Global base oils – week of Apr 10: Price outlook – arbitrage

·        US Group II light-grade prices remain competitive vs Europe – facilitating arbitrage, and versus Asia – curbing arbitrage supplies from that region.

·        US Group II heavy-grade prices remain firm vs Europe and Asia prices, limiting arb shipments from US and attracting supplies from Asia.

·        Open arbitrage from Asia to US for sustained period suggests Asia producers continue to have surplus heavy-grade supplies, even with improvement in regional demand.

·        Europe Group I prices hold firm/strengthen vs Asia prices – complicating Europe arbitrage flows to markets like Mideast Gulf/India.

·        Less competitive prices suggest Europe producers face less urgency to clear surplus supplies.

·        Asia Group I bright stock discount to domestic Chinese prices widens, reflecting unworkable arbitrage at current price levels.

·        Discount stays too narrow – Asia bright stock prices need to fall further or Chinese prices need to rise to make arbitrage work.

·        Asia bright stock prices can avoid price-cut if arbitrage works to other outlets at current price levels; pressure to cut prices rises if other outlets’ requirements are covered.

·        Asia Group II light-grade discount to domestic Chinese prices widens slightly but stays in narrow range for last three months.

·        Discount keeps arbitrage marginal.

·        Marginal arbitrage to China suggests supply remains sufficient to meet any improvement in its demand.

·        Marginal arbitrage to China complicates Asia refiners’ leverage to raise outright prices.