Global base oils margins outlook: Week of 7 Oct

·        Global base oils prices fall relative to feedstock/competing fuel prices as crude prices rebound.

·        Supply-demand fundamentals remain unchanged for now despite sudden volatility of base oils margins.

·        Margins volatility could prompt buyers and sellers to hold back until direction of prices and margins is clearer.

·        Firm base oils margins until end-Sept 2024 in most markets cushions for now impact of this month’s rise in crude oil and diesel prices.

·        Any further pressure on base oils margins would coincide with seasonal slowdown in demand, could add to incentive for refiners to adjust output accordingly.

·        FOB Asia base oils price premium to Singapore gasoil stays relatively firm even as it faces more downward pressure.

·        Still-firm base oils values highlight strength of base oils premium in recent months.

·        Firm base oils margins point to balanced-to-tight fundamentals in recent months.

·        Any extension of those firm fundamentals would provide leverage for refiners to adjust prices if margins face further downward pressure.

·        Any signs of weaker fundamentals would curb that leverage.

·        China’s domestic Group II light/heavy-grade premium to Shandong diesel price holds firm even as it falls from highest in more than a year at end-Sept 2024.

·        Sustained strength of China’s base oils margins points to more balanced fundamentals, incentivizes refiners to maintain or raise output.

·        CFR India Group II N70 premium to Singapore gasoil price faces additional downward pressure to lowest level since start of Q3 2024.

·        Any additional drop in N70 premium could leave it lagging year-earlier levels.

·        Any additional drop in N70 premium could leave it moving closer to levels that make less attractive the arbitrage to move shipments of very-light grade base oils to India.

·        Europe’s base oils price premium to VGO likely to face further downward pressure.

·        Any further slide in domestic Group I price premium to VGO would follow sharp drop in premium in H2 Sept 2024 after fall in outright price.

·        Europe Group II premium to VGO would remain relatively firm even with further drop in price differential vs VGO.

·        US Group II light-grade export price premium to heating oil/VGO trends sharply lower since early-Sept 2024.

·        US Group II light-grade export price-premium remains above price premium throughout most of year to mid-2024.

·        Still-firm light-grade premium sustains incentive for refiners to maintain or raise output of the product.