Global base oils margins outlook: Week of 16 Sept

·        Global base oils prices extend rise vs feedstock/competing fuel prices, pointing to increasingly tight supply-demand fundamentals.

·        Firm margins that point to tight fundamentals coincide with signs of sufficient supply in most markets combined with cautious buying interest.

·        Any prolonged disconnect between strong margins and signs of more balanced fundamentals could magnify size of any subsequent price adjustment.

·        FOB Asia Group I base oils prices and Group II heavy-grade base oils prices extend rise relative to Singapore gasoil to multi-year high.

·        Surging base oils premium points to increasingly tight fundamentals, incentivizes refiners to maximise output.

·        Rising incentive to maximise output increases risk of disconnect between supply and demand, and growing risk of supply mismatch in response.

·        China’s domestic Group II N500 and Group I SN 150/SN 400 premium to Shandong diesel prices extends strong rise to multi-month high.

·        Rising premium points to firm fundamentals, incentivizes refiners to boost output.

·        Surge in Group I heavy-neutrals premium precedes closure of major Group I unit in China.

·        CFR India Group II N70 premium to Singapore gasoil price edges down, holds close to highest this year.

·        Firm premium keeps arbitrage to India open, incentivizes refiners to maximise output and keep very-light grade supplies in base oils market.

·        Europe’s base oils prices extend rise vs VGO prices, with Group I values at their highest since late-2022 or early 2023.

·        Europe’s Group II/III base oils price premium to VGO rises faster than Group I since early Aug 2024.

·        Group II/III premium rises faster even as supplies of premium-grade base oils stay readily available or increase vs Q2 2024.

·        US base oils price premium to VGO extends rise, with Group II light-grade premium climbing to highest in more than a year.

·        US Group III 4cSt premium to VGO also rises, to highest since H1 Aug 2024.

·        Narrow gap between Group II N100 and Group III 4cSt base oils premium boosts incentive for refiners to increase output of Group II more than Group III base oils.