Global base oils arb outlook: Week of 20 October

·         US Group II base oils prices stay in unusually narrow range versus vacuum gasoil feedstock prices throughout most of this year.

·         US Group II base oils domestic price-premium to export prices similarly stays in relatively narrow range so far this year.

·         US Group II heavy-grade price-discount to prices in markets like India similarly holds in relatively narrow range throughout most of this year.

·         Steady US price-spreads contrast with more volatile margins and price-differentials in recent years.

·         Steady US price-differentials point to unusually prolonged period of balanced supply-demand fundamentals.

·         Domestic and overseas demand is sufficiently strong to absorb US' higher base oils output in June-July 2025, leaving stocks tight in first seven months of the year.

·         Steady domestic base oils margins partly reflect support from steady domestic-export price-spread.

·         Steady domestic-export price-spread partly reflects support from steady US price-discount to prices in markets like India.

·         US Group II heavy-grade price-discount to CFR India price benefits from higher outright India cargo price amid tight supply in Asia in H1 2025 especially.

·         High CFR India price curbs pressure on US export price to fall any further, while tight supply in Asia boosts demand for US shipments.

·         India’s imports from US duly rise by 40% in first nine months of 2025 from previous year.

·         Steadier US export price and regular removal of surplus supplies from domestic market curb downward pressure on US domestic price.

·         US posted prices typically fall around this time of year in response to weaker demand and rising surplus supply.

·         Lack of any widespread round of posted price cuts so far in Sept-Oct 2025 suggests that US supply-demand fundamentals remain relatively balanced.

·         Balanced fundamentals partly reflect tighter-than-usual supply in Asia in H1 2025 and persistently strong demand in Mexico, balancing out weak domestic demand.

·         Those supportive factors are now set to change.

·         Asia’s supply begins to recover during Q3 2025 following completion of most plant-maintenance work.

·         Supply set to get further boost from start-up of new base oils unit in Singapore in Sept 2025 and in India in late-2025.

·         Mexico’s demand could face at least short-term impact from recent introduction of stricter rules on imports into the country.

·         Mexico’s base oils imports consistently far exceed country’s domestic lube demand.

·         Any narrowing of gap between imports and domestic lube consumption would impact demand for US base oils.

·         Unusually steady US base oils price-differentials through most of this year partly reflect balanced-to-tight fundamentals, especially compared with recent years.

·         Change in US supply-demand fundamentals could in turn prompt reversion of US price-differentials to trends similar to the ones they faced in recent years.