Global base oils – week of June 5: Price outlook - arbitrage

·        Europe’s widening Group II premium to US/Asia prices adds to attraction of moving arbitrage shipments to that market.

·        Europe’s widening Group II premium to US/Asia prices boosts attraction of targeting markets that Europe typically supplies.

·        Asia’s Group I discount to European prices continues to widen, adds to attraction of targeting markets that Europe typically moves cargoes to, such as Africa and Mideast Gulf.

·        Europe’s closed arb to other markets, and open arbitrage to Europe, suggests European supply is tight and demand is strong.

·        Europe’s Group III discount to US prices stays narrow, curbing incentive to move more supplies to US.

·        Europe unapproved Group III premium to Asia prices stays narrower, curbing attraction of arbitrage unless supplies at steep discounts to fob Asia prices.

·        Asia Group II arbitrage to US/Americas gets harder to work – raising prospect of Asia shipments targeting other markets instead.

·        Asia Group I bright stock discount to domestic Chinese prices stays close to narrowest in ten months, complicating arbitrage.

·        Asia Group II light/heavy grade prices move to premium to domestic Chinese prices – keeping arbitrage shut.

·        Closed arbitrage incentivizes Asia refiners to redirect shipments to other markets.

·        Closed arbitrage coincides with weakening Chinese base oil premium to diesel that deters domestic refiners from raising output.

·        Price signals that deter arbitrage shipments and domestic production suggest Chinese demand is weak.