Global base oils margins outlook: Week of 20 Jan

·         Global base oils prices extend fall vs feedstock/competing fuel prices.

·         This month's rise in crude/diesel prices coincides with seasonally weak base oils supply-demand fundamentals in most markets.

·         Weak fundamentals complicate refiners’ ability to respond to rising costs and squeezed margins by adjusting prices higher.

·         Alternative is to adjust supply lower.

·         Asia’s base oils price premium to feedstock/gasoil prices extends slide.

·         FOB NE Asia Group II heavy-grade premium falls to lowest since Q3 2024; light-grade differential falls to lowest since Q3 2023.

·         FOB Asia Group I SN 150 price falls to widest discount to gasoil since Oct 2023.

·         Weakness of light-grade prices incentivizes refiners to cut run rates.

·         China’s domestic Group II N150 premium to Shandong diesel prices recovers after slumping the previous week.

·         Premium remains close to lowest since Q4 2023 even after partial recovery. 

·         Any extension of premium weakness would boost incentive for domestic refiners to focus on producing more diesel instead.

·         CFR India Group II N70 premium to Singapore gasoil prices extends slide to lowest since Q3 2023.

·         Sliding premium cuts attraction of moving very-light grades to India.

·         Sliding premium incentivizes refiners to focus on boosting diesel production instead.

·         Signs of base oils run-cuts point to some such moves already taking place.

·         Europe’s base oils prices extend fall vs VGO, with domestic SN 150 price premium falling to lowest since March 2024.

·         Europe’s Group III 4cSt (low) premium to VGO falls even more steeply to lowest since Q4 2020.

·         More rangebound Group I SN 150 premium contrasts with still-falling Group III 4cSt differential, pointing to still-diverging supply-demand fundamentals for the two grades.

·         US Group II domestic light-grade price premium to VGO falls less steeply than in other regions over past month.

·         US Group II domestic light-grade premium to VGO still falls well below year-earlier levels.

·         US Group II domestic heavy-grade premium to VGO falls even further below year-earlier levels.

·         Lower light/heavy-grade premium to VGO contrasts with firmer heating oil premium to crude.

·         Dynamic adds to incentive for refiners to adjust production accordingly.