· Base oils producers’ lower Q1 2023 profit from Q4 2022 contrasts with global blenders’ improved profit.
· Trend reflects impact of lower base oils prices in Q1 and higher lubricants prices that were implemented throughout 2022.
· Trend highlights natural hedge for companies that produce base oils and lubricants.
· Global prices likely to face downward pressure from lower crude oil/diesel prices.
· Prices faced less downward pressure when crude oil prices fell even lower in March 2023.
· Growing downward price pressure would coincide with weaker demand fundamentals in Asia compared with March, and still-cautious demand in Americas/Europe.
· Europe Group I base oils premium to diesel rises by more than $450/t since 2H January to highest since August 2022.
· Europe Group II base oils premium to diesel rises by more than $350/t since late February to highest since September 2022.
· Europe Group I/II base oils premium to diesel remains down from year-earlier levels. But gap is narrowing.
· Europe Group I/II premium to diesel surged in Q2 2022 as concern about security of supply triggered surge in demand, tightening supply.
· Europe Group I/II premium to diesel surges in Q2 2023 despite scant concern about security of supply and more controlled rise in demand.
· Rising premium to diesel incentivizes domestic refiners to boost base oils output and overseas producers to target Europe with surplus supply.
· Asia Group I/II premium to diesel extends rise to highest since end-2021.
· Asia Group II premium to diesel rises to highest since July 2022.
· Rising base oil premium to diesel coincides with ongoing/additional plant maintenance work.
· Rising base oil premium to diesel coincides with prospect of more muted regional demand in Q2 compared with Q1.
· Rising base oil premium to diesel suggests supply may struggle to cover demand, incentivises refiners to boost output.
· Supply is unlikely to struggle to cover demand.
· China’s domestic Group II light-grade premium to Shandong diesel stays high.
· Firm premium partly reflects impact of ongoing plant maintenance in China, incentivizes other refiners to boost output.
· Demand will need to be sufficient to absorb any additional output and avoid a supply-build.
· US posted price premium to diesel holds at higher level than before refiners cut posted prices in April.
· High premium to diesel incentivizes refiners to boost base oils output – despite already-persistent surplus supply.