Global base oils – week of April 3: Price outlook - arbitrage

·        Europe Group I premium to Asia prices stays wider than at start of year, narrower than Q4 2022.

·        Wider premium suggests less urgency to clear surplus volumes from Europe.  

·        Asia Group II heavy-grade discount to Europe prices trending narrower, down more than $200/t since January.

·        Narrowing premium complicates arbitrage to move more Asia cargoes to Europe.

·        Asia Group II heavy-grade discount to US trending narrower, stays wide enough to attract ongoing shipments from Asia to Latin America.  

·        Asia Group II discount to domestic Chinese prices trends lower, complicating arbitrage to China.

·        Asia Group I bright stock discount to domestic Chinese prices narrows further, makes arbitrage hard to work unless Asia prices fall or domestic Chinese prices rise.

·        Lack of significant rise in domestic Chinese prices suggests supply-demand fundamentals in China remain relatively balanced, curb need to attract large volume of additional supplies.

·        Narrow Asia-to-China price spread incentivizes regional refiners to continue to move shipments to other markets like southeast Asia and India.

·        Simultaneous rise in demand in China, southeast Asia and India in 1H 2021 triggered surge in prices as buyers competed for supply.

·        Simultaneous rise in demand in China, southeast Asia and India in 1H 2023 shows little sign of triggering repeat of 2021 price surge.

·        More muted price reaction points to more cautious demand, more sufficient supply vs 1H 2021.