· Global crude oil prices hold close to lowest in more than a year amid concern about weakening demand in the world’s two largest markets, while supply is set to rise.
· Squeezed fuel margins relative to crude oil could incentivize refiners to trim run-rates, cutting crude oil demand further.
· Further rise in base oils premium to gasoil reflects more the weakness of crude oil and diesel rather than any sudden change in base oils supply-demand fundamentals.
· Jump in base oils premium could incentivize buyers to hold back or to minimize procurement plans because of concern that prices may adjust to levels that reflect current supply-demand fundamentals.
· Any moves to hold back could be more complicated in Asia, where demand faces a seasonal rise and supply is likely to tighten because of plant maintenance work.
· Buyers in US, Latin America and Europe could have more flexibility to hold back, with supply more readily available.
· Buyers in Europe could face more pressure to secure top-up supplies after weak demand incentivized blenders to maintain low stocks.
· Buyers in US by contrast could tap inventories built up in recent months to cover for weather-related supply disruptions during Atlantic hurricane season.
· US market has so far avoided any major disruptions, although a major storm is forecast to make landfall along the US Gulf coast later this week.
· Recent drop in US Group II posted prices adds to signs of sufficient supply, increases domestic buyers’ incentive to hold back and to tap existing stocks first.
· Latin America’s base oils demand could ease as prospect of seasonal slowdown in consumption in Q4 2024 and expectations of lower prices and improving supply from US incentivize buyers to hold off procurement plans.
