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

Europe Group II prices are maintaining a significant premium compared to both US Group II light-grade prices and Asia Group II heavy-grade prices.
This substantial premium is attracting overseas sellers to continue targeting Europe with surplus Group II volumes from the US and Asia.
The possibility of higher prices in the US and Asia further motivates interest in securing supplies at current prices to take advantage of arbitrage opportunities.
The steady-to-higher prices in Europe increase the appeal of Group II arbitrage shipments, as their value could rise during the voyage to Europe.
The extended Group II price premium in Europe compared to Asia and US prices indicates strong fundamentals that can sustain this premium.
Additionally, Europe's Group I prices also maintain a steep premium over Asia prices, which keeps the arbitrage for moving Europe shipments to the Mideast Gulf/India closed. This, in turn, sustains the incentive for these markets to tap supplies from Asia instead.
The closed arbitrage from Europe increases the possibility of a regional supply build, and its prolonged closure suggests that regional supply remains sufficiently balanced-to-tight, eliminating the need for outlets to clear any surplus.
Meanwhile, Asia's Group II heavy-grade discount to US prices remains wider than before but is still narrower than in the second half of 2022.
Asia's Group I bright stock price discount to domestic Chinese prices is currently at its widest in over three months, making arbitrage more feasible.
Furthermore, Asia's Group II price discount to domestic Chinese prices is also at its widest in over three months, further supporting arbitrage opportunities.
Any potential rise in domestic Chinese prices to boost squeezed margins would make arbitrage from Asia even more feasible.