Global base oils market snapshot – Week of 3 May

Author Iain Pocock, Editor

Global base oil prices have extended their gains to unusually high levels as demand continued to outpace supply. Prices in Asia-Pacific have risen at a slower pace than in Europe and US in recent weeks. The trend has created arbitrage opportunities to move supplies from Asia to markets like Europe, Mideast Gulf and the US.

Asia-Pacific Group II heavy-grade prices have extended their gains at a slower pace than in recent months. Light-grade prices have steadied after rising in recent months. Prices have steadied as the completion of several plant shutdowns in the region raised the prospect of an improvement in supply. Demand has slowed in China and India. 

The steadier prices have lagged higher prices in other regions like Mideast Gulf, Europe and the Americas markets. The discount of Asia-Pacific Group II heavy-grade prices to fca Amsterdam-Rotterdam-Antwerp prices has widened to more than $450/t. It was less than $100/t as recently as early March.

The open arbitrage has already prompted the sale of some spot volumes of Group II base oils to the Mideast Gulf. More supplies have also been offered into the European and Americas markets.

Asia-Pacific Group II discount to Europe prices widens

Global base oils market snapshot – Week of 3 May Chart 1
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European Group II heavy-grade prices have surged relative to prices in Asia-Pacific in recent weeks. But they have struggled to keep pace with rising European Group I heavy-grade prices. European demand for SN 500 has continued to outpace unusually tight supply as refinery maintenance and closures slash availability.

The strength of SN 500 has cut its discount to Group II heavy neutrals to less than $100/t since the first half of March. The discount averaged more than $175/t in 2020. The trend has mirrored similar Group I strength relative to Group II base oils in many other markets. 

The price strength incentivised blenders to seek more Group II heavy grades in place of Group I. That trend has tightened further the availability of Group II heavy neutrals in the European market.

Europe Group II heavy-grade premium to Group I narrows

Global base oils market snapshot – Week of 3 May Chart 2

European Group II prices have faced further upward pressure from rising US prices.

Supply in that market has remained unusually tight as producers focused on backfilling orders. US producers raised their posted prices in late April and early May for the fifth time since December. The frequency of the changes was unprecedented. It reflected supply tightness that has supported spot prices at an unusual premium to company posted prices since the second half of March. That premium remained even with the latest rise in postings.

The supply tightness partly reflected the impact of disruptions to production following the arctic storm that struck the US in February. A recovery from those disruptions has taken longer than usual because of other factors partly linked to Covid-19, like manpower shortages, delays securing replacement parts, insufficient feedstock supply and logistical difficulties.

US producers raise postings again

Global base oils market snapshot – Week of 3 May Chart 3


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