Global base oils - week of Oct 9: Price outlook - arbitrage

·        India’s imported base oil cargo prices lag the rise in US export prices in recent weeks, ICIS data shows.

·        Trend closes key arbitrage throughout mid-2023, when wave of US supplies moved to India.

·        India’s lagging import prices versus US base oils prices point to sufficient supply in Asia and Mideast Gulf to cover requirements in India over coming months.

·        India’s Group II light-grade base oils prices fall in October to widest discount to US export prices since Jan 2023.

·        Less feasible arbitrage contrasts with surge in US shipments to India in Q2-Q3 2023.

·        Wave of US shipments to India coincides with and help to cover for drop in supplies from South Korea to India, especially in Q2-Q3 2023.

·        South Korea’s base oils output recovers in July and especially August following completion of plant maintenance. Higher output raises prospect of pick-up in exports.

·        India likely to be a more attractive outlet than China for any such pick-up in South Korea’s base oils exports.

·        China’s domestic Group II prices stay unusually weak versus rising fob Asia cargo prices through September, curbing incentive to move supplies to China.

·        India’s imported base oil cargo prices keep pace with rising fob Asia cargo prices through September, even as they weaken versus US prices.

·        Steady premium of India’s imported cargo prices to fob Asia prices maintains feasibility of moving more supplies from Asia to India.

·        More feasible arbitrage provides outlet for South Korea’s rising supply.

·        Any rise in supplies from Asia markets like South Korea to India would cushion impact of weak Chinese demand.

·        Any rise in supplies from Asia markets like South Korea to India would cover for slowdown in India’s shipments from US.

·        Closed arbitrage from US to India in turn increases importance for US refiners to maintain open arbitrage to outlets like Mexico.