Global base oils margins outlook: Week of 2 Sept

·        Global base oils prices stay unusually firm vs feedstock/competing fuel prices even as premiums edge lower.

·        Firm base oils values point to strong supply-demand fundamentals, incentivize refiners to maintain high output.

·        Higher output sustains need for demand to stay firm to avoid supply-build.

·        FOB Asia Group I/II base oils price premium to Singapore gasoil price edges lower, stays unusually high.

·        FOB Asia Group II N500 premium to Singapore gasoil holds close to highest since Q4 2021 at a time of year when it is usually much lower.

·        Sustained strength of base oils premium suggests regional refiners’ supply remained at a level that avoided the need for sharp price adjustments.

·        China’s domestic Group II N150 premium to Shandong diesel prices holds firm, stays in narrow range for almost three months, contrasts with slump in premium during same period a year earlier.

·        China’s domestic Group II N500 premium to diesel extends rise to highest in more than two years.

·        Strength of premium points to strong supply-demand fundamentals for the heavy-grade base oil.

·        CFR India Group II N70 premium to Singapore gasoil price edges down, holds close to highest since H1 June 2024, contrasts with discount to gasoil the same time a year earlier.

·        Premium holds firm even during monsoon season, when India’s demand typical ebbs.

·        Firm premium keeps open the arbitrage to move more very-light grade base oils to India, incentivizes Asia’s refiners to maintain higher output of the grade.

·        Europe’s domestic Group I light-grade premium to VGO edges down to lowest in more than a month, stays well above year-earlier levels.

·        Europe’s Group II light-grade premium to VGO falls less steeply, holds close to highest since start of 2024.

·        Trend extends pattern of Group II light-grade values firming relative to Group I values over past month.

·        Still-high premium for Group I/II base oils incentivizes refiners to maintain or raise output levels of the grades.

·        US Group II export light-grade premium to VGO edges down, holds close to highest since Q4 2022; domestic premium holds close to highest since Q2 2023.

·        Strength of price premium points to tight supply-demand fundamentals, incentivizes refiners to maximise output.

·        Dynamic could trigger faster build-up of surplus supply if strength of demand is weaker than any supply-tightness.

·        US Group II light-grade posted price premium to VGO stays high even after refiner’s price adjustment at start of Sept 2024.