Global base oils - week of May 15: Price outlook - arbitrage

·        Europe Group II premium to US prices holds at widest level in several months for light and heavy grades.

·        Wider premium boosts attraction of moving more US shipments to Europe, or to markets that Europe supplies with Group II base oils.

·        Asia Group II discount to European prices holds at widest level in more than three months.

·        Wider discount makes arbitrage more feasible to Europe/Mideast Gulf/Africa.

·        Asia producers likely to continue to eye arbitrage opportunities even as plant maintenance work cuts regional supply in Q2 2023.

·        Lower regional demand counters drop in supply, sustaining need to tap arbitrage outlets.

·        Asia Group I discount to European prices widens to widest since October 2022.

·        Wider discount boosts attraction of moving Asia cargoes to Mideast Gulf/Europe.

·        Wider discount complicates removal of any surplus European cargoes from the region.

·        Price dynamic is sustainable so long as European supply is tight.

·        Otherwise, price dynamic speeds up supply-build in Europe.

·        Arbitrage to move Asia Group II light grades to US stays shut.

·        Asia Group II heavy-grade discount to US prices stays wide, but at narrowest in around a year. Arbitrage is less attractive than before.

·        Asia Group I bright stock discount to US prices stays wide – facilitates arbitrage.

·        Size of bright stock shipments tends to be relatively small compared with Group II base oils, making flexibag shipments more likely.

·        Asia refiners, especially of Group I base oils, see Q1 profit outperform US counterparts amid firmer demand, more muted downward price pressure.

·        Asia Group I bright stock discount to domestic Chinese prices stays wider than in March-April, narrower than in Aug 2022-Jan 2023.

·        Bright stock discount makes arbitrage shipments hard to work unless Asia prices fall further or domestic Chinese prices rise.

·        Asia Group II light-grade discount to domestic Chinese prices narrows further, making arbitrage even less feasible.

·        Closed arbitrage boosts attraction of moving Asia cargoes to other markets.

·        Closed arbitrage suggests base oils supply in China is sufficient or demand is relatively weak.