Global base oils – week of June 12: Price outlook – arbitrage

·        US/Asia Group II price discount to European prices stay wide even as Europe prices fall.

·        But drop in Europe’s Group II prices could deter arbitrage shipments on concern prices could dip further before shipments reach Europe.

·        Any slowdown in arbitrage shipments would lower prospect of build-up of surplus supplies in Europe during Q3 2023.

·        Europe Group III base oils prices stay firm versus Europe/Asia prices, boosting attraction of moving surplus volumes to that market.

·        Asia’s Group I price discount to Europe prices widens further.

·        Trend boosts attraction of moving Asia shipments to markets that Europe arbitrage shipments target, such as India and Mideast Gulf.

·        Trend suggests Europe’s Group I supply is tight enough to not need to have arbitrage open to clear any surplus.

·        Arbitrage to move surplus Asia Group II cargoes to US/Latin America increasingly hard to work amid more competitive US prices.

·        More limited arbitrage opportunities to Americas likely to push Asia refiners to target alternative markets instead.

·        The move may be more difficult as US suppliers target similar alternative markets like India.

·        Asia Group I bright stock discount to Europe/US prices stays wide – providing more options to clear surplus supplies of that product.

·        Asia Group II prices stay firm relative to domestic Chinese prices, curbing attraction of moving more supplies to that market.

·        Asia Group I bright stock discount to domestic Chinese prices stays too narrow to make arbitrage workable unless fob Asia prices fall further or Chinese prices rise.

·        Trend points to weak Chinese demand, raises prospect of more surplus Asia-Pacific supplies targeting other markets.