Americas/EMEA base oils - week of Jan 29: Demand outlook

·        Rising crude oil/diesel prices likely to support upward pressure on base oils prices, prompting buyers to bring forward procurement plans.

·        Steep discount of US/Europe export prices to domestic prices by contrast points to ongoing fundamentals weakness.

·        Growing pressure on base oils margins adds to signs of supply-demand weakness.

·        Any signs of tighter supply/firmer demand typically triggers a narrowing of export-domestic price-spread and firmer margins.

·        Mixed price signals could prompt round of more cautious stock-replenishment.

·        Brazil’s December lube demand falls for first time in eight months as industrial oils, heavy-duty engine oil consumption falls.

·        Weaker lube demand raises prospect of fall in Latin America’s lube consumption at year-end, lower requirements at start of this year.

·        Brazil’s weaker lube demand set to coincide with revival in domestic base oils output.

·        Trend likely to curb demand for overseas base oils supplies.

·        Trend increases importance of US base oils prices staying competitive to maximise share of demand supplied by US refiners.

·        Europe’s base oils demand likely to improve once buyers are confident that prices are likely to hold steady or rise.

·        Rising crude oil prices and squeezed base oils margins likely to limit or halt downward price pressure.

·        Signs of smaller regional supply surplus this year than last year, and blenders’ lower stocks this year than last year, likely to add to pick-up in demand.

·        Buyers likely to limit size of inventories even with any revival in demand.

·        Italy’s December lube demand rises for seventh month as strong auto lube consumption outweighs fall in industrial oils consumption.

·        More muted lube demand growth and falling industrial oils consumption could incentivize blenders to maintain lower lube and base oils inventories.

·        Italy’s more mixed lube demand would also curb need for blenders to replenish their inventories more frequently.

·        Trend highlights Europe’s current reliance on markets like Italy to support steadier lube demand in the region, and the impact of any subsequent slowdown in demand in those markets.

·        France’s November lube demand falls for ninth time in ten months.

·        Slowdown in consumption magnifies impact of seasonal slowdown in demand at year-end.

·        Sustained slowdown in consumption and expectations of sufficient base oils supply incentivize blenders to maintain low stocks.

·        Sustained slowdown in demand in key markets like France and Germany counters firmer consumption in Mediterranean market, leaving regional demand relatively steady at low levels.

·        Any signs of steadier regional lube demand facilitates refiners’ base oils supply plans, curbs risk of oversupply.

·        Demand is likely to rise in key Africa markets like Nigeria, Egypt and Kenya following a slowdown in shipments to those markets at end-2023.

·        Size of fall in shipments likely exceeds pace of any slowdown in domestic lube demand in those markets.

·        Any pick-up in demand in those markets provides a valuable outlet for surplus supplies from US and Europe at start of 2024.