US Group II base oil margins compared with feedstocks rose, but they fell relative to competing fuels, tracking along a more volatile crude market. Base oil premiums to both remain near record highs, which continues to support elevated operating rates.
The Argus US domestic spot Group II N100 premium to four-week average low-sulphur vacuum gas oil (VGO) rose to $3.97/USG during the week ended 28 August, up from $3.95/USG the previous week. Margins remained above year-earlier levels of $1.28/USG.
The Argus US domestic spot Group II N100 premium to four-week average US Gulf coast diesel fell to $2.55/USG last week, down from $2.58/USG the previous week. Margins remained above year-earlier levels of 95¢/USG.
Base oil margins have been relatively steady in August alongside prices because of growing concerns around demand destruction. US refiners continue to prioritize building inventories for the ongoing US Atlantic coast hurricane season, rather than discounting prices to move more volumes.
More availability of South Korean- and Indian-origin cargoes into South America and the US is putting some pressure on US base oil sellers to consider discounts if Atlantic basin hurricane disruptions remain minimal or non-existent.
Base oil margins over diesel narrowed for the seventh consecutive week because of surging diesel values and shortages of the fuel. Market participants still see base oil crack spreads above diesel crack spreads.
However, market participants are growing increasingly concerned that growing shortages of diesel will continue to narrow the spread and could push refiners to reduce base oil output in favor of fuels.
Feedstock VGO prices fell during the week alongside lower crude. Market participants continue to see VGO margins at elevated rates from fuel-producing units.
Four-week average VGO moved to a premium of $32.78/bl during the week ended 28 August, down from $33.63/bl the previous week. That spread was $14.61/bl a year earlier.
