Global base oils market snapshot– Week of 31 May

Author Iain Pocock, Editor

Global base oil prices were more mixed. Group I and Group II prices in Asia-Pacific have been steadier or slightly lower. Group I prices in Europe have steadied. Group II and Group III prices have extended their gains. US prices have mostly continued to rise, especially for heavy grades and Group III base oils.

The more divergent price trends reflected a gradual improvement in supply-demand fundamentals for some products in some markets. The Asia-Pacific market is leading that trend. The US market is lagging it.

Group III base oil prices have extended their strong rise in all the key markets. Group III prices in Europe have risen even as Group I light-grade prices have steadied. Group III prices have also risen at a faster pace than Group II light grades. The price strength reflected unusually tight global supply.

Recent, ongoing and upcoming plant maintenance in Europe, Russia and Asia-Pacific is keeping supply tight. Availability shows little sign of improving at least until the third quarter of the year.

The fca Europe Group III 4cst premium to domestic Europe SN 150 prices has rebounded to $320/t, from less than $200/t in early April. The premium was at its widest in almost three months.


Europe Group III 4cst rebounds versus SN 150

Europe Group III 4cst rebounds versus SN 150 

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Weak demand and growing price pressure in India have coincided with still-strong demand and high prices in the Europe and Black Sea markets. The trend has prompted the diversion of supplies of SN 500 of Iranian origin to Turkey’s domestic market rather than to India.

The last time Turkey imported more than 50t of base oils from Iran in a single month was in 2019.

The opportunity to move supplies to Turkey arose after cfr Gebze prices for SN 500 rose to almost $1,700/t over the past month. By contrast, prices on a cfr India basis for low-viscosity-index SN 500 fell below $1,200/t by end-May.

The price gap between cfr Gebze and cfr India SN 500 widened to around $500/t by end-May. The price spread more than covered the logistical costs to move supplies to Turkey. The price spread between those two markets is typically less than $50/t.


Cfr Turkey SN 500 premium to cfr India surges

Cfr Turkey SN 500 premium to cfr India surge

Weaker Asia-Pacific demand and improving availability have also contrasted with tighter-than-usual supply in the US market. US supply has been tighter after a freezing storm in February forced the unplanned shutdown of a raft of base oil production capacity and the extended shutdown of other plants as they carried out repair work.

US base oil and lube supply recovered in March, from its lowest level in more than a decade in February. But output in the first quarter of 2021 remained far below typical levels for the time of year just ahead of a seasonal rise in demand. Output was similar to year-earlier levels, when producers began to cut runs as lockdowns in the US began. Now the US is rebounding.


US supply stays tight

US supply stays tight

US prices have moved to widening premiums to other markets because of the supply tightness. The premium of US light-grade prices to fob Asia Group II prices has widened to more than $300/t, from less than $100/t in February. The premium of US heavy-grade prices to fob Asia Group II prices has widened to around $180/t. US heavy-grade prices were at a discount to fob Asia prices as recently as March. Some arbitrage cargoes of light-grade base oils have already been lined up to move from Asia to the US.


US Group II prices surge versus Asia prices, opening arb

US Group II prices surge versus Asia prices, opening arb

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