· Global base oils values mostly extend gains versus feedstock and diesel prices as outright prices trend higher and crude and diesel prices stay lower.· Outright prices rise partly in response to tighter supply compared with Q1 2024.· Rising base oils prices and rising base oils premium to feedstock/diesel prices incentivize refiners to boost output.· Prices in destination markets like China, India and Middle East lag rise in prices in FOB markets like Asia, Europe and US.· Prices in destination markets lag rise in FOB prices amid signs of healthy availability of supply and ahead of seasonal slowdown in demand during summer months.· Disconnect between rising FOB prices and steady-to-lower CFR prices complicates arbitrage opportunities to growing number of markets.· Disconnect set to trigger drop in supplies to destination markets.· Trend leaves sellers in FOB markets with choice of maintaining prices by managing supply or maintaining supply by managing prices.· Asia-Pacific Group II price premium to regional gasoil prices rises in May 2024 to highest in at least a year..· Rebounding base oils premium incentivizes refiners to maintain or raise base oils output.· Group II prices in destination markets like China and India increasingly lag firmer FOB Asia cargo prices..· Group II prices in destination markets lag FOB prices amid signs of healthy availability of supply in destination markets.· India’s base oils imports rise to five-month high in April 2024, with supplies including wave of less regular shipments from sources like China, Indonesia and Turkey..· Healthy availability of supply and prospect of seasonal dip in demand during summer months cap upward pressure on CFR prices in destination markets.· Gap between FOB and CFR prices narrows in response, complicating arbitrage..· Mexico’s demand for Group II light-grade base oils from the US often shows signs of rising when US Group II prices dip to low levels relative to VGO and heating oil.· Surge in US base oil/lube exports to Mexico in Q1 2024 coincided with unusually weak US Group II prices relative to VGO and heating oil..· US Group II light-grade prices rebound relative to VGO and heating oil in Q2 2024.· Rebounding premium to VGO/heating oil raises prospect of curbing strength of Mexico’s demand for Group II light grades in Q2 2024..· Firm base oils margins and signs of more muted demand in key outlets raise prospect of several scenarios.· These range from buyers running tight on supplies at one extreme to refiners facing a growing surplus at the other.· A structurally oversupplied global base oils market suggests that the onus is more on refiners to avoid a growing surplus.· Refinery run-cuts could help to avoid such a scenario.· High base oils margins could deter such moves.· Either way, any moves to seek to simultaneously maintain margins and supply at current levels would send a signal to buyers that they would respond to accordingly..Global base oils margins outlook: Week of 27 May.Asia base oils demand outlook: Week of 27 May.Asia base oils supply outlook: Week of 27 May
· Global base oils values mostly extend gains versus feedstock and diesel prices as outright prices trend higher and crude and diesel prices stay lower.· Outright prices rise partly in response to tighter supply compared with Q1 2024.· Rising base oils prices and rising base oils premium to feedstock/diesel prices incentivize refiners to boost output.· Prices in destination markets like China, India and Middle East lag rise in prices in FOB markets like Asia, Europe and US.· Prices in destination markets lag rise in FOB prices amid signs of healthy availability of supply and ahead of seasonal slowdown in demand during summer months.· Disconnect between rising FOB prices and steady-to-lower CFR prices complicates arbitrage opportunities to growing number of markets.· Disconnect set to trigger drop in supplies to destination markets.· Trend leaves sellers in FOB markets with choice of maintaining prices by managing supply or maintaining supply by managing prices.· Asia-Pacific Group II price premium to regional gasoil prices rises in May 2024 to highest in at least a year..· Rebounding base oils premium incentivizes refiners to maintain or raise base oils output.· Group II prices in destination markets like China and India increasingly lag firmer FOB Asia cargo prices..· Group II prices in destination markets lag FOB prices amid signs of healthy availability of supply in destination markets.· India’s base oils imports rise to five-month high in April 2024, with supplies including wave of less regular shipments from sources like China, Indonesia and Turkey..· Healthy availability of supply and prospect of seasonal dip in demand during summer months cap upward pressure on CFR prices in destination markets.· Gap between FOB and CFR prices narrows in response, complicating arbitrage..· Mexico’s demand for Group II light-grade base oils from the US often shows signs of rising when US Group II prices dip to low levels relative to VGO and heating oil.· Surge in US base oil/lube exports to Mexico in Q1 2024 coincided with unusually weak US Group II prices relative to VGO and heating oil..· US Group II light-grade prices rebound relative to VGO and heating oil in Q2 2024.· Rebounding premium to VGO/heating oil raises prospect of curbing strength of Mexico’s demand for Group II light grades in Q2 2024..· Firm base oils margins and signs of more muted demand in key outlets raise prospect of several scenarios.· These range from buyers running tight on supplies at one extreme to refiners facing a growing surplus at the other.· A structurally oversupplied global base oils market suggests that the onus is more on refiners to avoid a growing surplus.· Refinery run-cuts could help to avoid such a scenario.· High base oils margins could deter such moves.· Either way, any moves to seek to simultaneously maintain margins and supply at current levels would send a signal to buyers that they would respond to accordingly..Global base oils margins outlook: Week of 27 May.Asia base oils demand outlook: Week of 27 May.Asia base oils supply outlook: Week of 27 May
