Global base oils - week of Nov 13: Demand outlook

·        Crude oil prices extend fall to lowest in almost four months.

·        Crude oil prices fall as concerns about economic slowdown in world’s largest markets outweigh impact of tighter supply in Q4 2023.

·        Diesel premium to crude oil extends fall to lowest since July 2023, reflecting concerns about economic growth prospects.

·        Falling crude oil prices coincide with and so compound seasonal slowdown in lube demand, provide additional reason for blenders to hold off procuring more supplies.

·        Lower feedstock prices raise concern about drop in base oils prices.

·        Base oils prices could face less downward pressure than usual in some markets because of more balanced fundamentals.

·        Even so, blenders likely to hold back until they are comfortable that base oils prices have completed any adjustments following recent change in feedstock costs.

·        Blenders’ preference to hold back could be stronger in US, whose supply surplus shows signs of being larger than in Europe and Asia.

·        US Group II heavy-grade prices weaken versus light-grade prices and versus prices in other regions, pointing to weaker domestic demand and moves to boost overseas demand.

·        Brazil’s base oils demand likely to hold firmer for longer as domestic plant maintenance cuts domestic supply in Q4, following sharp fall in supply at end-Q3 2023.

·        Buyers in Americas/Africa likely to need to line up shipments from suppliers closer to those regions amid signs of smaller supply-surplus in Asia.

·        Europe’s base oils demand faces seasonal slowdown, could fall less than expected in face more balanced supply-demand fundamentals.

·        India’s demand for very-light grades from Asia/Mideast Gulf could hold firm as US prices hold steady for now at premium to cfr India prices.

·        Trend could limit or delay flow of large volumes from US to India.

·        Lube demand in southeast Asia’s largest markets could hold firmer than expected after unusually strong rise in consumption at end-Q3 2023.

·        China’s base oils demand stays muted, keeping shut the arbitrage for Group II supplies from Asia.

·        Major lube blenders’ profit margins mostly rose in Q3 2023, while base oil refiners’ margins mostly fell.

·        Trend reflects impact of lower base oils prices and delayed/smaller fall in finished lube prices.

·        Trend highlights attraction of integrated base oils and lubricants operations, where strength in one segment tends to balance out weakness in the other.