Global base oils arb outlook: Week of 6 May

·        Firm FOB Asia Group I base oils prices reflect tighter Group I supply in the region so far this year, especially for heavy grades.

·        Tighter fundamentals support unusually high premium of China’s domestic Group I brightstock prices over FOB Asia prices.

·        Tighter fundamentals fail to trigger similar price response in India even with sharp slowdown in its Group I imports from Thailand this year.

·        China remains reliant on Asia for additional brightstock requirements.

·        India is avoiding such a reliance amid a surge in base oils imports from Russia this year that more than compensate for slowdown in supplies from other sources.

·        Trend suggests a key beneficiary of Asia’s tighter structural supply of Group I base oils is Russia. 

·        India’s imported Group I SN 500 cargo price premium to FOB Asia prices holds in narrow, low range so far this year, and much lower than during 2023.

·        Premium stays lower despite drop in availability of Group I supplies from Thailand.

·        India’s CFR Group I SN 500 premium to FOB Europe export prices rises in Q1 2024 to widest level in more than four years.

·        Complicated logistics and Europe's more limited surplus supply dampen the attraction of lining up arbitrage shipments from Europe to India even with wider premium.

·        Shipments of other base oils grades from Europe to India in recent months move to the country via southern Africa rather than via Suez Canal to avoid Red Sea region.

·        India’s imports from Russia avoid these difficulties.

·        India’s imports from Russia enjoy the additional benefit of more competitive prices.

·        India’s imports from Russia rise to almost 30,000 tonnes in Q1 2024, with supplies consisting mostly of Group I heavy grades.

·        Import volume rises from less than 1,000 tonnes in 2022 and 2023 combined.

·        India’s import volume in Q1 2024 is equivalent to more than half of Europe’s average quarterly import volume from Russia in 2020 and 2021.

·        India’s imports from Russia could also start to impact demand for Group II heavy neutrals.

·        India’s imported Group II N500 cargo price premium to Group I SN 500 prices widens in recent weeks to highest since Q3 2022.

·        Rising N500 premium mirrors similar trend to FOB NE Asia cargo prices partly because tighter availability of Group I SN 500 leaves blenders requiring more Group II heavy neutrals instead.

·        Signs of plentiful availability of Group I heavy grades of Russian origin at competitive prices conversely makes less pressing the need for Indian blenders to use more Group II heavy neutrals.