Global base oils margins outlook: Week of 9 Sept

·        Global base oils values mostly extend rise vs feedstock/competing fuel prices after crude oil prices slide.

·        Base oils margins were already unusually firm, especially for the time of year.

·        Firm margins already incentivized refiners to raise or maintain high base oils output.

·        Further rise in margins could start to impact demand more than supply.

·        FOB Asia Group I/II base oils premium to Singapore gasoil extends strong rise, contrasts with year earlier when price differential was barely positive.

·        FOB NE Asia Group II heavy-grade premium to gasoil rises to highest since Q4 2021, adding to incentive for refiners to maximise output.

·        Sustained strength of base oils premium points either to rising supply-build or to tighter-than-expected supply even with refiners boosting output.

·        China’s domestic Group II N150 base oils price premium to Shandong diesel prices extends rise to highest in almost four months; N500 premium rises to highest since late-2021.

·        Persistently-firm Group II premium to diesel prices through Q3 2024 contrasts with slump in premium in Q3 2023, points to strong supply-demand fundamentals.

·        CFR India Group II N70 premium to Singapore gasoil price rises to highest since Nov 2023.

·        Rising N70 premium keeps arbitrage open, incentivizes refiners to maximise sales for base oils market.

·        N70 premium stays higher than usual for most of past five months, even at a time when India’s lube demand usually faces slowdown during monsoon season.

·        Persistently high premium points to balanced-to-tight supply even with refiners incentivized to maximise output and sales of the product.

·        Europe Group I base oils premium to VGO holds firm in narrow range since early-Aug 2024.

·        Europe Group III 4cSt (low) base oils premium to VGO extends strong rebound since early-July 2024, climbing to highest since early Feb 2024.

·        Rising Group III premium outpaces firm Group I/Group II premium to VGO.

·        Rising Group III premium to VGO coincides with plant maintenance work in Asia and then in Europe.

·        US Group II light-grade export price-premium to VGO extends rise to highest since end-Q2 2022.

·        Steep premium incentivizes refiners to maintain or raise base oils output.

·        Persistently steep premium suggests supply remains tighter than usual even with that incentive to raise output.

·        Steep premium gives refiners the room to adjust prices and still maintain steep premium to VGO.