Global base oils - week of Aug 21: Price outlook - margins

·        Global base oils values stay unusually low relative to diesel prices even as outright prices edge higher in some markets.

·        Low base oils values vs diesel incentivize refiners to cut run-rates / focus on producing more diesel.

·        Firm diesel values vs crude oil add to refiners’ incentive to produce more of the motor fuel.

·        Any resistance from buyers to higher prices adds to refiners’ incentive to cut base oils production instead.

·        Any extended period of low base oils values vs diesel suggests markets face weak demand, plentiful supply.

·        Demand faces prospect of seasonal pick-up in coming weeks; supply shows signs of avoiding significant build-up of surplus volumes during Q3 2023.

·        Europe’s Group I base oils premium to diesel bottoms out in 1H Aug, still down more than $300/t since late June.

·        Europe’s Group II base oils premium to diesel holds at lowest since 1H March 2023, close to lowest levels in more than two years.

·         Asia’s Group I/II prices stop falling vs diesel, maintain steep discount to diesel.

·        Asia Group I discount to diesel holds at lowest since Nov 2022.

·        Domestic China Group II light-grade premium to diesel steadies in 1H Aug, holds close to lowest since Oct 2022.

·        US Group II light-grade posted-price premium to heating oil rises in 1H Aug after refiners raise posted prices.

·        Base oils premium still down more than $160/t since late June 2023, close to lowest since end-Oct 2022.