Global base oils - week of May 15: Price outlook - margins

·        Europe’s Group I base oils price premium to diesel rises to highest since July 2022, implying unusually tight supply and strong demand.

·        Europe’s Group II base oils price premium to diesel steadies at highest since September 2022, implying tight supply and firm demand.

·        Firm base oil premium to diesel incentivizes refiners to produce more base oils, boosting supply to plug implied shortfall.

·        If supply-demand fundamentals are less strong than price premium implies, market faces prospect of rising surplus supply.

·        Asia-Pacific Group I price premium to diesel holds close to highest since end-2021.

·        Asia Group II premium holds at highest since July 2022.

·        Firm Asia-Pacific base oils prices versus diesel and crude incentivize Asia’s refiners to boost base oils output – cushioning impact of plant maintenance work.

·        Asia’s base oils producers could seek to maintain prices in response to tighter supply over coming weeks.

·        Asia’s buyers likely to target lower prices or cut requirements as slower demand limits urgency to secure additional volumes.

·        Asia’s producers have incentive to sustain steady demand over coming weeks and to cut inventories ahead of slowdown in activity during summer months.

·        Domestic Chinese Group II light-grade price premium to diesel prices holds in a narrow range close to recent highs.

·        Firm base oil premium to diesel incentivizes refiners to produce more base oils.

·        Prospect of seasonal slowdown in diesel consumption could add to that incentive.

·        Firm premium to diesel implies strong demand and tight supply.

·        China’s supply is likely to improve as plant maintenance work draws to a close.

·        Prospect of rise in supply and still-muted demand could put pressure on base oil premium to diesel.

·        US base oils prices maintain higher premium vs diesel than before wave of posted price-cuts in April.

·        Buyers’ concern that US producers would cut prices had been a factor behind weaker-than-usual demand in late Q1/early Q2 2023.

·        US prices’ sustained strength vs diesel could revive that concern.