Global base oils demand outlook: Week of 12 Aug

·        Crude oil prices stay lower even after recovery in past week, with geopolitical concerns countering pressure from expectations of weaker demand and increasing supply over the coming months.

·        Diesel premium to crude oil stays relatively low, contrasting with increasingly firm base oil premium to diesel and VGO.

·        Divergence between crude oil and base oil prices typically triggers adjustment in base oil prices, even if after a time lag.

·        Lack of any such price adjustment suggests supply-demand fundamentals are at levels that support current base oil prices.

·        Base oils demand likely to get support from seasonal revival in lube consumption in US, Europe and Asia at end-Q3 2024.

·        Base oils demand then faces prospect of slowing in Q4 2024.

·        Slowdown could coincide with rise in surplus supply from US if any weather-related supply disruptions are less severe than feared.

·        Dynamic incentivizes buyers to maintain lower inventories and to procure smaller volumes more frequently.

·        Asia’s base oils demand could get support from stock-replenishment moves in the coming weeks, and from arbitrage opportunities in other regions.

·        Base oils demand within Europe could be more muted as signs of sufficient availability of premium-grade base oils give buyers the option of procuring smaller volumes more regularly.

·        Sustained strength of Europe Group I prices relative to other grades and other regions points to ongoing underlying demand for the product.

·        Signs of more Group I supplies staying in or heading to the European market could ease concerns about sufficient availability of those supplies, incentivizing buyers to procure smaller volumes more regularly.

·        US base oils demand could face sudden sharp slowdown if weather-related supply disruptions are less severe than feared.

·        Demand had got support in recent months from stock-building to cover against any such supply disruptions.

·        A reversal of that dynamic would cut demand and add to supply.

·        Latin America’s base oils demand for overseas supplies likely to hold firm as supply-demand fundamentals stay tight.