Global base oils demand outlook: Week of 6 May

·        Crude oil prices edge up after sliding last week to lowest since H1 March 2024.

·        Crude oil prices fell last week on concern that higher-for-longer interest rates will dampen oil demand.

·        Diesel premium to crude oil holds close to lowest in a year.

·        Sliding crude/diesel prices trigger strong rise in base oils margins.

·        Weak diesel premium to crude magnifies strength of base oils values.

·        Concern that base oils margins are unreflective of supply-demand dynamics could incentivize buyers to procure smaller volumes to limit their exposure to any subsequent price adjustment.

·        Signs of relatively muted seasonal pick-up in end-user demand give blenders more leverage to maintain lower stocks.

·        Asia’s base oils demand shows signs of weakening as prices in destination markets like China and India lag rising FOB Asia cargo prices.

·        Disconnect between price-trends raises prospect of tighter supply in those destination markets.

·        Lack of price-response in those destination markets suggest they are comfortable with lower supply.

·        Europe’s demand for premium-grade base oils could get a boost amid increasingly competitive prices and more ready availability vs Group I supplies.

·        Recent outperformance of Group I domestic light-grade prices points to firmer supply-demand fundamentals for the grade.

·        Strong rise in US Group II domestic light-grade prices vs other grades and other regions points to firmer supply-demand fundamentals for the grade.

·        Muted demand suggests supply is the key factor supporting the firmer prices.

·        Tighter supply could have larger repercussions for overseas markets amid more limited surplus availability.

·        Lack of price-response in destination markets like India suggest those outlets are comfortable with current availability of supply.