Global base oils - week of Nov 27: Price outlook - arbitrage

·        US Group II heavy-grade export prices slide versus light-grade prices to lowest in more than a year, ICIS data shows.

·        US Group II heavy-grade export price premium to Asia heavy-grade prices falls close to lowest in more than two years.

·        Lower US Group II heavy-grade export prices versus other grades and other regions point to weaker supply-demand dynamics and need for outlets beyond the US’ domestic market.

·        Firm domestic heavy-grade prices could muffle impact of more competitive export prices and limit other potential outlets.

·        US Group II heavy-grade export price premium to Group II light grades falls by more than $250/t since Aug 2023.

·        Heavy-grade prices fall relative to light grades despite concern about rise in surplus light-grade supply following change in Mexico’s oil product import rules. 

·        Other outlets for surplus light grades remain, such as the diesel pool or overseas markets like India.

·        Outlets for surplus heavy-grade supplies are more limited, with options including overseas markets, or other lube market segments requiring heavier grades, or lower base oil run-rates.

·        Lower Group II heavy-grade prices versus other regions make overseas outlets a more feasible option.

·        US Group II heavy-grade export price discount to Europe Group II prices slips close to widest level since Jan 2023.

·        US Group II heavy-grade export price discount to fob Europe Group I SN 500 also moves to narrowest level in more than a year.

·        More competitive US prices boost feasibility of moving more shipments to Europe or to markets that Europe supplies.

·        US Group II heavy-grade export price premium to fob Asia N500 prices falls close to narrowest level in more than two years.

·        An unusually wide US Group II heavy-grade premium to fob Asia prices had supported a sustained flow of arbitrage shipments from Asia to the Americas since 2H 2022.

·        More competitive US prices cut attraction of those arbitrage shipments, boosting prospect of more demand from buyers in Latin America.

·        More competitive Group II heavy-grade export prices contrast with firm US domestic prices relative to export prices and relative to other products.

·        Firm heavy-grade domestic prices raise prospect of diminishing impact of any rise in exports by limiting alternative outlets to clear surplus and incentivizing refiners to maintain steady output.

·        US Group II heavy-grade domestic prices flip to premium to US Group III 8cst prices from end-2022, move to steepest premium on record in Nov 2023.

·        Trend curbs incentive for US blenders to cut consumption of Group III 8cst base oils.

·        Trend contrasts with Asia, where Group II heavy-grade prices fell to increasingly steep discount to fob Asia Group III 8cst prices from mid-2022.

·        More competitive heavy-grade prices boost their attraction vs Group III 8cst base oils in markets like India.

·        India’s Jan-Oct imports of Group II heavy grades rise vs 2022 and especially vs 2021 levels, while Group III 8cst imports slump.