Global base oils – week of March 20: Demand outlook

·        Crude oil prices slump over past week on concern about repercussions of banking crisis.

·        Banking crisis raises uncertainty about US central’s bank’s interest-rate decision this week.

·        Banking crisis set to tighten lending requirements anyway. 

·        IEA sees crude oil supply exceeding demand in early 2023, balancing out by mid-year, lagging demand in 2H 2023 as Chinese demand rebounds.

·        Crude price volatility raises possibility of further base oils price adjustments, adds to buyers’ preference to hold back, limit stocks, buy on need-to basis.

·        Crude price volatility increases time risk of arbitrage shipments between more distant markets like US and India.

·        Rising interest rates, banks’ tightening lending conditions add to attraction for buyers to maintain lower stocks and procure smaller volumes.

·        Lack of typical seasonal pick-up in demand in US/Europe complicates refiners’ ability to avoid supply-build.

·        Rising US base oils exports to Latin America at start of year tap firm regional demand, balanced fundamentals in Brazil.

·        Firm Latin American demand helps to cushion but not balance out demand weakness in other markets.

·        Latin America’s February automobile sales more mixed; firm growth in Mexico and Argentina counters slowdown in Brazil.

·        US’ weekly gasoline demand falls again, but size of contraction stays close to lowest in almost a year.

·        Europe’s base oils demand stays weaker than usual for time of year.

·        Spain’s January lube demand rises strongly from December, mirroring similar trend in Italy.

·        Blenders hold back from replenishing stocks even as demand gets seasonal boost and structural supply shows signs of tightening.

·        Trend suggests blenders are depleting inventories further, plan to maintain lower stocks.

·        Trend suggests round of stock replenishment pushed back to early Q2, with inventories at lower levels than usual.

·        Strategy assumes demand remains weak and supply plentiful.

·        Turkey’s steady flows from Russia in January contrast with fall in total imports.

·        Trend highlights growing importance of Turkey as key outlet for Russian supplies.

·        Turkey’s unusually steady volumes from Russia in recent months suggest limited capacity or demand for additional supplies from Russia on top of these regular flows.

·        Asia-Pacific base oils demand shows signs of tending higher gradually.

·        Buyers face dilemma of balancing signs of firmer supply-demand fundamentals with slide in crude prices.

·        Chinese base oils demand shows signs of extending recovery.

·        China’s February car sales rise for first time in four months; Jan-Feb sales fall 15pc.

·        China’s new energy vehicle (NEV) sales rise 21pc in Jan-Feb, vs 93pc growth in 2022.

·        China’s NEV sales as share of total auto sales stay lower than at end-2022.

·        China’s March car market stays weak; sales in 1H March dip year-on-year and vs 1H Feb.  

·        Recovery in Chinese base oils demand likely to benefit Asia-Pacific refiners in short term while Chinese plants remain offline or operate at low run rates.

·        Recovery in Chinese demand likely to incentivize domestic refiners to boost output.

·        Chinese refiners' room to boost output is significant, after plants operated below 50pc of capacity in 2022.

·        Rising South Korean shipments to southeast Asia in January and February contrast with signs of mixed demand in the region.

·        Trend suggests regional supply remains sufficient to cover demand in southeast Asia and in China. 

·        Indonesia’s base oils imports show signs of reviving in February after January slowdown.

·        India’s demand for very-light grade base oils could be less impacted by slump in crude prices as retail diesel prices hold firm.

·        Indian buyers likely to target more supplies from Mideast Gulf and US as more Asia-Pacific shipments move to China.