Global base oils margins outlook: Week of 26 Aug

·        Global base oils values extend rise vs feedstock/competing fuel prices to levels that insinuate increasingly tight supply-demand fundamentals.

·        Any signs of supply-demand fundamentals that are less tight than base oils margins imply could put pressure on margins to reflect the less tight fundamentals.

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

·        Group II heavy-grade premium to gasoil rises to highest since early June and close to highest in more than two years.

·        Premium extends rise at a time of year when it typically faces downward pressure.

·        Rising premium points to increasingly tight supply-demand fundamentals, incentivizes refiners to boost heavy-grade output.

·        Demand would need to be firm and to stay firm to avoid a subsequent supply-build.

·        China’s domestic Group II light-grade price premium to Shandong diesel prices holds firm.

·        China’s domestic Group II heavy-grade premium to Shandong diesel prices extends rise to highest in more than two years.

·        Firm-to-strong base oils values point to sufficient demand and limited surplus, incentivizing refiners to maintain or increase output.

·        CFR India Group II N70 premium to Singapore gasoil prices extends rise to three-month high.

·        Rising premium contrasts with N70 discount to gasoil prices the same time a year earlier.

·        Rising premium keeps arbitrage open, raising prospect of firm demand for very-light-grade supplies.

·        Rising premium incentivizes refiners to maintain higher base oils output and firm price offers relative to gasoil prices.

·        Europe’s Group I domestic/export price premium to VGO holds close to highest in more than a year even with lower outright prices.

·        Europe’s Group II N150 premium to VGO extends rise to highest in more than a year, and N500/600 premium to highest since start of this year.

·        Rising premium points to increasingly firm supply-demand fundamentals, incentivizing refiners to target Europe with more supplies.

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

·        US export Group II light-grade base oils price premium to VGO extends rise to highest since Q4 2022.

·        Weakness of US heating oil premium to crude magnifies relative strength of base oils premium to VGO.

·        Strength of base oils premium points to increasingly tight supply-demand fundamentals.

·        Any signs of demand that is insufficient to absorb supply could put pressure on the base oils premium to reflect less tight supply-demand fundamentals.