· Diesel prices rise faster than crude oil, pushing up premium to crude to highest since early this year.· Firmer diesel premium to crude, and weaker base oils premium to diesel, adds to incentive for refiners to focus on producing more diesel.· US base oils plant maintenance set to end by end-July/early August.· Pause in maintenance work raises prospect of pick-up in production unless refiners tweak output to avoid supply-build.· Arbitrage shipments to overseas markets provide outlet for surplus supplies.· Weak export base oils prices make refinery run-cuts to limit surplus volumes more attractive than arbitrage shipments.· US’ sustained surge in base oils exports to Mexico in three months to May points to move to prioritize removal of supply overhang over price of the supplies..· Size of shipments to Mexico likely to leave US supplies better balanced heading into Q3 2023.· Europe’s base oils supply far exceeds regional consumption at start of Q2 2023 as rising output and imports contrast with slower domestic and overseas demand..· Rise in surplus supply cushions impact of regional plant maintenance during Q2 2023, limits room for base oils prices to rise at time of year when margins typically peak.· Europe’s Group I base oils output rises strongly at start of Q2 to highest in close to two years.· Higher output more than balances out loss of Russian base oils supplies in the region..· The dynamic remains feasible so long as Europe’s Group I output stays high.· The dynamic likely changed during Q2 2023 and Q3 2023 as plant maintenance work in Italy cut Europe’s output.· Italy had been the key source behind Europe’s higher Group I base oils output in first four months of 2023.· Weakening base oils values versus crude and diesel add to refiners’ incentive to cut output or extend plant shutdowns.· Sustained rise in Europe’s Group I base oils exports to Ukraine raise prospect of further cutting supplies for regional buyers..· Shipments to Ukraine rise on back of sharp increase in supplies from Poland, Greece and Hungary.· Rise in Europe Group I shipments to Ukraine coincide with slump in Russian Group I shipments to Europe, raising prospect of supply-squeeze.· Corresponding fall in Russian base oils shipments to Ukraine complicates further Russia’s ability to secure outlets for its supplies.· Wave of premium-grade base oils shipments from Mideast Gulf to Europe in May 2023 cover for shutdown of Group III unit in Spain.· Flow of premium-grade base oils shipments from Mideast Gulf to Europe show signs of extending into Q3 2023, even after completion of plant maintenance work in Spain.· Europe’s Group III base oils price-weakness in recent months coincides with rising supply even with plant maintenance work in Q2 2023..· Premium-grade supplies from UAE rebound in May to five-month high, adding to pick-up in shipments from Qatar..· Like Qatar, more of the shipments from UAE move eastwards to outlets like India and China in moves that could be aimed at avoiding supply-build in Europe/US.· Trend runs risk of additional premium-grade supplies from Asia-Pacific being re-exported back to Europe/Americas.· Trend adds to signs of global oversupply of Group III base oils, while firm margins deter refiners from cutting production.· Rise in shipments from Bahrain in May adds further to premium-grade supplies. But shipments move to Europe and US rather than Asia..· Trend adds to supplies in those markets and limits the effect of more shipments from Qatar and UAE moving to Asia..Global base oils - week of July 24: Price outlook - margins
· Diesel prices rise faster than crude oil, pushing up premium to crude to highest since early this year.· Firmer diesel premium to crude, and weaker base oils premium to diesel, adds to incentive for refiners to focus on producing more diesel.· US base oils plant maintenance set to end by end-July/early August.· Pause in maintenance work raises prospect of pick-up in production unless refiners tweak output to avoid supply-build.· Arbitrage shipments to overseas markets provide outlet for surplus supplies.· Weak export base oils prices make refinery run-cuts to limit surplus volumes more attractive than arbitrage shipments.· US’ sustained surge in base oils exports to Mexico in three months to May points to move to prioritize removal of supply overhang over price of the supplies..· Size of shipments to Mexico likely to leave US supplies better balanced heading into Q3 2023.· Europe’s base oils supply far exceeds regional consumption at start of Q2 2023 as rising output and imports contrast with slower domestic and overseas demand..· Rise in surplus supply cushions impact of regional plant maintenance during Q2 2023, limits room for base oils prices to rise at time of year when margins typically peak.· Europe’s Group I base oils output rises strongly at start of Q2 to highest in close to two years.· Higher output more than balances out loss of Russian base oils supplies in the region..· The dynamic remains feasible so long as Europe’s Group I output stays high.· The dynamic likely changed during Q2 2023 and Q3 2023 as plant maintenance work in Italy cut Europe’s output.· Italy had been the key source behind Europe’s higher Group I base oils output in first four months of 2023.· Weakening base oils values versus crude and diesel add to refiners’ incentive to cut output or extend plant shutdowns.· Sustained rise in Europe’s Group I base oils exports to Ukraine raise prospect of further cutting supplies for regional buyers..· Shipments to Ukraine rise on back of sharp increase in supplies from Poland, Greece and Hungary.· Rise in Europe Group I shipments to Ukraine coincide with slump in Russian Group I shipments to Europe, raising prospect of supply-squeeze.· Corresponding fall in Russian base oils shipments to Ukraine complicates further Russia’s ability to secure outlets for its supplies.· Wave of premium-grade base oils shipments from Mideast Gulf to Europe in May 2023 cover for shutdown of Group III unit in Spain.· Flow of premium-grade base oils shipments from Mideast Gulf to Europe show signs of extending into Q3 2023, even after completion of plant maintenance work in Spain.· Europe’s Group III base oils price-weakness in recent months coincides with rising supply even with plant maintenance work in Q2 2023..· Premium-grade supplies from UAE rebound in May to five-month high, adding to pick-up in shipments from Qatar..· Like Qatar, more of the shipments from UAE move eastwards to outlets like India and China in moves that could be aimed at avoiding supply-build in Europe/US.· Trend runs risk of additional premium-grade supplies from Asia-Pacific being re-exported back to Europe/Americas.· Trend adds to signs of global oversupply of Group III base oils, while firm margins deter refiners from cutting production.· Rise in shipments from Bahrain in May adds further to premium-grade supplies. But shipments move to Europe and US rather than Asia..· Trend adds to supplies in those markets and limits the effect of more shipments from Qatar and UAE moving to Asia..Global base oils - week of July 24: Price outlook - margins