Global base oils - week of Jan 8: Price outlook - arbitrage

·       Global base oils values hold firm versus feedstock/competing fuel prices at end-2023/early 2024, ICIS data shows.

·       Base oils values hold firm at a time of year when they usually face downward pressure because of weaker supply-demand fundamentals.

·       Expectations of downward price pressure usually add to buyers’ preference to hold off in first few weeks of January each year, compounding demand weakness.

·       Signs of steadier supply-demand fundamentals could limit downward pressure on base oils values at start of 2024.

·       Signs of steadier base oils values could in turn add to support for an earlier recovery in demand during Q1 2024.

·       Lube demand in key global markets likely to rise in Q1 2024 from Q4 2023, following slide in Q4 demand from Q3 2023.

·       Lube demand in Asia, Europe and Latin America combined is forecast to rise by more than 300,000t in Q1 2024 vs Q4 2023.

·       Lube demand in those markets rose by almost 310,000t in Q1 2023 vs Q4 2022.

·       Blenders slashed high base oils stocks from 2H 2022, cutting impact of rise in lube demand in Q1 2023 from Q4 2022.

·       Blenders held lower base oils stocks at end-2023.

·       Blenders’ lower stocks raise prospect of increasing the impact of likely rise in lube demand in Q1 2024 from Q4 2023.

·       Build-up of surplus global base oils supply shows signs of being smaller in Q4 2023 vs Q4 2022.

·       Arbitrage to move Group I cargoes from Asia/Europe to India/Mideast Gulf stays hard to work in recent weeks, reflecting tighter regional supply.

·       Arbitrage to move Group II cargoes from US to India stays easier to work.

·       Open arbitrage reflects signs of surplus US supply, as well as prices that make feasible the removal of the volumes from the US.

·       Prospect of smaller global supply surplus at start of 2024 would coincide with likelihood of stronger impact of seasonal recovery in lube demand.

·       Combination of those supply-demand dynamics would contrast with start of 2023, when base oils values slumped versus VGO/gasoil in first few weeks of the year.