Global base oils margins outlook: Week of 1 July

·        Global base oils prices turn more mixed vs feedstock/competing fuel prices, pointing to diverging supply-demand trends in different regions.

·        Asia’s base oils prices extend sharp slide vs competing fuel prices, pointing to weaker supply-demand fundamentals and incentivizing refiners to adjust production levels accordingly.

·        Group I base oils prices in Europe and Group II prices in US hold firm or rise vs feedstock prices, pointing to firmer supply-demand fundamentals and boosting incentive for refiners to maintain or raise output.

·        Moves to sustain or raise output would coincide with a time of year, in July and August, when domestic demand in Europe and US typically faces a seasonal slowdown.  

·        FOB NE Asia Group II N150/N500 premium to gasoil extends slide to lowest since H1 April 2024.

·        FOB NE Asia Group II light-grade premium to gasoil falls faster than heavy grades, increasing discount to heavy grades to widest since early 2022.

·        Firmer heavy-grade prices relative to light grades partially cushion pressure on margins.

·        Any moves to maintain base oils output at current levels would coincide with weak demand throughout the region.

·        FOB Asia Group I base oils premium to gasoil falls less steeply than Group II prices.

·        Slower fall in Group I premium curbs pressure on refiners to adjust output accordingly.

·        China’s domestic Group II N150 base oils price premium to Shandong diesel prices holds steady in middle of narrow range it has maintained since end-2023.

·        Steady premium incentivizes China’s domestic refiners to maintain output levels.

·        Steady premium contrasts with slumping FOB NE Asia Group II premium to Singapore gasoil prices.

·        Steady premium coincides with/reflects signs of firmer domestic China Group II prices relative to FOB Asia cargo prices in recent weeks.

·        Diverging premiums point to firmer supply-demand trends in China relative to rest of Asia.

·        CFR India N70 premium to Singapore gasoil prices extends fall to lowest since Feb 2024.

·        Lower premium makes more marginal the feasibility of moving cargoes from Asia to India.

·        Lower premium incentivizes buyers to target lower FOB Asia cargo prices to make arbitrage more feasible.

·        Lower premium in turn curbs incentive for Asia’s refiners to produce more very-light grade base oils, raising prospect of slowdown in supply over coming months.

·        Europe’s domestic Group I light-grade base oils prices hold steadier vs VGO prices, contrasting with weaker Group II/III prices.

·        Trend reflects ongoing narrowing of Group II/III premium to Group I base oils.

·        Europe’s Group I export price premium to VGO rises, stays close to highest since late-2022.

·        More limited surplus availability in Europe supports and limits benefit of firm export price premium to VGO.

·        Europe’s domestic Group II light-grade price premium to VGO extends fall, slips less steeply than in Asia, more steeply than in US.

·        US Group II domestic prices edge up vs VGO after slipping since early June 2024.

·        US Group II domestic light-grade price premium to VGO holds firm, stays well above average levels over past year.

·        Firm Group II premium to VGO sustains incentive for refiners to maintain or raise base oils output.