Global base oils margins outlook: Week of 16 June

·         Global base oils margins fall as feedstock/competing fuel prices surge.

·         Sharp fall in base oils margins reflect impact of higher crude/diesel prices rather than any sudden change in base oils supply-demand fundamentals.

·         Fall in base oils margins comes at a time of year when supply-demand fundamentals are already starting to face downward pressure.

·         Any extension of margins weakness would add to signs of softening supply-demand fundamentals that are insufficient to support rise in outright prices.

·         FOB Asia base oils price-premium to Singapore gasoil price falls sharply.

·         Falling price-premium mirrors similar trend in June 2024, when margins subsequently recovered from early-July 2024.

·         Falling price-differentials leave light-grade prices at increasingly narrow premium to gasoil.

·         Any extension of that trend would incentivize refiners to cut base oils output.

·         Any extension of that trend would point to increasingly weak supply-demand fundamentals.

·         Outright prices could face upward pressure to support firmer margins if supply-demand fundamentals are less weak than current margins suggest.

·         Domestic China Group II N150 premium to Shandong diesel price extends slide to lowest in more than three months.

·         Domestic China N500 premium to diesel falls to lowest in more than seven months.

·         Any extension of base oils premium holding at lower levels or falling further would point to increasingly weak supply-demand fundamentals.

·         Any extension of base oils premium-weakness would increase incentive for refiners to cut output and produce more diesel instead.

·         CFR India Group II N70 premium to Singapore gasoil falls to lowest in more than four months and by more than $100/tonne since early-May 2025.

·         Sharp fall in N70 premium contrasts with still-wide CFR N70 discount to India’s domestic diesel prices.

·         Wide N70 discount to domestic diesel prices could support ongoing buying interest for very-light-grade base oils.

·         Sharp fall in N70 premium to Singapore gasoil cuts attraction of moving arbitrage shipments from Asia to India.

·         Any extension of trend could incentivize refiners to produce more diesel instead of very-light-grade base oils.

·         Dynamic raises prospect of drop in supply combined with still-firm demand.

·         Europe’s Group I/II light-grade price premium to vacuum gasoil (VGO) falls even before surge in crude oil prices from end of last week.

·         Lower price-differentials follow more rangebound price-premium to VGO for light and heavy grades in May 2025.

·         Steady, then lower-price premium could reflect supply-demand fundamentals tightness peaking in recent weeks, and prospect of easing tightness in coming weeks.

·         Any signs of easing supply tightness could complicate any moves by refiners or distributors to adjust prices in response to squeezed margins.

·         Refiners likely to have more leverage to support firmer margins for supplies that continue to face tighter availability. 

·         US Group II base oils price-premium to VGO likely to fall after holding in narrow range over last two months.

·         Even with drop in price differentials, Group II premium to VGO would remain in relatively narrow range that it has held in since beginning of 2025.

·         Narrow price-premium range contrasts with slump then surge in price premium in H1 2024.

·         Steadier price premium, at relatively firm level, points to more balanced supply-demand fundamentals this year compared with H1 2024.

·         Steadier price-premium at relatively firm level could curb any immediate upward pressure on outright prices unless crude prices extend their recent strong gains.