Global base oils - week of Aug 7: Price outlook - arbitrage

·        Europe Group II prices maintain steep premium to US Group II light-grade prices, even steeper premium to Asia Group II heavy-grade prices.

·        Steep premium incentivizes overseas sellers to continue to target Europe with surplus Group II volumes from US and Asia.

·        Possibility of higher prices in US and Asia could add to interest in locking in supplies at current prices to take advantage of current arbitrage opportunities.

·        Possibility of steady-to-higher prices in Europe boosts attraction of Group II arbitrage shipments whose value could rise during voyage to Europe.

·        Europe’s extended Group II price premium to Asia/US prices suggests sufficiently-firm fundamentals to sustain the premium.

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

·        Steep premium keeps shut the arbitrage to move Europe shipments to Mideast Gulf/India, sustains incentive for those markets to tap supplies from Asia instead.

·        Closed arbitrage from Europe increases possibility of regional supply-build.

·        Closed arbitrage from Europe for extended period suggests regional supply remains sufficiently balanced-to-tight to avoid needing outlets to clear any surplus.

·        Asia’s Group II heavy-grade discount to US prices stays wider, still much narrower than 2H 2022.

·        Asia’s Group I bright stock price discount to domestic Chinese prices stays at widest in more than three months, making arbitrage more feasible.

·        Asia’s Group II price discount to domestic Chinese prices stays at widest in more than three months, making arbitrage more feasible.

·        Any rise in domestic Chinese prices to boost squeezed margins would make arbitrage from Asia even more feasible.