Global base oils - week of Feb 5: Price outlook - margins

·        Global base oils prices mostly stay under pressure versus feedstock/competing fuel prices, maintaining incentivize for refiners to limit production to cover term/domestic commitments only.

·        Fob Asia Group I base oils values hold firm/rise vs regional gasoil prices, ICIS data shows.

·        Fob Asia Group I bright stock premium to gasoil prices holds close to highest since mid-2023.

·        Firm Group I heavy-grade values more than outweigh weakness of light grades, incentivize refiners to boost production.

·        Fob Asia Group II base oils values stay weak even as they edge up vs regional gasoil prices.

·        Still-small premium of Group II heavy-grade prices over light-grade prices compounds pressure on Group II margins.

·        Weak Group II base oils values curb incentive for refiners to raise output.

·        China’s domestic Group II light-grade price premium to Shandong diesel prices extends rise to highest since mid-2023, outpaces year-earlier levels.

·        Rising base oil premium to diesel, and weak domestic diesel premium to crude, incentivizes domestic refiners to increase base oils output.

·        China’s domestic Group II light-grade premium surged in Feb-May 2023 before slumping as supply outpaced weaker-than-expected demand.

·        Any repeat of that trend this year would require stronger demand to avoid same outcome.

·        CFR India Group II N70 premium to regional gasoil prices stays low even as it edges higher.

·        Premium stays weaker even amid signs of slowdown in supplies from Saudi Arabia to India.

·        Weaker premium incentivizes overseas refiners to maintain firm offers or to redirect supplies back into diesel pool.

·        Europe’s Group I/II/III domestic prices extend slide vs feedstock prices, incentivizing refiners to reduce supply.

·        Group I light-grade premium to VGO falls to lowest since start of Q4 2023, Group II light-grade premium to lowest since Oct 2023, Group III 4cst premium to lowest since mid-2022.

·        Group II/III light-grade premium to VGO stays well below year-earlier levels, suggesting fundamentals are weaker than year-earlier levels.

·        Price signals could spur response from refiners that leaves supply tighter than expected if fundamentals are not weaker than year-earlier levels.

·        US Group II export price differentials to heating oil stay unusually weak even as they recover from recent lows.

·        Narrow premium of Group II heavy grades to light grades compounds Group II price weakness, incentivizes refiners to cut production.

·        US Group II light-grade domestic price premium to VGO extends fall to lowest since end-Q3 2023.

·        US Group II heavy-grade domestic price premium to VGO extends fall to lowest since mid-2022.

·        Sliding US Group II domestic price premiums to VGO could add to incentive for refiners to trim output even as values stay higher than usual.

·        US Group II light/heavy grade posted price premium to heating oil holds firm.

·        Firm premium could incentivize buyers to hold back amid growing disconnect with domestic spot prices.