Global base oils - week of Aug 21: Demand outlook

·        Crude oil prices correct lower after 20pc surge from end-June.

·        Diesel maintains higher-than-usual premium to crude even as crude prices slip – pointing to expectations of tight middle distillates supply in coming months.

·        Crude oil price downside likely limited amid tightening supply fundamentals, raising prospect of more rangebound prices over coming weeks.

·        Crude oil price upside likely limited on concern about protracted economic slowdown, signs of additional crude supply in some markets.

·        Lower crude oil prices ease base oil refiners’ feedstock cost pressures.

·        Lower crude oil prices incentivize base oil buyers in some markets to pause amid expectations that prices face less upward pressure.

·        Signs of healthy economic activity in US raise prospect of interest rates rising further or staying higher for longer.

·        China’s economic recovery lags expectations, raising prospect of lower-than-forecast consumption of everything from crude oil to lubricants and base oils.

·        China faces dilemma of balancing moves such as lower interest rates to spur economic activity with measures to slow currency’s depreciation.

·        Globally, lube blenders face challenge of balancing concern about demand outlook with prospect of holding low stocks ahead of seasonal pick-up in lube consumption in coming weeks, and as refiners’ squeezed margins incentivize run-cuts.

·        Blenders face challenge of more mixed outlook in different markets.

·        Global lube demand rises in May for first time in fourteen months on firmer consumption in Latin America and Asia.

·        Trend reflects more mixed demand dynamics, contrasts with some expectations that consumption will keep falling.

·        Those expectations prompted blenders to cut stocks and maintain lower inventories.

·        Any signs that demand is stronger than expected would coincide with seasonal pick-up in consumption over the coming weeks.

·        Any such trend would come at a time when blenders’ stocks are lower than usual.

·        Any such trend would come at a time when refiners’ usual supply-build in the third quarter of the year shows signs of being smaller than expected.