Global base oils - week of April 3: Demand outlook

·        Crude oil prices extend strong rebound following OPEC+ decision to cut oil output.

·        Crude oil prices already rose over past week as signs of easing inflation pressures boosted expectations interest rates were close to peaking.

·        Sustained rise in crude prices raises prospect of supporting higher inflation for longer, keeping interest rates higher for longer, curbing demand for longer.

·        Consumer/business confidence shows signs of holding firm in key global markets in March.

·        Expectations of sufficient base oils supply, limited upward price-pressure, muted economic growth in US/Europe, had incentivized blenders to maintain lower stocks.

·        More muted demand contrasts with typical rebound in requirements at this time of year, complicates refiners’ production/supply plans.

·        Rebounding crude prices raise likelihood of higher base oils prices, of more prolonged economic slowdown and of higher interest rates for longer – adding to blenders’ procurement dilemma.

·        Base oils demand may already be firmer than expected after slump in crude prices in March failed to trigger drop in base oils prices in Europe or Asia.

·        Blenders’ lower-than-usual procurement activity exposes them to risk of larger-than-expected rise in lube demand or drop in supply.

·        Blenders’ lower-than-usual procurement raises prospect of steadier base oils demand over coming months as buyers replenish supplies more frequently.

·        Trend would contrast with surging base oils demand in early 2022 in Europe especially, followed by slump in demand as blenders worked off high stocks.

·        Demand typically gets a boost when blenders anticipate higher prices as they seek to lock in supplies at current, lower levels.

·        Blenders’ reaction to sudden surge in crude prices to provide indication of strength of demand / concern about sufficient supply.

·        Buyers may still seek to procure smaller volumes more regularly in face of high interest rates / tighter lending conditions.