Global base oils - week of Oct 2: Demand outlook

·        Crude oil prices hold firm, testing new highs, likely to trend higher in short-term amid signs of immediate supply tightness.

·        Further rise in crude oil prices faces growing resistance in medium term in face of weaker supply-demand fundamentals.

·        Diesel premium to crude oil stays lower than recent highs, still much higher than usual.

·        Firmer feedstock/diesel prices support higher base oils prices.

·        Rising base oils prices in recent weeks incentivized buyers to bring forward procurement plans to lock in supplies at previous prices.

·        That temporary pick-up in demand likely to ease in coming weeks following completion of those procurement plans.

·        Prospect of seasonal rise in base oils supply and slowdown in demand over coming months would put pressure on base oils prices.

·        Weaker demand would give buyers leverage to hold off and assess sustainability of crude oil prices at current levels.

·        Base oils supply would need to more closely align with demand to support base oils prices that outpace higher crude/diesel prices.

·        Relative lack of scheduled plant maintenance work over coming months makes such moves more challenging.

·        Trend raises prospect of refiners more actively adjusting output to maintain supply-demand balance, or of build-up of surplus supply as output outpaces weakening demand.

·        Lighter period of maintenance work in coming months contrasts with Q2 2023.

·        Slump in global base oils output in June 2023 cushions impact of weak global base oils/lube demand in Q3 2023.

·        Output slumped because of widespread plant shutdowns in all the key regions.

·        Expectation of rise in total lube demand in Asia, Europe and Latin America in Q4 2023 masks lower-than-expected growth in Asia and falling demand in Europe.

·        Demand trends incentivize refiners to focus on Asia and Latin America markets and to trim supplies to Europe.