Global base oils - week of Dec 4: Price outlook - arbitrage

·        Europe’s Group I base oils prices hold steadier than usual at a time of year when they typically fall, ICIS data shows.

·        Steady prices coincide with supply-demand fundamentals that are more balanced than usual for the time of year.

·        More balanced fundamentals at end-2023 raises prospect of earlier pick-up in demand at start of 2024.

·        Europe’s Group I base oils prices extend rise versus VGO throughout Q4 2023, exceed year-to-date average levels.

·        Rising Group I prices versus VGO contrast with slump in Group I premium to VGO in Q4 2021 and Q4 2022.

·        Lower premium to VGO at year-end often reflects supply-demand imbalance as blenders cut inventories and producers cut prices to clear surplus supplies.

·        Rising premium to VGO this year adds to signs of smaller-than-usual supply surplus.

·        Group I price strength is relative.

·        Higher Group I premium to VGO in Q4 2023 remains lower than falling Group I premium to VGO in Q4 2022.

·        Relatively lower Group I premium to VGO continues to curb incentive for refiners to boost output in Q4 2023.

·        High Group I premium to VGO in Q2-Q3 2022 incentivized refiners to maintain or raise base oils output, adding to surplus at end-2022.

·        Europe’s Group I supply in Q3 2023 holds unusually low at similar levels to Q2 2023 and down more than 10pc yoy.  

·        Quarterly volume holds close to lowest in more than five years.

·        Lower Group I supply in Q3 2023 counters impact of seasonal drop in lube demand, curbs supply-build ahead of Q4 2023.

·        Europe’s Group I market faces additional requirements from Asia-Pacific in Q4 2023 following closure of Group I plant in Japan in Oct 2023.

·        Europe’s lube demand extends contraction through Q3 2023, but at slower pace than in 1H 2023 and Q4 2022.

·        Europe’s blenders maintain low stocks throughout 2023 in response to sustained slowdown in demand.

·        Blenders built large stocks in Q1-Q3 2022 as concern about security of supply took precedence over slowdown in lube demand.

·        Blenders’ lower stocks this year and expectations of steadier base oils prices likely to limit size of drop in demand at year-end.

·        More balanced supply and steadier demand at year-end likely to curb volume of surplus supplies carried into start of 2024.

·        More balanced fundamentals raise prospect of easing the kind of pressure that base oils prices typically face in the month of January each year.