Global base oils - week of Oct 23: Demand outlook

·        Crude oil prices stay high as geopolitical tensions outweigh supply-demand fundamentals.

·        Diesel premium to crude oil stays high amid lower-than-usual distillate stocks in key markets.

·        Interest rates likely to remain high in US and Europe well into next year.

·        Trend likely to slow economic activity, incentivize blenders to maintain lower stocks.

·        Pressure of high interest rates and economic slowdown coincides with seasonal dip in lube consumption in Americas and Europe over coming months.

·        Any subsequent base oils supply-build could be smaller than expected as signs of firmer-than-expected demand in Latin America and Asia in Q3 2023 curbed global build-up of surplus base oils supplies during that period.

·        Trend leaves global refiners better positioned to avoid a significant supply-build in Q4 2023 and early next year if they manage production levels carefully in the coming months.

·        More balanced supply-demand fundamentals would support steadier prices on outright basis and relative to feedstock and competing fuels. 

·        Signs of a supply-build would by contrast incentivize blenders to hold back for longer because of concern/expectations that prices would adjust to reflect the weaker fundamentals.

·        Latin America’s lube demand gets support from firm consumption in Brazil in Q3 2023, raising prospect of smaller-than-expected seasonal slowdown in consumption in Q4 2023.

·        Rebounding heating oil prices likely to sustain unusually strong base oils demand in Mexico over coming weeks.

·        Trend curbs need for US refiners to line up other outlets for surplus light-grade supplies.

·        Trend likely to boost demand in India for light-grade supplies from Asia and Mideast Gulf.

·        Asia’s lubricating oil demand unexpectedly rises in Q3 2023, raising prospect of firmer-than-expected consumption in Q4 2023.

·        Asia’s firmer lube demand limits supply-build in Q3 2023, curbs volume of surplus supplies to move to more distant markets in Q4 2023.

·        More balanced supplies likely to provide additional price support in Asia, curb downward pressure on prices in other regions.

·        More balanced supply-demand fundamentals likely to incentivize blenders to maintain more typical procurement plans.