US Group II base oil margins rise on higher prices

US Group II base oil margins over feedstocks and competing fuels rose during the week ended 3 May as spot prices continued to rise on a more balanced supply/demand situation.

The Argus domestic spot US Group II N100 premium to four-week average low-sulphur vacuum gas oil (VGO) rose to $1.03/USG, up from 92¢/USG the previous week. Margins remained below year-earlier levels of $1.08/USG.

The Argus domestic spot US Group II N100 premium to four-week average US Gulf coast (USGC) diesel rose to 89¢/USG, up from 79¢/USG the previous week. Margins remained below year-earlier levels of 90¢USG.

Margins over VGO are at their highest since February, and margins over diesel are at their highest since January.

Group II base oil spot prices have risen each of the past three weeks on rising demand and tighter supply, particularly for low-viscosity grades.

Key Group II refiner Motiva is taking a partial turnaround at its 40,000 b/d Group II/III base oil unit in Port Arthur, which is affecting its low-viscosity output.

Demand for base oils are also rising as blenders are seeing increasing finished lubricant consumption and are also building limited stocks to get ahead of potential higher prices in the peak summer months.

Base oil margins are also being supported by declining values for feedstock and competing fuels. Supplies of VGO are increasing as imports from Europe are being discussed amid an open arbitrage.

Diesel prices are also falling, to their lowest since January, on lower demand and ample supplies.

By John Dietrich