Global base oils - week of Jan 15: Demand outlook

·        Crude oil prices hold in narrow range for more than a month as prospect of weaker demand and sufficient supply counter concerns about Red Sea-related supply disruptions.

·        Diesel premium to crude oil steadies in narrow range for past month, holds close to lowest since July 2023.

·        Base oils market mirrors similar trend of muted demand and plentiful supply.

·        Global base oils demand lags base oils output in 2023 even as supply falls.

·        Trend likely to continue in 2024 even if demand steadies or improves from year-earlier levels as global base oils production capacity continues to rise.

·        Trend likely to keep pressure on base oils values versus feedstock/competing fuel prices.

·        Those base oils values already fell sharply in 2023 from 2022.

·        Trend gives buyers more flexibility over inventory levels and source of supplies.

·        Factors such as blenders’ stock levels, different pace of recovery in different regions and plant maintenance could generate pockets of base oils supply-demand imbalance over coming months.

·        Geopolitical factors could add to pockets of imbalance amid prospect of growing delays for shipments that typically move via Panama Canal and Suez Canal.

·        Possibility of shipment delays could incentivize distributors/blenders to build larger stocks as cushion against supply disruptions.

·        Asia’s base oils demand likely to be mixed as blenders weigh up seasonal slowdown at end-2023/start of 2024 with expected rebound in consumption later in Q1 2024.

·        Blenders also face challenge of weighing up logistical impact of lunar new year holidays in Feb 2024, when activity typically slows.

·        Lube demand typically rises sharply soon after the lunar new year holidays.

·        China’s firm base oils values point to steady-to-firm demand.

·        India’s demand could get a boost from concern about disruptions or delays with delivery of some supplies.

·        Any such delays would come ahead of seasonal peak in demand at end-Q1 2024.

·        Europe’s base oils demand could slow down in the near term as buyers wait for prices to stabilize.

·        Surge in Europe’s domestic base oil price premium to export prices adds to buyers’ incentive to hold off.

·        Wider premium raises prospect of lower domestic base oils prices or higher export prices to narrow the premium.

·        Any pull-back in buying in near term could trigger stronger pick-up in demand later in Q1 2024 if buyers ended 2023 with lower-than-usual stocks.

·        US base oils demand could stay more muted amid concern about downward price pressure.

·        US domestic base oils prices maintain steep premium to export prices; posted prices maintain steep premium to domestic spot prices.

·        Steep premium raises prospect of a price adjustment, incentivizing blenders to hold off until any such adjustment is completed.

·        Americas base oils demand could be mixed, with lower total requirements, but firm demand for US supplies for any such requirements.