Global base oils arb outlook: Week of 21 April

·         Asia’s Group II base oils prices hold firm relative to prices in regional markets like northeast Asia so far this year.

·         Asia’s Group II base oils prices hold firm relative to prices in more distant markets like Americas so far this year.

·         Asia’s firm prices complicate arbitrage, reflecting tighter-than-usual regional supply late last year and in early-2025.

·         Supply-demand balance stays tight amid heavy round of plant maintenance and strong lube consumption in Q1 2025.

·         Supply-demand balance likely to improve in Q2 2025, with large portion of plant maintenance set to end in April-May 2025.

·         Supply set to get additional boost from start-up of new production capacity in Asia in coming months.

·         Asia’s lube demand also likely to ease vs Q1 2025, with seasonal slowdown gathering pace from end-Q2 2025.

·         Demand could face additional pressure from recent volatility of crude oil prices, incentivizing blenders to keep lower inventories.

·         Concern about impact of US tariffs on Asia’s economic growth prospects could add to blenders’ preference to maintain lower stocks.

·         Improving supply and weaker demand could trigger rise in surplus base oils volumes.

·         Refiners could trim run-rates to limit any such rise in surplus volumes.

·         High base oils margins cut incentive for refiners to trim run-rates for now.

·         Refiners could instead move surplus volumes to other markets.

·         Any such move would require Asia’s base oils prices adjust to levels that make more feasible the arbitrage to markets like Middle East and Americas.

·         Any such move would require that Asia prices weaken relative to prices in those destination markets, even if outright prices continued to trend higher.

·         Any need to clear surplus volumes, and delays over moves to clear the shipments, could alternatively trigger a more rapid build-up of supplies.

·         Any such more rapid build-up would in turn require clear-out of larger volumes and prices that facilitated removal of the larger volumes.

·         Recent weakness of Asia’s Group II prices vs prices in markets like US and Europe suggests moves to facilitate arbitrage flows may have already begun.