Global base oils – week of July 3: Price outlook – arbitrage

·        Europe’s Group II base oils prices maintain steep premium to US/Asia prices.

·        Trend incentivizes more shipments to move to Europe and to markets that Europe typically supplies.

·        Europe’s Group I premium to Asia stays wide even as it narrows.

·        Narrower Europe Group I premium to Asia could deter buyers from seeking supplies from Asia until they are comfortable that premium is unlikely to narrow any further.

·        Europe Group III prices remain at levels likely to incentivize overseas refiners to target the region even as the prices weaken vs US and Asia prices.

·        Any continuation of that trend could incentivize refiners to move more Group III supplies to US instead.

·        Arbitrage to move Asia Group II supplies to US remains hard to work, especially for light grades.

·        Arbitrage to move Asia Group I bright stock to US remains more feasible, as steady flows moved from the region to Latin America.

·        Arbitrage to move Asia Group II base oils to China stays shut, complicating shipments for term buyers in China.

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

·        Trends likely to prolong flow of larger-than-usual volumes of Group II base oils to southeast Asia and Group I bright stock to markets like India.

·        Arbitrage to move Asia Group I SN 150 to China stays wide open, contrasting with steady flow of exports of the grade from China.