Global base oils arb outlook: Week of 10 March

·         Europe’s Group II base oils prices hold in narrow range vs Group I prices in first two months of 2025.

·         Europe Group II prices flip to premium to Europe Group III 4cSt (low) prices in Feb 2025 for first time since mid-2021.

·         Relative price-strength of Group II base oils points to firm supply-demand fundamentals vs Group I and Group III base oils.

·         Group I base oils account for around 40% of Europe’s paraffinic base oils supply in 2024, staying similar to year-earlier levels.

·         Group II supply share edges higher in 2024 but stays much lower than Group I.

·         Group II’s still-lower share in 2024 points to manageable supply.

·         Lower share masks surge in Europe Group II supply and market share in H2 2024.

·         Rising supply and market share contrasts with fall in Group I supply and market share in H2 2024.

·         Group II base oils supply duly matches Group I supply in Q4 2024 for first time.

·         Group I base oils export prices hold at levels in Q1 2025 that keep arbitrage shut to markets like Middle East.

·         Closed arbitrage adds to signs of smaller-than-usual Group I supply surplus in Europe at start of 2025.

·         Europe Group II base oils prices hold in narrow range in Q1 2025 at levels that make less attractive the flow of arbitrage shipments from markets like US and Asia.

·         Less attractive arbitrage adds to signs of healthier availability of Group II base oils in Europe at start of 2025.

·         Europe’s Group II base oils supply from regional sources likely to hold firmer early this year vs H1 2024, when plant maintenance work slashed output.

·         Firmer supply from regional sources adds to importance of prices staying at levels that deter additional shipments from overseas markets.

·         Strength of Europe Group II base oils prices vs Group I and Group III prices so far this year points to firm supply-demand fundamentals vs the other grades.

·         Supply fundamentals late last year and early this year instead suggest that Group I supply is tighter than usual, with Group II supply more readily available.

·         Dynamic could suggest that demand is key determinant supporting strength of Europe Group II base oils vs Group I and Group III prices.

·         Dynamic could alternatively suggest that Group II imports are likely to fall early this year, balancing out higher regional output vs year-earlier levels.

·         Dynamic could also suggest that price gap between Group II base oils and Group I base oils is set to face pressure to narrow.

·         Europe Group II base oils price premium to Group I base oils duly narrows in early-March 2025.