Global base oils - week of Feb 5: Price outlook - arbitrage

·        Asia Group I bright stock prices extend rise vs other regions and vs feedstock/competing fuel prices in early 2024, ICIS data shows.

·        Asia bright stock prices extend rise as demand faces seasonal pick-up and supply gets even tighter.

·        Asia’s tighter supply-demand fundamentals for bright stock contrast with more plentiful supply in other regions like Europe.

·        Shipments from Europe to Mideast Gulf or India face logistical complications or delays, compounding supply tightness in Asia-Pacific region.

·        Asia’s Group I bright stock supply tightens in Q1 2024 because of plant maintenance work in Thailand, structural drop in output in Japan and limited arbitrage flows from Europe.

·        Thailand’s base oils output already falls to thirteen-month low at end-2023 ahead of plant shutdowns in Jan 2024.

·        Japan’s base oils exports extend fall at end-2023 to second lowest in more than a decade.

·        Fall in exports follows Group I plant closure in Japan in Q4 2023.

·        Tighter supply coincides with seasonal pick-up in demand in markets like China.

·        China’s domestic bright stock price holds close to highest level vs fob Asia prices in more than a year.

·        CFR India Group I bright stock premium to fob Asia prices rises in Jan 2024 to three-month high.

·        India’s Group I bright stock imports already fall to 13-month low in Dec 2023.

·        Firm demand and tight availability prompt regional buyers to turn to Mideast Gulf and Europe for bright stock supplies.

·        Availability of some surplus supply triggers slump in Europe’s bright stock export price in Jan 2024.

·        Fob Europe bright stock export price falls relative to CFR India price to largest discount in more than three years.

·        Wider price discount makes arbitrage more feasible.

·        Cargo vessels’ growing avoidance of Red Sea region complicates logistics of moving Group I supplies to India/UAE from suppliers west of the region.

·        Complicated logistics raise prospect of curbing or delaying shipments from other regions like Europe, or their moving to other markets instead, like West Africa.

·        Trend raises prospect of prolonging bright stock tightness in Asia-Pacific region until regional supply improves or demand starts to wane.

·        Asia’s rising bright stock prices raise prospect of speeding up that adjustment in supply-demand dynamics.