Global base oils - week of Oct 30: Price outlook - arbitrage

·        China’s Group II base oils prices stay unusually weak versus prices in Asia and other markets like India, ICIS data shows.

·        Low prices versus other markets point to a weaker-than-usual seasonal pick-up in China’s domestic lube demand from end-Q3 2023.

·        Price weakness contrasts with rebound in China’s base oils demand in Sep 2023, boosting buyers’ stocks.

·        Rebound in demand could point to stronger revival in domestic lube consumption.

·        Price weakness instead suggests China’s base oils demand could slow further as domestic blenders take longer than usual to consume those stocks.

·        China’s base oils imports rebound, exports slump and domestic output rises in September, pointing to pick-up in domestic demand in anticipation of firmer lube consumption.

·        China’s domestic Group II light-grade price premium to domestic diesel prices rebounds from Sep 2023, adding to signs of firmer demand.

·        Other signals point to concern about strength of the seasonal pick-up in lube consumption, and that those concerns are now being realized. 

·        Such a scenario would leave buyers looking to work down base oils supplies that built up during Sep 2023.

·        Surge in China’s September base oils imports fail to extend to shipments from Taiwan, which fall by more than half from Aug 2023.

·        Buyers hold off stock-building even ahead of shutdown of Taiwan’s Group II plant in Oct 2023 for maintenance work.

·        October-loading cargoes from Taiwan slump in response to the maintenance work. Even so, one rare October shipment moves to Philippines rather than to China.

·        China’s relative Group II price strength fails to extend beyond its recovery versus diesel.

·        China’s domestic Group II N150 price premium to fob Asia prices holds close to lowest in more than a year.

·        China’s falling domestic Group II N150 premium to fob Asia prices contrasts with surge in its premium in Q4 2022.

·        Prices for cfr northeast Asia Group II base oils strengthened versus cfr India prices during Q3 2023, pointing to firmer Chinese demand to attract more supplies.

·        Prices for cfr northeast Asia Group II base oils then slid from 2H Aug 2023 to steepest discount to cfr India prices in almost a year.

·        Group I bright stock is the outlier.

·        Prices for cfr NE Asia bright stock strengthened versus cfr India prices during Q3 2023, maintain small premium so far in Q4 2023.

·        China’s domestic bright stock price premium to fob Asia prices rises steadily since May 2023 to levels that exceed year-earlier levels.

·        Except for bright stock, price and supply signals suggest that China’s lube demand remains weak, and that Asia refiners should plan accordingly.