Global base oils - week of Oct 23: Price outlook - margins

·        Global base oils prices hold onto most of their recent gains vs gasoil/feedstock prices since 1H Sep 2023 even as they slip from recent highs, ICIS data shows.

·        Global domestic base oils values stay weak vs last two years, firm vs pre-2021 levels.

·        Global export prices stay weak vs diesel, especially for Group I in Europe and Asia, and Group II light grades in US.

·        Trend incentivizes refiners to focus on covering requirements in domestic markets and minimizing surplus volumes for export markets.

·        Seasonal slowdown in domestic demand in Americas/Europe in fourth quarter likely to free up surplus supplies that had been planned for domestic markets.

·        Lack of attraction of export market could incentivize refiners to cut output levels to curb surplus over coming months.

·        Fob Asia Group II prices maintain premium to gasoil close to highest since early July 2023.

·        Fob Asia Group I light-grade prices stay at discount to gasoil, heavy-neutrals maintain small premium to gasoil.

·        Group I prices especially deter refiners from producing additional supplies for export market.

·        China’s domestic Group II light-grade price premium to Shandong diesel prices hold firm close to highest since early July 2023, stay low vs 1H 2023 levels.

·        Firmer Group II values vs diesel could incentivize domestic refiners to divert less base oils feedstock or light-grades into diesel pool.

·        Europe’s Group I export light-grade prices slip back to discount to gasoil prices, stay firmer than Q3 2023 levels.

·        Europe’s Group I/II domestic light-grade price premium to VGO stays above mid-Sep 2023 lows, remains low vs 2021-2022 levels.

·        Low levels incentivize refiners to produce sufficient supplies to cover term commitments only.

·        US export Group II price premium to heating oil remains more than $200/t above lows in 2H Aug 2023.

·        US export Group II premium to heating oil holds firm vs levels throughout 2023, when levels have been unusually low.

·        US export Group II heavy-grade prices maintain steep premium to light grades, incentivizing refiners to maintain output if they can place the surplus light grades.

·        US domestic Group II light-grade values vs VGO trend higher but stay low vs 1H 2023 and 2021-2022.

·        US domestic Group III premium to VGO similarly trends higher from mid-Sep 2023 lows.

·        US domestic Group III premium to VGO stays unusually low vs 2021-1H 2023 levels, still firm vs pre-2021 levels.