· Rising US base oil export prices complicate arbitrage opportunities, ICIS data shows.
· Trend raises prospect of repeat of last year’s closed arbitrage to other markets and risk of subsequent supply-build in US at year-end.
· US export prices moved to discount to prices in key destination markets in first seven months of 2023, opening arbitrage to key markets like Latin America, Africa and India.
· Wave of US exports contrasted with closed arbitrage in Q2-Q3 2022 when base oil export prices moved to steep premium to prices in destination markets.
· This year’s more competitive US export prices also cut sharply their premium to Asia-Pacific export prices, especially for light grades.
· Competitive prices slashed arbitrage flows from Asia to Latin America in Q2-Q3 2023, contrasting with wave of such shipments in 2H 2022.
· Open arbitrage from US to markets like Latin America, Africa and India in first seven months of 2023 helped to sustain high exports, remove surplus supplies and counter the impact of weak domestic demand.
· Trend contrasts with fall in US exports in 2H 2022 as closed arbitrage curbed overseas demand.
· Competitive US export prices widened sharply their discount to US domestic prices in late-2022 and 1H 2023.
· Wide discount contrasted with narrow discount to domestic prices in Q2-Q3 2022.
· Wide discount of export prices to domestic prices suggests refiners prioritised removal of surplus supplies this year to maintain more balanced domestic supply-demand fundamentals.
· Those supportive dynamics began to reverse in recent weeks.
· US export prices move to premium or to narrowing discount to prices in destination markets in recent weeks.
· US export price discount to domestic prices narrows sharply in recent weeks.
· Trend points to tighter surplus supply, cutting need to maintain outlets for additional shipments.
· Trend boosts feasibility of more Asia shipments moving to Latin America.
· Prospect of more supply staying in US and more supply moving from Asia to Latin America comes a few weeks ahead of a seasonal slowdown in domestic demand before year-end and at start of next year.
· Such a scenario risks repeating the supply-build that the US faced in 2H 2022, when weak domestic demand coincided with a closed arbitrage to overseas markets.
· That scenario preceded the subsequent pressure on prices in 1H 2023 as refiners moved to clear the supply overhang.
