Global base oils arb outlook: Week of 28 Oct

·        Asia’s base oils prices strengthen relative to prices in Europe and US in recent weeks.

·        Asia’s rising prices relative to Europe and US coincide with tighter supply in recent months, adding to drop in supply throughout the year.

·        Asia’s rising price relative to Europe and US coincides with signs of improving surplus availability in those markets.

·        Asia’s rising price differential makes arbitrage more feasible from those markets for some grades, but still hard to work.

·        Singapore sees pick-up in shipments from US and especially Europe even with closed arbitrage from that market.

·        Southeast Asia already sees steady flow of shipments from Europe and US throughout the year despite closed arbitrage.

·        More of the shipments originated from US in H1 2024, and less from Europe.

·        More of the shipments originated from Europe in Sept 2024, and less from US.

·        That new trend shows signs of extending at least through Oct 2024, with another cargo from Europe set to reach Singapore in Nov 2024.

·        Pick-up in flows from Europe to southeast Asia contrasts with signs of slowdown in shipments from US to southeast Asia in Q3 2024.

·        Pick-up in shipments from Europe to southeast Asia includes supplies from countries that produce Group I base oils and Group II base oils.

·        Pick-up in shipments from Europe to southeast Asia could reflect and help to limit rise in surplus volumes in Europe.

·        Slower rise in surplus volumes in Europe could ease downward pressure on prices in that market.

·        Smaller surplus and more muted downward pressure on prices in Europe would make more feasible additional arbitrage shipments to that market from US.

·        US Group II export price differential to FCA Europe prices already widens steadily in recent weeks to widest discount in five months.

·        More feasible arbitrage boosts attraction of moving more surplus supplies from US to Europe.

·        Any such moves could delay for longer any pick-up in US shipments to other markets.