Global base oils – week of June 5: Price outlook - margins

·        Europe’s Group I/II base oils price premium to gasoil edges down from eight-month high in mid-May.

·        Group I base oil premium to gasoil still up more than $400/t since 2H Jan; Group II premium to gasoil still up more than $340/t since end-Feb.

·        High base oil premiums suggest strong demand and tight supply.

·        High base oil premiums incentivize refiners to boost base oils production.

·        Price signal to boost base oils production comes ahead of seasonal slowdown in demand during Q3 2023.

·        Asia Group I base oils premium to gasoil falls after peaking in early May at highest since end-2021.

·        Base oils premium remains up more than $250/t since 2H Jan.

·        Asia Group II premium to gasoil follows similar trend, still up more than $300/t since 2H Jan.

·        High base oils premium incentivizes Asia-Pacific refiners to increase output.

·        Signal to maintain higher output coincides with plant maintenance in NE/SE Asia, completion of maintenance in China, muted demand and further slowdown in demand in Q3.

·        China’s domestic Group II light-grade premium to Shandong diesel prices falls more steeply to lowest since early February.

·        Fall in base oils premium coincides with completion of more plant maintenance in China and likely rise in supply.

·        Premium remains relatively firm, but speed and size of recent fall could incentivize refiners to hold off raising output.

·        Fragility of base oils premium points to concern about ability of demand to absorb rise in supply.

·        US Group II posted prices maintain steep premium to heating oil prices.

·        Steady posted price premium contrasts with falling spot price premium to heating oil, and falling price premium to gasoil in other regions.

·        High premium incentivizes refiners to maintain or increase production.