Global base oils - week of Jan 22: Demand outlook

·        Crude oil prices stay in narrow range they have mostly held in since 2H Nov 2023.

·        Crude oil prices get upward support from concerns about supply disruptions, downward pressure from expectations of sufficient supply, weaker demand growth.

·        Diesel premium to crude oil holds steady in narrow range since 2H Nov 2023, stays well above typical levels before 2022.

·        Global base oils demand could stay lower in the short term until buyers are comfortable that prices have bottomed out.

·        Unusually wide gap between domestic and export prices in Europe and US markets sustain buyers’ expectations that price adjustments in recent weeks have yet to be completed.

·        Expectations of sufficient availability as and when required adds to buyers’ preference to hold off.

·        Blenders’ lower inventories, and concern about further drop in prices, incentivize procurement of smaller volumes to cover any immediate requirements.

·        Asia’s base oils demand likely to get support from expectations of strong pick-up in lube demand later in Q1 2024.

·        China’s firm base oils prices and lower exports point to ongoing round of stock-building ahead of lunar new year holidays.

·        Strength of China’s lube demand after lunar new year holidays would then determine sustainability of recent pick-up in base oils consumption.

·        India’s firmer base oils prices relative to other regions point to stronger demand to lock in supplies.

·        India’s buyers have incentive to secure more supplies from Asia and limit exposure to shipments from Saudi Arabia/Europe or US amid risk of delays.

·        Concern about logistical delays/disruptions could incentivize blenders to hold larger inventories.

·        Europe’s base oils demand likely to remain muted in short term until buyers are comfortable that prices have bottomed out.

·        European blenders’ base oils stocks are likely lower at start of 2024 than they were at start of 2023, raising the prospect of stronger round of stock-replenishment in coming weeks.

·        Domestic US prices stay high relative to export prices, incentivizing buyers to hold off.

·        Signs of slowdown in Latin America’s lube demand likely to compound slowdown in region’s base oils demand.