· Base oils prices rebound versus diesel.· Asia Group II prices revert to small premium to diesel – likely insufficient to incentivize refiners to produce more base oils..· China’s domestic Group II N150 premium to Shandong diesel prices rises after falling for two months to end-January..· Major blenders in China announce price increases from mid-February in response to rising costs.· Europe base oils premium to diesel rebounds to highest since early December, from close to lowest in more than a year.· Europe’s Group III base oils price premium to crude/diesel falls in January to ten-month low, suggesting prices already reflect recovery in supply.· US posted price premium to heating oil holds close to highest in almost two months; heavy-grade premium stays high.· Base oils premium to diesel typically starts to trend higher from around middle of first quarter of new year in response to tighter supply-demand fundamentals.· Supply-demand fundamentals are tightening.· Falling prices often incentivize buyers to hold back, exacerbating oversupply.· Rising prices often incentivize sellers to hold back, exacerbating tightness.· Any repeat of that pattern would add to supply tightness.· G7 sets price cap of $100/bl for Russian oil products, including base oils, to third-party countries outside EU.· Price cap creates several options – to sell at or below the price cap, or to line up alternative non-G7/EU vessels and insurance.· Price cap is at small discount to current Russian base oils export prices.· Price cap is at substantial premium to G7’s price cap for Russian crude.· Steep premium provides incentive for Russian refiners to produce more diesel/base oils even if they sell at or slightly below the price cap.· Europe Group II prices maintain steep premium to fob Asia prices, even if much lower than in Q3 2022.· US Group II prices maintain steep premium to fob Asia prices.· Steep Europe/US premium in 2022 coincided with weaker-than-expected demand in Asia-Pacific.· Steep Europe/US premium early this year likely to coincide with steady improvement in Asia-Pacific demand, led by China.· Steep premium gives Asia-Pacific producers a wider range of outlets to move supplies to, facilitates removal of surplus supplies, increases leverage with buyers.· A stronger rebound in Asia-Pacific demand would incentivize regional buyers to seek to deter supplies from moving to more distant markets.· Europe Group II heavy-grade prices maintain steep premium to Group I prices.· Trend incentivizes European blenders to seek Group I heavy neutrals instead of Group II.· Europe Group II light-grade premium to Group I narrows over past two months, incentivizes blenders to use more Group II instead of Group I.· Europe Group II light-grade discount to Group III widens over past two months, incentivizes blenders to use more Group II.· Europe Group III premium to Group I stays lower than in Q4 2022, incentivizes blenders to use Group III.· Relative strength of Europe Group I light grades versus Group II/III base oils incentivizes blenders to use more premium grades.· Incentive to use Group II instead of Group I base oils even more stark in Asia-Pacific, where Group I and Group II prices are almost the same.· Relative weakness of Asia-Pacific Group II heavy grades versus Europe/US provides key arbitrage opportunity.· Domestic China Group II prices rise on tightening supply-demand fundamentals.· Supply-demand fundamentals likely to tighten further over coming weeks.· Rising domestic China Group II light-grade prices push premium to fob Asia-Pacific prices to widest level in more than two months.· Domestic China prices would likely need to maintain or widen further the premium to fob Asia prices to attract more Asia-Pacific supplies.· Trend raises prospect of tighter Asia-Pacific supplies for other markets over coming weeks.· Low refinery run rates and plant maintenance work would add to tighter availability..Global base oils – week of Feb 6: Supply outlook
· Base oils prices rebound versus diesel.· Asia Group II prices revert to small premium to diesel – likely insufficient to incentivize refiners to produce more base oils..· China’s domestic Group II N150 premium to Shandong diesel prices rises after falling for two months to end-January..· Major blenders in China announce price increases from mid-February in response to rising costs.· Europe base oils premium to diesel rebounds to highest since early December, from close to lowest in more than a year.· Europe’s Group III base oils price premium to crude/diesel falls in January to ten-month low, suggesting prices already reflect recovery in supply.· US posted price premium to heating oil holds close to highest in almost two months; heavy-grade premium stays high.· Base oils premium to diesel typically starts to trend higher from around middle of first quarter of new year in response to tighter supply-demand fundamentals.· Supply-demand fundamentals are tightening.· Falling prices often incentivize buyers to hold back, exacerbating oversupply.· Rising prices often incentivize sellers to hold back, exacerbating tightness.· Any repeat of that pattern would add to supply tightness.· G7 sets price cap of $100/bl for Russian oil products, including base oils, to third-party countries outside EU.· Price cap creates several options – to sell at or below the price cap, or to line up alternative non-G7/EU vessels and insurance.· Price cap is at small discount to current Russian base oils export prices.· Price cap is at substantial premium to G7’s price cap for Russian crude.· Steep premium provides incentive for Russian refiners to produce more diesel/base oils even if they sell at or slightly below the price cap.· Europe Group II prices maintain steep premium to fob Asia prices, even if much lower than in Q3 2022.· US Group II prices maintain steep premium to fob Asia prices.· Steep Europe/US premium in 2022 coincided with weaker-than-expected demand in Asia-Pacific.· Steep Europe/US premium early this year likely to coincide with steady improvement in Asia-Pacific demand, led by China.· Steep premium gives Asia-Pacific producers a wider range of outlets to move supplies to, facilitates removal of surplus supplies, increases leverage with buyers.· A stronger rebound in Asia-Pacific demand would incentivize regional buyers to seek to deter supplies from moving to more distant markets.· Europe Group II heavy-grade prices maintain steep premium to Group I prices.· Trend incentivizes European blenders to seek Group I heavy neutrals instead of Group II.· Europe Group II light-grade premium to Group I narrows over past two months, incentivizes blenders to use more Group II instead of Group I.· Europe Group II light-grade discount to Group III widens over past two months, incentivizes blenders to use more Group II.· Europe Group III premium to Group I stays lower than in Q4 2022, incentivizes blenders to use Group III.· Relative strength of Europe Group I light grades versus Group II/III base oils incentivizes blenders to use more premium grades.· Incentive to use Group II instead of Group I base oils even more stark in Asia-Pacific, where Group I and Group II prices are almost the same.· Relative weakness of Asia-Pacific Group II heavy grades versus Europe/US provides key arbitrage opportunity.· Domestic China Group II prices rise on tightening supply-demand fundamentals.· Supply-demand fundamentals likely to tighten further over coming weeks.· Rising domestic China Group II light-grade prices push premium to fob Asia-Pacific prices to widest level in more than two months.· Domestic China prices would likely need to maintain or widen further the premium to fob Asia prices to attract more Asia-Pacific supplies.· Trend raises prospect of tighter Asia-Pacific supplies for other markets over coming weeks.· Low refinery run rates and plant maintenance work would add to tighter availability..Global base oils – week of Feb 6: Supply outlook