Global base oils - week of May 22: Price outlook - margins

·        Europe’s Group I base oils price premium to diesel edges down, holds close to highest since Aug 2022 after rising more than $450/t since 2H Jan.

·        Europe’s Group II base oils price premium to diesel edges down, holds close to highest since Sep 2022.

·        Firm base oils premiums insinuate strong supply-demand fundamentals, incentivize refiners to boost production.

·        Refiners face challenge of balancing firm margins with likely slowdown in demand in Q3 2023.

·        Asia Group I base oils price premium to diesel falls over past week, stays unusually firm close to highest since July 2022.

·        Asia Group II base oils price premium to diesel falls over past week, stays close to highest since July 2022.

·        Firm premiums suggest strong supply-demand fundamentals – at a time when plant-maintenance trims regional supply, while demand slows vs Q1.

·        Firm premiums incentivize regional refiners to raise base oils output.

·        Domestic China light-grade Group II premium to diesel falls to lowest since early March, still holding close to highest in more than a year.

·        Premium maintains firm level since mid-Feb 2023, incentivizing domestic refiners to boost base oils output.

·        Firm premium coincides with expectations of weakening supply-demand fundamentals.

·        Relatively weaker diesel premium to crude adds to attraction of producing more base oils.

·        US posted price premium to diesel slips but stays elevated at levels that insinuate strong supply-demand fundamentals.

·        Strong US base oils premium to diesel incentivizes refiners to boost base oils production.

·        Strong US base oils premium raises likelihood of boosting supply, prolonging surplus.