Global base oils – week of July 3: Demand outlook

·        Crude oil prices continue to hold close to $75/bl, maintaining narrow range since early May.

·        Diesel prices vs crude oil stay firmer than in April and than historical levels, remain much lower than unusually high levels in 2022.

·        US interest rates likely to be raised again in July amid signs US economy remains unexpectedly strong.

·        Eurozone headline inflation falls, core inflation rises within expectations.

·        Diverging rate of inflation throughout Eurozone region complicates next interest-rate move, which is still likely to be upwards.

·        China’s June manufacturing activity contracts for third month; non-manufacturing activity slows further.

·        High interest rates, muted lube demand and plentiful supply boost incentive for blenders to procure smaller volumes as and when required.

·        Trend leaves blenders more exposed to any unexpected supply disruptions.

·        Global lube demand in Q3 2023 faces prospect of falling as much as 200,000t from Q2 amid seasonal/economic slowdown.

·        Likely drop in demand curbs blenders’ urgency to procure additional supplies.

·        Likely drop in demand puts pressure on refiners to adjust output accordingly to avoid supply-build.

·        Prospect of rise in surplus supplies provides blenders with access to additional supplies as and when required, adding to attraction of holding lower stocks.

·        Europe’s lube demand likely to fall less than consumption in Asia and Latin America.

· A smaller fall in Europe’s lube demand could support firmer base oils prices relative to other regions and attract additional supplies to the region.