Global base oils - week of May 29: Price outlook - arbitrage

·        Europe’s widening Group II premium to US/Asia prices boosts its attraction as destination for arbitrage supplies from both markets.

·        Europe’s widening Group II premium to US/Asia prices suggests Europe supply is tight and in need of additional volumes.

·        Europe’s widening Group II premium to US/Asia prices boosts attraction of moving arbitrage supplies to markets that Europe supplies, such as West Africa and Mideast Gulf.

·        Europe’s widening Group I premium to Asia prices cuts off outlets for Europe supplies, boosts attraction of moving Asia shipments to markets like India and Mideast Gulf.

·        Europe’s widening Group I premium to Asia may get more problematic as supply improves and demand slows.

·        Europe’s narrowing Group III discount to US prices sustains attraction of moving more premium-grade supplies to Europe.

·        Less attractive arbitrage to move Asia supplies to US leaves Asia refiners facing prospect of moving more shipments to Europe or of cutting prices.

·        More competitive US prices add to competition with Asia producers for markets like India as outlet for surplus supplies.

·        Trend adds to pressure on Asia producers to cut prices or cut supply.

·        Falling domestic Chinese bright stock prices cancel out impact of lower fob Asia prices.

·        Arbitrage to move Asia bright stock cargoes to China stays hard to work.

·        Fob Asia Group II prices move to premium to domestic Chinese prices – incentivizing refiners to redirect supplies to other markets instead.

·        Closed arbitrage suggests recovery in Chinese demand remains weaker than expected and that domestic supply is sufficient.