Global base oils market snapshot – Week of 20 July

Author Iain Pocock, Editor

Price gains for some base oil grades like bright stock have outpaced other grades in response to tighter-than-expected supply and strong demand.

Bright stock prices rebounded in all the key markets as oversupply flipped to a sudden shortage. Supply fell after bright stock values slumped relative to crude and to other base oil grades. Weak margins incentivised producers to cut run rates.

Supply in markets like Europe and the Mideast Gulf has been insufficient to cover bulk cargo demand in key outlets like Egypt. Buyers in the Mideast Gulf have turned to high-priced flexibag volumes from Europe to cover requirements.

The firmer fundamentals have triggered a surge in fob Europe export bright stock prices in recent weeks. The bright stock premium to SN 500 has rebounded to its highest level in a year.

Europe bright stock rebounds versus SN 500

Europe bright stock rebounds versus SN 500

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In Asia-Pacific, prices for cfr India light-grade base oils have rebounded since early June. By contrast, prices for cfr northeast Asia light-grade prices have been steadier. The rise in base oil prices in India has coincided with a surge in that country’s retail diesel prices to record-high levels.

The steadier base oil prices in northeast Asia reflected plentiful and rising production capacity of light grades in China.

The diverging fundamentals triggered a rise in cfr India N150 prices to a $75/t premium to northeast Asia prices. They had been at a $50/t discount to northeast Asia prices as recently as early May.

India’s light grade values extend recovery

India’s light grade values extend recovery

In the US, Group II light-grade prices have continued their recovery relative to Group III base oils. A large volume of surplus Group II supplies was cleared through the export market. Low refinery run rates have slowed the speed of a subsequent rise in surplus supply. Group III supply is getting a boost from a recovery in imports. Demand remains weaker because of slow passenger car engine oil demand.

Prices reflected these different fundamentals. The premium of Group III 4cst base oils to Group II N100 has narrowed to $0.85/USG, down from a three-year high of $0.99/USG in early June.

US Group III prices weaken versus Group II

US Group III prices weaken versus Group II

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Firmer outright prices in all the key markets have slowed or halted the recent slump in base oil prices relative to crude and diesel. The premium of domestic base oil prices to diesel remained much lower than their peak levels in April. But the premiums are now mostly above levels in 2019, especially in Europe.

Group II premium to diesel steadies

Group II premium to diesel steadies

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