Global base oils - week of Jan 16: Price outlook

·        Europe/Asia Group II base oils values vs diesel slip to lowest in more than two months.

·        Widening Asia Group I/II discount to diesel incentivizes refiners to cut run rates.

·        China’s domestic Group II light-grade price premium to diesel extends slide, curbing attraction of boosting base oils output.

·        US refiners cut Group I/Group II/Group III/ naphthenic posted prices, after fall in spot prices in recent weeks.

·        US refiners cut light-grade posted prices more steeply than heavy-grade prices.

·        US light-grade posted price premium to heating oil falls more than $300/t since early December.

·        US light-grade/heavy-grade posted price premium to heating oil still much higher than Q1 2022 levels.

·        US heavy-grade posted price premium stays at steep premium to Asia-Pacific prices, maintaining feasibility of arbitrage shipments.  

·        Europe’s falling base oils premium to diesel incentivizes refiners to switch to producing other products, just weeks ahead of seasonal rise in demand.

·        Base oils spot prices reflect state of current market, rather than market in one-to-two months’ time.

·        Refineries’ supply adjustments take time to implement, raising risk of mismatch between current prices and future supply-demand fundamentals.

·        Such supply adjustments suggest price signals that reflect state of current market are inappropriate for decisions that affect supply in one-to-two months’ time.

·        Rising risk of insufficient supply in one to two months’ time raises likelihood of increase in price volatility during that time.

·        Predictability of price volatility means volatility could be better managed or avoided.

·        Europe Group II premium to Group I stays narrower than in Q2-Q3 2022, but still wide.

·        Asia Group II premium to Group I stays unusually narrow, incentivizing blenders to use more Group II.

·        Asia Group I bright stock premium to SN 500 rises to highest in more than a year as supply-demand fundamentals diverge.

·        Asia Group I discount to Europe prices narrows further, making arbitrage less feasible, increasing competition for Mideast Gulf/India markets.

·        Asia Group II discount stays wide to Europe, even wider to US – sustaining attraction of trans-Pacific shipments.

·        Firm US Group II heavy-grade prices complicate arbitrage to Europe.

·        Chinese domestic bright stock price premium to Asia cargo prices narrows, complicating arbitrage.

·        Domestic Chinese Group II light-grade prices maintain small discount to fob Asia cargo prices, complicating arbitrage.

·        Domestic Chinese Group II heavy-grade prices maintain premium to fob Asia cargo prices, boosting attraction of that arbitrage.

·        Wide discount of domestic Chinese Group II light-grade prices vs domestic prices for imported supplies cuts attraction of light-grade imports.

·        Less workable arbitrage leaves Chinese buyers more reliant on domestic supplies to cover any pick-up in demand in coming weeks.

·        Chinese buyers would face any pick-up in demand with low stocks, raising prospect of rapid price adjustments to attract additional supplies.