Global base oils demand outlook: Week of 3 June

·        Crude oil prices slip to lower end of narrow range they have held in since early-May 2024.

·        Prices face pressure even after OPEC+ agrees to extend crude oil production cuts through 2025.

·        Prices face pressure as concern about weak economic growth, lingering inflation, and high interest rates coincide with expectations of increasingly sufficient crude oil supply.

·        Diesel premium to crude oil stays close to lowest in more than a year.

·        Weak diesel premium magnifies impact and benefit for refiners of rising base oils premium to diesel.

·        Widening disconnect between crude, diesel and base oils prices could incentivize buyers to procure smaller volumes to limit their exposure to any price correction.

·        Base oils demand shows signs of slowing in key markets throughout Asia at same time as firm margins incentivize refiners to raise output.

·        CFR India Group II prices move to unusually narrow differential to FOB NE Asia cargo prices, highlighting the more muted buying interest.

·        China’s domestic Group II base oils margins stay relatively weak even with several planned plant shutdowns, suggesting demand still struggles to absorb lower supply.

·        Europe’s demand for Group I brightstock could get additional support from concern about sufficient availability of supply.

·        Rising brightstock prices could add to rather than cut demand because of limited means to raise supply in response to higher prices.

·        Europe’s firm Group I prices relative to Group II and Group III base oils could boost buying interest in premium-grade base oils.

·        Any such move would have less impact on brightstock demand, which is harder to substitute with other grades.

·        US domestic base oils demand likely to hold steady amid expectations that any supply tightness will be temporary.

·        Increasingly firm US prices relative to competing fuel prices and relative to other regions could add to buyers’ preference to limit the size of a build-up of their inventories.

·        Overseas demand for US supplies likely to ebb amid seasonal slowdown in consumption and more competitive supply options from other sources.