· Crude oil prices extend rise to highest since Q4 2022 in face of growing supply shortfall and signs of steadying economic activity in China.
· Diesel prices rise faster than crude oil, lifting diesel crack close to highest since Jan 2023.
· US inflation rises in August partly because of higher fuel prices.
· Trend highlights dilemma for crude oil producers – higher inflation raises prospect of interest rates staying higher for longer, curbing economic growth.
· Low base oils values versus diesel insinuate weak supply-demand fundamentals.
· Refiners show signs of adjusting production in response to weak demand fundamentals and low margins during Q3 2023.
· Production set to face further pressure from round of plant maintenance work in Asia and Americas over coming months.
· Ongoing peak Atlantic hurricane season maintains higher possibility of weather-related disruptions to US supply and demand over coming weeks.
· Recent rise in base oils export prices in all the key markets suggest supply is tightening even if outright demand remains weaker than usual.
· Extension of current supply, demand and price trends could leave spot buyers with tightening availability and producers with more leverage to target prices that revert to a wider premium to diesel prices.
· Prospect of higher prices and signs of more limited supply surplus could spur blenders to bring forward procurement plans, boosting short-term demand.
· Blenders face challenge of weighing up such moves with weaker-than-usual outright demand and prospect of seasonal slowdown in consumption during winter months.
· Weak demand outlook and high cost of money likely to sustain attraction for blenders to maintain low inventories even if that exposes them to risk of higher prices.
· Such moves likely to sustain steadier demand, even if at lower levels.
· Such moves would contrast with weaker-than-expected demand in 2H 2022 and 1H 2023.
