Global base oils - week of Oct 23: Price signals - arbitrage

·        Europe’s Group III base oils prices stay unusually weak versus gasoil and VGO, versus Group II base oils, and versus US Group III prices, ICIS data shows.

·        Trend points to falling demand and plentiful Group III base oils supply in Europe.

·        Weak Chinese Group III base oils consumption, rather than any rise in Chinese production and exports, is exacerbating Europe’s plentiful Group III base oils supply.

·        Europe’s Group III base oil price premium versus VGO slumps from start of Q2 2023 to lowest since 1H 2022.

·        Europe’s Group III price premium to regional Group II prices falls to narrowest level in almost a year.

·        Europe’s Group III prices flip to increasingly steep discount to US Group III prices since early Sep 2023.

·        Europe’s total Group III base oils supply rises slightly in first eight months of 2023, stays in narrow range vs 2021 and 2022.

·        Trend suggests Europe Group III prices face more pressure from shrinking demand for Group III base oils than from any significant rise in supply.

·        Composition of Europe’s Group III supply changes – supplies rise by 7pc in 2023 from Mideast Gulf and by 11pc from Asia-Pacific.

·        Cumulative additional volume from the two regions amounts to more than 55,000t in first eight months of 2023.

·        Europe’s rising supply from Mideast Gulf and Asia contrasts with fall in China’s Group III base oil imports from those two regions.

·        China’s imports from Mideast Gulf and southeast Asia fall by more than 20,000t, or 9pc, in first eight months of 2023.

·        China’s premium-grade imports from South Korea, which include Group III base oils, fall by 29,000t in first eight months of 2023.

·        China’s total base oils exports to Europe come to less than 7,000t in first eight months of 2023.

·        Trend suggests some Group III supplies from Asia and Mideast Gulf that previously moved to China are moving to Europe instead.

·        Trend suggests Europe’s Group III market faces more pressure from China’s shrinking demand for Group III base oils than from any rise in the country’s base oils exports.