Global base oils demand outlook: Week of 27 May

·        Crude oil prices hold in narrow, lower range compared with April 2024 on concern higher-for-longer interest rates will curb economic growth.

·        Diesel premium to crude oil stays close to lowest in a year amid signs of healthy supply, weaker demand.

·        Weak diesel premium to crude contrasts with rising base oils premium to crude and diesel.

·        Trend adds to attraction for refiners to maximise base oils output.

·        Growing divergence of diesel and base oils prices, and prospect of rise in base oils output, incentivizes buyers to maintain lower stocks and procure smaller volumes more regularly.

·        Base oils demand in Asia shows signs of slowing in growing number of markets as prices in destination outlets increasingly lag FOB Asia cargo prices.

·        Trend could prompt Asia’s refiners to look to buyers in more distant markets like Latin America.

·        Tighter-than-expected Group I supply in Europe, and prospect of more frequent repeat of such a scenario, could incentivize regional buyers to increase their use of premium-grade base oils instead.

·        Mixed signals about finished lube demand in Europe add to attraction for blenders to continue to hold lower stocks.

·        US base oils prices extend rise versus feedstock/competing fuel prices and versus prices in other regions like Europe and Asia.

·        Trend raises prospect of rise in total supply and rise in supply that stays in US’ domestic market.

·        Trend increases importance of strong pick-up in domestic demand to absorb likely rise in supply.

·        A lack of any such strong pick-up in demand would increase prospect of faster build-up of surplus supplies.

·        US’ domestic demand could get support from signs of more balanced supply in short-term, and stock-building ahead of Atlantic hurricane season.

·        US buyers could limit size of any stock-building amid expectations that supply will remain sufficient to cover requirements.