Global base oils – week of June 26: Price outlook – arbitrage

·        Europe Group II prices maintain steep premium to US/Asia prices, especially for heavy grades.

·        Trend boosts attraction of moving more US/Asia shipments to the region.

·        Europe Group I price premium to Asia prices at widest since October 2022 – opening arbitrage opportunities to move cargoes to outlets that Europe spot shipments typically target.

·        Europe’s higher Group I base oils prices add to incentive for Chinese and Indian refiners to produce more supplies for domestic consumption and for export markets.

·        Wide Europe premium unlikely to attract Asia Group I supplies to Europe in view of limited surplus supply in Asia.

·        Wide Europe premium could attract more Group I supplies to Europe from Saudi Arabia.

·        Wide Europe Group I/II price premium to other markets adds to attraction of locating lubricants production in markets like Mideast Gulf, which benefits from arbitrage flows from Asia and US.

·        Higher Europe prices likely to boost demand in Turkey for Group I supplies of Russian origin.

·        Firm Europe Group III prices vs US/Asia likely to attract more premium-grade supplies to Europe.

·        More competitive US prices complicate arbitrage to move Group II prices from Asia to Americas, including for heavy grades.

·        Less feasible arbitrage contrasts with last year, when open arbitrage supported wave of Asia-Pacific shipments to Americas.

·        Fob Asia Group II prices maintain premium to domestic Chinese prices, keeping arbitrage shut.

·        Firmer Asia prices and muted Chinese demand incentivizes term buyers in China to redirect regional shipments to other markets to enjoy larger profit and avoid locking in loss.

·        Fob Asia Group I bright stock discount to domestic Chinese prices remains narrow, complicating arbitrage unless cargoes offered at discounted prices or Chinese prices rise.