Global base oil prices have mostly fallen as surplus supply has increased and demand has slowed. But the pace of the fall in prices has been uneven. Prices for some grades have fallen more steeply than others. Prices in some regions have held firm.
Prices for Group I bright stock have slumped in Asia-Pacific and in Europe. Prices have fallen as surplus supply has risen. Buyers have held back to curb their exposure to even lower prices. The weaker demand has added to the downward price pressure.
The size of the surge in bright stock prices in the first few months of the year has increased market concern about exposure to lower prices. In Asia-Pacific, fob Asia cargo prices for bright stock almost doubled in the first four months of the year to more than $1,800/t by early May, after they averaged around $650/t in 2020.
In Europe, bright stock prices more than doubled during the same period to more than $2,100/t, up from an average of $620/t last year.
Prices rose as a heavy round of plant maintenance and run-cuts had left supply unusually tight in both regions. Those shutdowns and run-cuts have ended.
Europe/Asia Group I bright stock prices slide
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The speed of the fall in Europe export bright stock prices has also far outpaced the drop in regional European prices for the same heavy-grade product. The trend partly reflected moves by regional refiners to clear surplus supplies through the export market. The move gave them more leverage to maintain more balanced supplies and steadier prices in their domestic markets.
The result has been an increase in the gap between regional and export bright stock prices to an unusually wide level. The discount of fob export bright stock to regional bright stock prices has widened to more than $260/t, from an already-wide $125/t in late July. The discount is usually less than $80/t.
The wide price-gap has boosted the attraction of moving arbitrage shipments to Europe from other markets like Asia-Pacific.
Europe export bright stock discount to regional prices widens
Base oil prices in the Americas markets remained the exception to the downward price pressure.
Prices have received support from limited surplus supply and firm demand. Concern about weather-related supply disruptions during the Atlantic hurricane season has added to the firm supply-demand fundamentals as buyers and sellers sought to build additional stocks as a buffer. The peak hurricane season still has more than a month to run.
The firm prices have widened even more their premium to Group I prices in Europe and the Baltic market and to Group II prices in Asia-Pacific.
The discount of fob Baltic SN 500 to US Gulf coast domestic prices has widened to more than $460/t in September. Baltic prices had been at a steep premium to US prices throughout most of the first half of the year.
The discount of fob Asia Group II light-grade prices to US domestic prices has increased to more than $520/t, widening from an average of around $320/t in the second quarter of the year. Asia Group II prices had been at a premium to US prices at the start of the year.
The wide premium has kept open the arbitrage to move supplies from Europe and Asia-Pacific to the Americas markets. A steady flow of shipments from those markets has moved to the Americas markets since the second quarter of the year. More such supplies are making that trip in September.
High US prices keep arbitrages open