The European Commission is proposing to remove the 3.7pc tax on US Group II imports as part of ongoing tariff negotiations, which is likely to spur increased shipments.
The duty on Group II imports came into force in January 2020 for grades N150, N220 and N600 for countries that do not have a free trade agreement (FTA) with the EU. Shipments from South Korea, Singapore, Canada and Japan are exempt as they have FTAs with the EU.
The EU has taken on average 14pc of US exports since 2020 when the duty was imposed, EIA data show. This was down from 17pc in 2019, which coincided with ExxonMobil's 1.1mn t/yr Group II plant in Rotterdam coming online. But Europe remains a net importer of Group II volumes as production accounts for only 11pc of its total nameplate capacity.
With the duty removal, US exporters are more likely to target European buyers as spot prices are the highest there globally. Arbitrage opportunities are already open, with US Group II N600 export volumes assessed at a $430/t discount to European supplies on 26 September.
US Group II refiners would be expected to attempt to divert more volumes to Europe without the tariff, pulling back on volumes to lower-value regions such as India and west Africa. Several US refiners already have dedicated distribution networks for their Group II product in Europe.
US volumes compete with those of Asian origin. Spot prices of a similar grade are assessed at a $375/t discount to European volumes. But high freight rates and long voyage times have hampered movements. European buyers hold a more stringent approvals system and typically prefer US-origin volumes.
The commission's proposal foresees 0pc on products falling under chapter 27. Officials confirm that its zero tariffs proposals covers US exports of Group II base oils (CN 2710). To enter into force, the legal text still needs to be formally adopted by the European Parliament and EU member states.
