Global base oils - week of June 19: Price outlook - arbitrage

·        Europe Group II base oils premium to US prices stays wide.

·        Europe Group III prices maintain premium to US prices – contrasting with steep discount in Q4 2022.

·        Europe Group III premium boosts attraction of moving more supplies to Europe rather than US.

·        Trend suggests Europe’s Group III supply-demand dynamics are stronger than US.

·        Europe Group II base oils premium to Asia prices stays wide, especially for heavy grades.

·        Wide premium keeps open arbitrage to move more supplies to Europe.

·        Europe’s Group I domestic/export premium to Asia prices stays wide.

·        Trend keeps shut arbitrage from Europe to markets like Mideast Gulf/India, incentivizes buyers in Africa to seek supplies from other source instead of Europe.

·        Open arbitrage to Europe, and closed arbitrage from Europe suggests European supply is tight and demand strong.

·        Arbitrage to move Asia Group II base oils to US stays more complicated, especially for light grades.

·        Arbitrage to move Asia Group I bright stock to US stays more feasible.

·        Asia Group I SN 500/bright stock discount to domestic Chinese prices stays narrow, leaving arbitrage hard to work.

·        Asia Group I SN 150 discount to domestic Chinese prices stays wide – keeping arbitrage wide open.

·        Asia Group II base oils prices maintain premium to domestic Chinese prices – keeping arbitrage shut and incentivizing refiners to direct more supplies to other markets.

·        Closed arbitrage to China, and firmer domestic Chinese base oils premium to diesel, points to steadier demand, and sufficient domestic supply to cover the demand.