Global base oils margins outlook: Week of 28 Oct

·        Global base oils values are more mixed relative to feedstock/competing fuel prices, with Asia and Europe price differentials mostly steadier and US margins extending their fall.

·        Contrasting trends point to differing supply-demand fundamentals in the various markets, with the US facing the most pressure from surplus supply.

·        Base oils margins set to get boost from fall in crude oil prices at start of this week.

·        Those margins are likely to face more pressure in markets with weaker supply-demand fundamentals.

·        FOB Asia Group I/II base oils prices stay firm vs Singapore gasoil prices even as they edge lower.

·        Base oils margins mostly trend higher and hold firm for most of past year.

·        Regional supply stays balanced to tight even as firm margins incentivize refiners to maintain or raise output.

·        Dynamic points to impact of firmer demand and drop in structural supply, curbing any significant supply-build.

·        China’s domestic Group II light-grade price premium to Shandong diesel price continues gradual downward trend.

·        Base oils premium faced sharper downward pressure during Q4 in 2022 and 2023, before rebounding strongly from end of the quarter.

·        Falling premium during that period in 2023 and 2023 coincided with seasonal dip in demand before year-end.

·        Falling premium this year shows signs of following similar trend.

·        CFR India Group II N70 premium to Singapore gasoil holds well above recent lows in H1 Oct 2024, well below recent high in mid-Sept 2024.

·        Premium holds at level that likely sustains incentive for refiners to offer very-light grade supplies into base oils market.

·        Premium holds in relatively narrow range so far in 2024, contrasting with more extreme volatility in recent years.

·        Steadier premium points to more balanced supply-demand fundamentals this year.

·        Europe domestic Group II N150 premium to VGO falls to lowest in more than three months.

·        Lower premium contrasts with steadier premium for Group II heavy-grade base oils and for Group I SN 150.

·        Steeper fall in N150 premium could point to diverging supply-demand fundamentals for Group II light grades compared with Group II heavy grades and Group I base oils.

·        Europe Group II light-grade premium to VGO falls more steeply than US light-grade premium to VGO.

·        US Group II premium to VGO had mostly fallen more steeply than Europe Group II premium since early-Aug 2024.

·        US Group II export light/heavy-grade premium to VGO extends fall, with light-grade differential dipping to lowest since May 2024.

·        Sliding price premium, and prospect of premium extending that fall over coming months, could incentivize refiners to adjust output accordingly.