024.

·        Europe’s Group III base oils supply outpaces Group I supply in Aug 2024 for first time in fourteen months.

·        Europe’s Group III price premium to Group I base oils widens in Aug-Sept 2024 even as supply rises and lube demand falls.

·        Italy’s lube demand extends fall in Sept 2024, raising prospect of similar trend in Europe and extension of slowdown in Q4 2024.

·        Slower demand and healthy Group III supply cushion impact of Group III plant maintenance work from end-Q3 2024.

·        Demand likely to remain slow even after completion of plant maintenance work.

·        Slower demand coincides with lower Europe Group I domestic prices that cut attraction of moving more Group I shipments to the region from markets like US.

·        Slower demand coincides with lower Group I export prices, as well as pick-up in Group I shipments to markets like southeast Asia and West Africa in H2 2024.

·        Slower demand coincides with Group I plant maintenance work in Q4 2024.

·        Dynamic suggests Europe has more direct control over its Group I supply and more tools to limit or clear supply-build at year-end.

·        Imports account for around half of Europe’s Group III base oils supply in Jan-Aug 2024.

·        Imports account for less than 5% of Europe’s Group I supply over most of the past year.

·        Group III imports’ large share of market supply leaves Europe with less direct control over large portion of its Group III base oils supply.

·        Dynamic increases importance of Europe’s Group III base oils price as key factor to influence regional Group III supply, especially at year-end.

·        Europe’s Group III price premium to US especially remains at level that sustains incentive for overseas refiners to move more shipments to the region over coming months.

·        Group III prices at smaller premium or at discount to prices in other markets would reduce that incentive and curb prospect of large supply-build at year-end.