Global base oils - week of Aug 7: Demand outlook

·        Crude oil prices extend rise to highest in more than three months.

·        Crude oil prices get support from tightening supply and prospect of stronger-than-expected demand amid smaller-than-expected US economic slowdown.

·        Diesel premium to crude extends rise to highest since early this year amid signs of tight supply, prospect of revival in industrial activity.

·        Brazil cuts interest rates more than expected and for first time in three years.

·        Rate-cut follows signs of slowdown or pause in rate-increases in US and Europe.

·        Trend adds to signs that interest rates have or are close to peaking – but are likely to hold at high levels for an extended period.

·        Growing signs of upward base oils price pressure could incentivize blenders to bring forward procurement plans and arbitrage traders to lock in supplies.

·        Lube demand in Latin America, Europe and Asia set to fall less than expected in Q3 2023, rise in Q4 to levels that match or exceed year-earlier levels.

·        Smaller-than-expected fall in demand could leave blenders with lower-than-expected stocks of finished lubricants and feedstock supplies.

·        Smaller-than-expected fall in demand would coincide with blenders’ moves to keep lower inventories.

·        Blenders’ moves to cut inventory levels exacerbated fall in base oils demand in 1H 2023.

·        Blenders’ lower inventories contrast with high stocks in 1H 2022 amid concern about security of supply.

·        Blenders’ lower inventories, lower-than-expected slowdown in lube demand in Q3 2023, and seasonal pick-up in demand at end-Q3/early Q4 2023 set to overlap in coming weeks.

·        Lower-than-expected slowdown in lube demand coincides with signs of smaller-than-expected rise in surplus base oils supplies amid additional maintenance work/run-cuts/steady arbitrage shipments.