Global base oils - week of July 31: Price outlook - arbitrage

·        Europe’s Group II prices maintain wide premium to US light-grade prices, wide premium to Asia heavy-grade prices.

·        Wide premium maintains incentive for refiners in US and Asia to target Europe and nearby markets with any surplus supplies.

·        Refiners face rising incentive to clear surplus in order to boost price leverage in face of sliding margins.

·        That incentive adds to attraction of targeting Europe with any surplus volumes.

·        Any significant drop in Europe’s Group II premium to US/Asia prices would point to oversupply in Europe or US/Asia producers cleared surplus.

·        Europe’s Group I export prices maintain steep premium to Asia prices.

·        Trend keeps shut arbitrage to move Europe Group I supplies to outlets like Mideast Gulf/India.

·        Trend sustains attraction of moving Asia Group I supplies to those markets instead.

·        Prolonged closure of Group I arbitrage from Europe since start of Q2 2023 suggests region avoided major supply-build even with closed arbitrage.

·        Trend suggests Europe’s Group I supply stays balanced-to-tight even with muted regional demand.

·        Asia’s Group II heavy-grade price discount to US prices widens, making more feasible the arbitrage to Americas.

·        Asia’s Group I bright stock discount to US prices widens even more, sustaining attraction of tapping that arbitrage.

·        China’s domestic Group I bright stock and Group II light/heavy price premium to fob Asia prices extends rise to widest in at least three months.

·        China’s firmer base oils prices versus fob Asia prices raise prospect of boosting attraction of moving more regional shipments to China.

·        Any such move would curb availability of surplus Asia-Pacific supplies for other more distant markets.

·        Any such trend would contrast with same time last year, when wave of Asia-Pacific shipments moved to more distant markets.