Global base oils - week of July 10: Demand outlook

·        Crude oil prices rise above narrow $72-77/bl range they held in since early May as Saudi Arabia and Russia signal moves to cut oil supply.

·        Slower jobs growth in US in June raise expectations that a likely further rise in US interest rates in July could be the last.

·        Expectations that interest rates are close to peaking could put further pressure on US dollar, adding to support for firmer crude oil prices.

·        Any sustained rise in crude oil prices would continue to face resistance from concern about lower demand as high interest rates curb global economic activity.

·        Any pick-up in expectations that crude oil prices have bottomed out/ started to trend higher would provide underlying support for base oils prices.

·        Europe likely to see several more interest-rate increases in coming months even as inflationary pressures start to ease and weak growth extends to services sector.

·        China’s industry and consumer inflation stays weaker than expected in June, highlighting faltering recovery in manufacturing and consumer activity.

·        Excluding China, economic slowdown in Asia shows signs of bottoming out.

·        High interest rates increase cost of holding large inventories, incentivize blenders to minimize stocks and procure on an as-needed basis.

·        Signs of plentiful base oils availability add to incentive for blenders to procure on a need-to basis.

·        Signs of plentiful base oils availability likely to delay price-impact of any rise in crude oil and feedstock prices.

·        Preference to minimize inventories leaves market exposed to unexpected supply disruptions.

·        Preference to minimize inventories leaves markets exposed to the prospect of a sustained rise in demand if and when there is growing incentive to hold larger inventories.