Global base oils – week of June 12: Price outlook - margins

·        Europe’s Group I base oils premium to diesel edges lower, stays close to highest since Aug 2022.

·        Europe’s Group II base oils premium to diesel falls faster than Group I base oils, stays high, and much higher than Q1 2023 levels.

·        Firm base oil values point to tight supply and firm demand, incentivize refiners to increase output.

·        Asia-Pacific Group I/II base oils premium to diesel falls to lowest in almost two months, stays much higher than 2H 2022 levels.

·        Falling base oils premium points to changing supply-demand fundamentals vs Q1 2023.

·        Relatively firm base oils premium vs historic levels suggests fundamentals stay tight, incentivize refiners to maintain higher output.

·        Steeper fall in Asia base oils premium than Europe base oils premium suggests fundamentals are tighter in Europe than in Asia.

·        China’s domestic Group II light-grade base oils premium to Shandong diesel recovers, stays down from Feb-May 2023 levels, well up from Q1-Q3 2022 levels.

·        China’s base oils premium to diesel likely to incentivize refiners to increase output, on top of likely rise in output following completion of round of plant maintenance work.

·        Any such move would likely impact China’s base oils imports requirements.

·        Major US Group II producers cut posted prices for third time this year amid weak market fundamentals.

·        Steady drop in posted prices contrasted with wave of posted price increases during same period last year.

·        US Group II posted price premium to heating oil falls to lowest since early-April, remains relatively firm.

·        Firm US posted price premium to heating oil incentivizes refiners to maintain higher output levels.