Global base oils - week of July 24: Price outlook - arbitrage

·        Europe Group II premium to US/Asia prices continues to rise to widest level since start of year for some grades, to widest in more than a year for other grades.

·        Widening premium incentivizes sellers to lock in sales and direct any surplus volumes to Europe.

·        Wide premium could be short-lived if overseas refiners adjust output in a way that supports firmer prices or if European prices fall.

·        Wide Europe premium to other markets insinuates Europe requires additional volumes to cover requirements.

·        Europe Group III prices hold at levels that incentivize refiners to move more supplies to the region rather than to US.

·        Narrowing Europe Group III premium to Asia prices could deter flow of surplus supplies from that region to Europe.

·        Europe Group I prices maintain firm premium to Asia prices – incentivizing buyers in markets like India and Mideast Gulf to seek additional volumes from Asia.

·        Trend suggests Europe Group I market has scant surplus volumes that need clearing in overseas markets.

·        Asia’s Group II heavy-grade price discount to US prices widens further, making arbitrage more attractive again.

·        Asia’s Group I bright stock discount to US prices continues to widen.

·        Trend likely to sustain steady flow of Asia shipments of bright stock to Americas markets.

·        Asia’s Group I bright stock discount to domestic Chinese prices moves to widest in more than two months.

·        Discount stays below levels at start of 2023, but arbitrage more feasible than in recent weeks.

·        Asia Group II light-grade discount to domestic Chinese prices moves to widest in almost three months, boosting feasibility of arbitrage to China.

·        Relative strength of domestic Chinese prices vs Asia prices suggests China’s supply-demand fundamentals are improving relative to Asia market.