Global base oils - week of Sep 25: Price outlook - arbitrage

·        Prospect of tighter Group I base oils supply in Asia-Pacific and improving supply in Europe likely to impact arbitrage opportunities over coming months, ICIS data shows.

·        Asia-Pacific Group I base oils supply set to fall following planned closure of base oils unit in Japan in coming weeks.

·        Japan’s base oils exports already fell in first seven months of 2023 following closure of another Group I base oils plant in the country in 2H 2022.

·        Tighter supply in Asia would contrast with prospect of rise in Europe’s Group I base oils supply following the expected resumption of normal operations at a key plant in Italy in the coming weeks.

·        Recovery in Italy’s base oils supply in 2H 2022 added to Group I oversupply in Europe at end of last year and early this year.

·        Fall in Italy’s base oils supply from May 2023 compounded Europe’s recent Group I supply tightness.

·        Europe’s Group I supply likely to get a further boost in coming months from seasonal slowdown in regional demand at year-end.

·        Europe and Asia’s diverging supply trends suggest Asia Group I base oils prices could strengthen relative to Group I prices in other regions, especially Europe.

·        Asia’s Group I prices already show signs of firming versus prices in other regions in recent weeks.

·        Asia’s Group I bright stock prices rise to four-month high amid firmer fundamentals.

·        Domestic Chinese bright stock price premium to Asia Group I bright stock prices stays close to highest since Feb 2023 as domestic prices rise even faster than Asia prices.

·        Domestic price premium widens despite weak Chinese lube demand.

·        Wide domestic premium raises prospect of more Asia bright stock supplies staying within the region.

·        Trend contrasts with increasingly narrow Asia Group II price discount to domestic Chinese prices – keeping that arbitrage shut.

·        Asia’s Group I base oil price discount to domestic Europe prices continues to narrow in recent weeks but stays relatively wide.

·        Asia’s competitive Group I prices versus Europe this year triggered wave of Group I arbitrage shipments to Mideast Gulf and India.

·        Asia’s Group I bright stock discount to US export prices continues to slip in September to narrowest since Q1 2023 but stays wider than usual.

·        Wide discount sustains steady flow of Asia bright stock shipments to Latin America this year.

·        Still-wide price spread between Asia and Europe/US prices suggests either expectations of sufficient Group I base oils supply going forward, or that the market has yet to reflect prospect of tighter supply in the region.

·        A more significant narrowing of the spread between Asia and Europe/US prices would likely complicate an extension of this year’s arbitrage shipments from Asia to markets like Mideast Gulf and Latin America.