Global base oils demand outlook: Week of 13 May

·        Crude oil prices stay lower amid concern that higher-for-longer interest rates will compound signs of weakening demand.

·        Diesel premium to crude oil holds close to lowest in almost a year.

·        Lower crude oil prices and even weaker diesel prices boost attraction for refiners to increase base oils output to tap the product’s higher margins.

·        Growing disconnect between firmer base oils prices and weaker crude/diesel prices, and prospect of subsequent rise in supply, raises concern about price-adjustment if supply exceeds demand.

·        Expectations of healthy supply availability and concern about price adjustment boost incentivize for blenders to maintain low inventories.

·        Asia’s base oils demand shows signs of weakening as buyers resist higher prices.

·        Buyers’ resistance to higher prices triggers narrowing spread between FOB Asia prices and prices in destination markets like India and China.

·        Prospect of improving availability of Group II/III base oils in Europe gives buyers the leverage to maintain lower inventories and to top up stocks as and when required.

·        Europe’s tighter Group I base oils supplies incentivize buyers to lock in sufficient supplies and simultaneously to seek alternative grades in place of Group I base oils where possible.

·        Tighter supply and firmer prices for US Group II light-grade base oils fail to trigger significant pick-up in demand.

·        Trend suggests that demand remains muted, that buyers are comfortable that they can secure sufficient volumes, and that any supply-tightness is likely to be short-lived.