Global base oils - week of Sep 11: Price outlook - arbitrage

·        Arbitrage shipments to West Africa face prospect of extending slowdown over coming weeks in face of overseas suppliers’ higher/rising prices and tighter supply, ICIS data shows.

·        Rising US Group II export prices complicate arbitrage to multiple markets such as India and Africa.

·        US Group II heavy-grade export prices move to widening premium to Europe Group I domestic heavy-neutrals prices in recent weeks.

·        Trend curbs attraction of moving US arbitrage shipments to West Africa.

·        Flow of arbitrage shipments from US to West Africa already shows signs of ebbing in August, with slowdown extending into September.

·        Group I supply from Europe likely to remain tight amid structural drop in output in recent months.

·        Steep premium of Europe’s domestic Group I prices over export prices incentivizes refiners to prioritise regional market.

·        Any overseas buyers would likely need to bid at levels closer to Europe domestic prices to attract offers.

·        Europe’s export prices anyway remain uncompetitive versus prices in other regions.

·        Wide premium of domestic Europe Group I prices over fob Asia prices sustains attraction of lining up arbitrage shipments from Asia to Europe.

·        Prospect of tighter Group I supply in Asia over coming months likely to curb any such shipments to Europe.

·        Rising prices and/or insufficient supply boost attraction for West Africa buyers to target shipments from less regular exporters like Turkey, or from Russia.

·        Such flows have been infrequent so far this year.

·        Prospect of seasonal slowdown in US and European demand at year-end could free up surplus supplies at more competitive prices at that time.

·        Limited arbitrage opportunities in the interim raise prospect of prices needing to rise to make arbitrage feasible to West Africa or of tightening supply amid slowdown in shipments to the region.