Global base oils - week of July 17: Price outlook - arbitrage

·        Europe Group II price premium to US prices stays wide; premium to Asia prices widens further, especially for heavy grades.

·        Wide premium incentivizes overseas refiners to target Europe with more surplus supplies.

·        Weak US/Asia Group II export prices vs diesel could instead prompt refiners to cut production, curbing such flows.

·        Europe Group I prices maintain wide premium to Asia prices.

·        Trend incentivizes surplus Asia supplies to target India/Mideast Gulf markets.

·        Trend cuts arbitrage outlets for any surplus Group I supplies from Europe.

·        Closed arbitrage from Europe had been manageable in recent months as steady regional demand absorbed most supplies. That trend will need to continue to avoid supply-build.

·        Asia’s Group II heavy-grade price discount to US prices widens over past month to widest in almost three months, stays much lower than 2022 levels.

·        Asia Group I bright stock prices stay competitive vs Europe and US prices, maintaining arbitrage opportunities.

·        Asia bright stock discount to domestic China prices increases to widest in two months, though arb stays difficult.

·        Asia Group II light-grade prices move to discount to domestic Chinese prices for first time in more than two months; Group II heavy-grade discount at widest in more than three months.

·        Arbitrage to move Asia Group II supplies to China stays hard to work, but more feasible than in recent months.

·        Steeper drop in Asia prices than domestic Chinese prices coincides with signs of weak Chinese demand, suggests domestic supply tighter than expected or domestic prices face sharp correction.