Global base oils demand outlook: Week of 16 Sept

·        Global crude oil prices hold close to multi-year low as concerns about weak demand and rising supply outweigh support from short-term supply disruptions.

·        Diesel premium to crude oil holds close to lowest in more than a year, adding to signs of weaker demand.

·        Weak crude and diesel prices contrast with unusually high base oils margins even as weaker fuel demand raises prospect of slowdown in lubricants consumption. 

·        Growing disconnect between crude, diesel and base oils prices, along with expectations of sufficient base oils supply and muted lube demand, incentivize blenders to hold back.

·        Demand could be steadier in markets with firmer lube demand, such as India.

·        Demand in India could slow down amid signs of recent pick-up in shipments to that market, helping to cover immediate requirements.

·        More feasible arbitrage to move supplies from Asia to China in recent weeks points to steady-to-firm demand in that market, especially for heavy-neutrals base oils.

·        China’s demand for lighter grades could be more muted as concern about price volatility boosts attraction of procuring smaller volumes from domestic refiners.

·        Demand is likely to be more cautious in markets like Europe, where shrinking lube consumption deters blenders from holding large stocks.

·        Europe’s firm prices relative to other markets help sustain sufficient supplies, further curbing buyers’ need to hold larger stocks.

·        US base oils demand could be slower as signs of weaker supply-demand fundamentals contrast with unusually strong base oil margins.

·        Dynamic adds to incentive for buyers and distributors to tap existing stocks to cover requirements.

·        Such moves would limit any boost from seasonal pick-up in consumption that is anyway likely to be more muted than usual.

·        Latin America’s base oils demand could similarly be more muted amid expectations of improving supply and additional price adjustments.

·        Demand for US supplies could get a boost if arbitrage from Asia became less feasible.