Global base oils margins outlook: Week of 12 Aug

·        Global base oils prices remain firm or extend rise vs feedstock/competing fuel prices at a time of year when they typically face downward pressure.

·        Strong margins point to firm supply-demand fundamentals, incentivize refiners to increase or maintain high output levels.

·        FOB Asia Group I/II base oil price premium to Singapore gasoil extends rise, especially for Group II heavy grades.

·        Base oils premium extends rise at a time of year when regional demand faces a seasonal slowdown.

·        Rising base oils premium contrasts with falling premium at same time in summer 2022 and 2023.

·        Strength of base oils premium raises risk of higher base oils production and rise in surplus supply.

·        Sustained strength of base oils premium instead suggests that supply is at level that matches or lags demand.

·        China’s domestic Group II light-grade premium to Shandong diesel prices turns more volatile, dips to lowest since March 2024 but stays well above year-earlier levels.

·        China’s domestic Group I light-grade premium to diesel falls more sharply from multi-year high to lowest in almost four months.

·        China’s domestic base oils premiums to diesel remain at levels that incentivize refiners to maintain or raise output.

·        Sharper fall in the premium could point to more marked change in fundamentals.

·        Premium of CFR India Group II N70 price over Singapore gasoil extends sharp rebound to highest in more than two months.

·        Rising premium contrasts with same time a year earlier, when N70 differential fell to a discount to Singapore gasoil prices.

·        Rising premium incentivizes Asia’s refiners to offer more very-light grade base oils supplies.

·        Europe’s base oils prices extend rise vs VGO, contrast with dip in premium to VGO the same time a year ago.

·        Europe’s Group I light, heavy-grade price premium to VGO extends rise to highest since end-2022/early-2023.

·        Sustained strength of premium suggests any subsequent rise in output remains insufficient to cover demand.

·        Europe’s Group II light-grade premium to VGO rises to highest since start of 2024, pointing to still-firm supply-demand fundamentals.

·        Europe’s Group II price premium to VGO moves back above US Group II premium to VGO, with gap between the two unusually narrow since late-June 2024.

·        US Group II domestic light-grade premium to VGO holds at highest since May 2023.

·        US export light-grade price premium holds at highest since Oct 2022.

·        Firm premiums incentivize refiners to maximise base oils output.

·        Strength of base oils premium for extended period suggests supply continues to lag demand even with refiners facing sustained incentive to maintain high output levels.