Global base oils - week of Oct 2: Price outlook - margins

·        Global base oils prices hold firm or edge up vs diesel and feedstock prices as outright prices extend gains, ICIS data shows.

·        Global base oils prices remain unusually low vs diesel/feedstock prices.

·        Global base oils values remain low as high diesel/feedstock prices counter most of the rise in outright base oils prices.

·        Base oils values and diesel values hold at levels that incentivize refiners to produce more middle distillates and to trim base oils production.

·        Base oils values fell to steeper discounts to diesel in US and Asia than in Europe in Q3 2023.

·        Base oils values vs diesel rebound more steeply in US and Asia than in Europe.

·        Trend could start to ease incentive for refiners in US and Asia to minimize base oils production. 

·        Fob Asia Group I light/heavy neutrals maintain discount to gasoil.

·        Fob Asia Group II light/heavy neutrals maintain small premium to gasoil.

·        Fob Asia Group II light-grade differential to gasoil bottoms out in early-Aug 2023, recovers by close to $90/t since then.

·        Domestic China Group II light-grade premium to Shandong diesel rebounds to highest in more than two months.

·        Base oils premium remains in narrow range, close to lowest since Q4 2022.

·        Low base oils premium and firm domestic diesel premium to crude oil incentivize refiners to prioritise diesel production.

·        China’s base oils premium to diesel rebounded in Q4 2022, coinciding with seasonal pick-up in demand and ahead of removal of zero-Covid policies from late-2022.

·        China’s base oils premium to diesel so far shows little sign of repeating that rebound.

·        Europe export Group I light-grade prices maintain discount to gasoil, heavy-neutrals barely maintain premium to gasoil.

·        Domestic Europe Group I light-grade premium to VGO steadies close to five-month low.

·        Domestic Europe Group II light-grade premium to VGO steadies at lowest since Q1 2022.

·        Domestic Europe Group III light-grade premium to VGO steadies at lowest since Q2 2022.

·        Europe premium-grade premium to VGO/gasoil falls more sharply than Group I base oils, incentivizes suppliers to limit volumes for European market.

·        US Group II light-grade export prices revert to close to parity with heating oil prices, vs steep discount in late-Aug 2023.

·        Recovery fails to extend to US Group III domestic prices, whose premium to heating oil holds close to lowest in almost a year.

·        US base oils price premium to VGO rises.

·        Size of increase in base oils premium to VGO stays small, keeping premium close to lowest since 1H 2022.