Global base oils - week of Feb 6: Demand outlook

·        Crude oil prices fall on slowing economic growth, rising interest rates that may have to rise higher for longer.

·        Lube blenders’ squeezed Q4 margins highlight weakness of end-user demand and buyers’ resistance to higher prices.

·        Refiners’ base oils margins face less pressure even as end-users resist higher prices.

·        US central bank likely to raise interest rates again in March amid increasingly mixed growth signals - US labour market stays unexpectedly strong in January even as manufacturing activity contracts and inflation slows.

·        US gasoline demand falls last week for 44^th week, but contraction slows sharply.

·        US’ November base oils/lube demand holds firm. Trend contrasts with low domestic base oils production, limiting size of supply-build at year-end.

·        US’ January automobile sales rise for sixth month, at slowest pace in five months.

·        Argentina’s November lube demand falls year on year for second month.

·        Pace of contraction slows sharply while demand rises strongly from October.

·        More muted slowdown mirrors trend in Brazil amid signs of relatively steady consumption in Latin America’s largest markets at end-2022.

·        Weaker lube demand boosts incentive for Latin American blenders to procure smaller volumes more regularly from domestic/regional suppliers.

·        Move reduces exposure to risk of significant change in price or demand between purchase and delivery of supplies.

·        Trend curbs further the attraction of arbitrage shipments from Asia-Pacific.

·        Brazil’s more balanced supply at end-2022 raises prospect of steady demand for overseas supplies in early 2023.

·        European central bank likely to raise interest rates by another 0.5pc in March amid still-high core inflation.

·        Europe’s economy avoids recession in Q4 2022. But growth set to remain sluggish on weak domestic demand and high interest rates.

·        France’s January car sales extend strong rise since last August.

·        EU’s ban on Russian base oils imports comes into effect from 5 February, forcing regional buyers to cover requirements from other sources.

·        Germany’s domestic lube demand shows signs of holding firm in final months of 2022.

·        Weak lube demand in other European markets in late-2022 and early this year deters blenders from seeking to replenish stocks.

·        Lube demand typically sees seasonal boost from late Q1 each year irrespective of economic growth.

·        Delayed moves to replenish stocks likely to add to pick-up in base oils demand ahead of seasonal rise in lube consumption.

·        Sustained pressure on Nigeria’s currency keeps adding to costs and to complication of lining up base oil shipments to the country.

·        China’s manufacturing and especially non-manufacturing PMI rebounds in January, pointing to healthy pick-up in consumption during lunar new year holiday period.

·        China’s January car sales fall for third month, likely dip at sharpest pace in at least nine months as lunar new year holidays, removal of electric vehicle tax incentives cut demand.

·        Chinese blenders have increasingly narrow window to replenish stocks ahead of spring oil-change season.

·        China’s rebounding domestic Group II base oils prices highlight mismatch between demand and supply.

·        Japan’s firm base oils/lube demand in December highlights support from PCMO consumption, cushioning weakness of industrial oils.

·        Asia-Pacific PCMO demand likely to get support from rebound in number of Chinese tourists, boosting services activity.

·        Thailand and Vietnam’s falling base oils imports in Q4 2022 highlight impact of slowing global economic growth. Rebounding tourism sectors likely to provide support.

·        Thailand’s lube demand falls in December, reflecting larger impact of global economic slowdown. Other markets like India more insulated from global slowdown.

·        India’s base oils buyers will need to rely increasingly on domestic suppliers at current price levels as more Asia-Pacific supplies target other markets.

·        Indian demand for very-light grade base oils could get a boost as retail diesel premium to regional base oil prices holds close to widest since early 2022.

·        Prospect of rising regional prices for very light grades in response to tighter supply could add to Indian buying interest, to lock in supply at current price levels.