Global base oils arb outlook: Week of 6 October

·         Global Group I brightstock prices stay unusually high relative to other grades.

·         Brightstock price-strength helps to cushion impact of lower prices for lighter-grade base oils, supporting firm Group I base oils margins in markets like Europe.

·         Firm Group I base oil margins incentivize refiners to maintain high output.

·         Brightstock price-strength follows sustained outperformance of brightstock prices versus other grades since early 2024.

·         Outperformance of brightstock prices follows closure of key Group I base oils unit in Italy around that time.

·         Base oils unit in Italy was key supplier of Group I brightstock.

·         Closure of unit, combined with plant-maintenance in H1 2025, trigger dip in Italy’s base oils output since early 2024.

·         Brightstock supply-tightness could now start to ease following start-up of new Group II base oils unit in Singapore in Sept 2025.

·         Base oils unit’s output includes heavy-grade Group II product that can be used as alternative to brightstock.

·         Singapore’s exports from domestic sources recover in Sept 2025 to highest in at least two months following start-up of new unit.

·         Exports include first cargo to US in almost two years.

·         US domestic production of Group II base oils curbs its need for Group II supplies, suggesting Singapore’s exports to US could include the new heavy-grade Group II product.

·         Current global brightstock price-strength reflects unusually tight supply of brightstock.

·         Any rise in availability of Group I brightstock or products that can replace Group I brightstock changes the supply fundamentals.

·         Any change in supply fundamentals could impact brightstock price-strength.

·         Europe brightstock price-premium to SN 500 averages more than $350/tonne in 2025, up from $150/tonne in 2024.

·         Asia brightstock price-premium to SN 500 rises even more strongly over longer period.

·         Factors supporting rise in brightstock price-premium in 2024-2025 suggest that price-premium could face pressure from any easing of supply-tightness.

·         Size of rise in brightstock price-premium to SN 500 suggests that brightstock price-premium could narrow sharply and still remain well above previous levels.

·         Any such price-adjustment would also impact brightstock margins.

·         Any such impact on brightstock margins would reduce their support as counterbalance for weaker margins of lighter-grade base oils.

·         Extent of any subsequent squeeze on Group I base oils margins could put pressure on refiners to adjust output in response.