Global base oils - week of July 17: Demand outlook

·        Crude oil prices extend breakout from $72-77/bl range, climb to highest since April.

·        Diesel prices keep pace with higher crude prices.

·        Lower-than-expected US inflation in June raises expectations that predicted rise in interest rates at end-July could be the last.

·        US dollar weakens versus other currencies on expectations that round of US interest-rate increases close to ending.

·        IEA continues to expect crude oil supply to tighten in 2H 2023, but weaker-than-expected demand set to cut the size of the deficit.

·        Weaker US currency, higher expectations of ‘soft-landing’ for US economy and prospect of tighter crude oil supply provide further support to crude oil prices.

·        Europe’s economic outlook stays weak as industrial production growth flatlines and interest rates set to rise further.

·        China’s weaker-than-expected economic recovery shows signs of extending into Q3 2023.

·        Asia’s economic outlook more mixed, with focus starting to switch to timing of interest-rate cuts rather than rate-increases amid easing inflation pressures.

·        Rising crude prices/feedstock costs unlikely to trigger any immediate change in lube blenders’ procurement plans.

·        Cost of money set to stay high, even if US interest rates are close to peaking, deterring companies from holding large stocks.

·        Expectations of easy access to base oils supply as and when required curbs further any need to build larger stocks.

·        Blenders’ strategy of holding leaner inventories adds to demand slowdown in 1H 2023 as they trim existing stocks.

·        Demand could get support in 2H 2023 as blenders procure supplies more frequently to maintain lower inventories.