Global base oils demand outlook: Week of 14 Oct

·        Global crude oil prices face sustained upward support amid concern about more widespread unrest in Middle East.

·        Those concerns outweigh for now market expectations of growing crude supply surplus in 2025.

·        Diesel premium to crude oil stays close to lowest in more than a year.

·        Higher crude oil prices could limit or slow expectations of downward pressure on base oils prices at a time of year when demand typically slows.

·        Refiners could hold off moves to adjust prices for several more weeks, when there should be more clarity about sustainability of recent surge in crude oil prices.

·        Even so, prospect of more limited downward pressure on base oils prices could ease concern about exposure to price volatility, supporting firmer demand.

·        Demand could get additional support from signs of smaller-than-expected surplus supplies in growing number of markets.

·        Smaller surplus gives refiners more leverage to adjust prices in response to recent squeeze in margins.

·        Asia’s base oils demand could be more mixed as smaller supply surplus and squeezed margins incentivize blenders to maintain steady procurement plans.

·        China’s Group II prices weaken relative to diesel and to FOB Asia cargo prices.

·        Any extension of that trend, along with higher domestic Group II supply, could point to slowdown in China’s demand after seasonal pick-up at end-Q3 2024.

·        India’s base oils demand could hold firm amid seasonal rise in consumption, tighter regional supply and prospect of more limited downward price pressure.

·        Europe’s base oils demand could get support from blenders’ strategy of procuring smaller volume more frequently.

·        Group I base oils demand could get boost from more competitive prices and prospect of tighter supply.

·        Any extension of recent weakness of Group I base oils prices relative to other grades could reflect structural shift towards increasing consumption of those other grades.

·        US base oils demand likely to stay muted as blenders focus on trimming inventory levels.

·        Higher feedstock costs and signs of smaller-than-expected supply surplus at start of Q4 2024 could incentivize blenders to maintain rather than hold off procurement plans.

·        Latin America’s base oils demand for US supplies likely to be smaller in Q4 2024 than same time last year.

·        Demand for US supplies could get boost from less feasible arbitrage to move shipments from Asia to Latin America.