Global base oils margins outlook: Week of 3 June

·        Global base oils prices mostly extend rise from already-high levels relative to feedstock/competing fuel prices.

·        Increasingly firm margins insinuate strong demand and tight supply, incentivize refiners to raise output.

·        Strong demand would help to absorb higher supplies.

·        Weak demand would struggle to absorb higher supplies.

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

·        FOB Asia Group I brightstock price premium to gasoil stays close to highest in more than two years but drops more than SN 150 and SN 500 premium.

·        In 2023, FOB Asia brightstock premium to gasoil rose from January to mid-May 2023, before slumping.

·        China’s domestic Group II N150 premium to Shandong diesel prices slips to lowest in more than a month, stays in narrow range since end-2023.

·        Premium falls even with planned shutdown of several domestic Group II base oils plants in May-June 2024.

·        CFR India N70 premium to Singapore gasoil prices hold close to highest since Nov 2023.

·        High premium sustains incentive for Asia’s refiners to maintain firm base oils output and sell very light grades into regional market rather than redirect the supplies back into diesel pool.

·        Europe’s domestic brightstock price premium to VGO rises to highest since H1 Jan 2024.

·        Premium rises faster than Group I light/heavy neutrals and faster than export price premium to VGO.

·        Firmer premium typically incentivizes refiners to boost output of the product.

·        Tighter regional base oils production capacity could curb such moves.

·        US Group II export price premium to VGO extends sharp rise to highest since H2 Nov 2023.

·        Rising export premium adds to incentive for refiners to boost output despite closed arbitrage to growing number of overseas markets.

·        US Group III 4cSt premium to VGO holds steady at low levels, after much smaller recovery than Group II price premium to VGO since mid-April 2024.