Global base oils market snapshot – Week of 14 June

Author Iain Pocock, Editor

Global base oil prices have been more mixed. Group I prices in Asia-Pacific and Europe have been steadier as a supply tightness eases. Prices in the US have extended their increases as an extreme supply tightness extends into the third quarter of the year. Heavy-grade prices in all the markets have remained unusually firm. Group III prices have extended their rise.

European Group I base oil prices have extended their pause since mid-May after surging in March and April. Regional prices have edged lower as a supply tightness eases following the completion of most plant maintenance. Buyers are holding back. They had previously prioritised supplies over prices. Now that they can secure supplies they are prioritising prices.

Weaker regional prices have already narrowed their premium to fob Europe Group I export prices. The last time that happened was early this year when strong overseas demand triggered a surge in export prices. The premium is narrowing this time because of steadier domestic demand and an easing tightness.

The trend raises the prospect of European producers redirecting more supplies into the export market. This development already shows signs of happening.

Domestic Europe SN 500 premium to export prices falls

Domestic Europe SN 500 premium to export prices falls

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Asia-Pacific Group I and Group II prices have slipped to widening discounts to prices in Europe and the US. Supply availability increased earlier in Asia than these other markets. Arbitrage shipments from Europe earlier in the year had helped to cover some of the tightness in Asia-Pacific at the time.

Current arbitrage opportunities to move supplies from Asia-Pacific to Europe have been harder to work. Rising market prices earlier in the year added to buyers’ incentive to lock in prices for arbitrage shipments that only arrived several months later.

Uncertainty about market prices over the coming months have removed the incentive to lock in prices at current levels.

 Asia prices flip from premium to discount to Europe prices

Asia prices flip from premium to discount to Europe prices

US spot and posted prices have extended their rise in response to sustained supply tightness and strong domestic and regional demand. The tighter availability has curbed producers’ and blenders’ opportunity to build buffer stocks in preparation for the Atlantic hurricane season.

Increasing Group I supply availability in Europe and Russia raises the possibility of more arbitrage shipments from these markets. Export prices in these markets have lagged the recent surge in US domestic SN 500 and bright stock prices.

This trend will need to continue to make the arbitrage feasible. Europe export prices remain at a premium to US prices for SN 500 and for bright stock.

Europe bright stock prices remain at premium to US domestic prices

Europe bright stock prices remain at premium to US domestic prices

Prices for some base oil grades have steadied or fallen. Prices for other grades have extended their rise. Group III prices have continued to rise in all the key markets. Supplies have continued to lag demand.

The premium of US Group III prices over Group II N100 prices has widened to its highest level in more than a decade. The trend reflects the extreme divergence in supplies of different base oil grades. Price spreads between different grades have widened sharply in response.

Group III stays tight, prices extend surge versus other grades

Group III stays tight, prices extend surge versus other grades

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