Global base oils - week of June 12: Demand outlook

·        Oil prices struggle to sustain any recovery as prospect of global economic slowdown outweighs concern about tighter supply.

·        Diesel premium to crude edges higher from more-than-one-year-low in 2H April, stays weak amid concern about economic slowdown.

·        US Fed expected to raise interest rates further, even if it pauses on rate-increases in June, and to keep rates higher for longer in response to still-firm US economic activity.

·        Europe’s central bank expected to raise interest rates further this week.

·        Weak trade data and inflation in May add to signs of slowdown in China’s economic recovery.

·        Prospect of economic slowdown and seasonal dip in lube demand during summer months incentivize blenders to maintain lower stocks.

·        Signs of downward global base oils price-pressure, even with plant maintenance in all the key regions, raise expectations of sufficient supply and boost attraction for blenders to hold lower inventories.

·        Size of slowdown in demand so far this year suggests structural change in blenders’ inventory management as they work down surplus volumes.

·        Implementation of that structural change could have magnified slowdown in demand.

·        Blenders’ moves to hold smaller stocks suggests preference to hold lower inventories and to pay higher prices if required in case of unexpected supply tightness.

·        Demand likely to get support from more frequent procurement of smaller volumes to sustain lower stocks.