Global base oils – week of Sep 5: Demand outlook

· Global economy faces slowing demand, rising costs.

· US August industrial activity stays strong, contrasting with weakness in Europe.

· US August jobs worker participation rate rises, wage growth lower than expected.

· US’ June base oils/lube demand rises to second highest level in more than three years.

· US weekly gasoline consumption falls year on year for 22^nd straight week, stays lower than usual for time of year.

· Signs of healthy domestic US lube demand contrast with waning overseas lube consumption. Trend could curb competition for US supplies.

· Arbitrage shipments from other markets could add to slowdown in overseas demand.

· Additives shortages in US curb some lube demand.

· Atlantic hurricane season unexpectedly quiet so far this year.

· Hurricane season forecast to get more active over coming months.

· Concern about weather-related supply disruptions likely to support demand.

· Americas lube demand remains firmer than European lube demand.

· Europe heads into recession as energy costs surge, prospect of power-rationing rises.

· Europe’s August purchasing managers’ index falls further. Germany PMI falls to lowest in more than two years.

· European inflation continues to rise, raising expectations of steep interest-rate increases.

· Benefit of economic boost from tourism season set to fade over coming months.

· Slowdown in European lube demand began with industrial oils, likely to extend to engine oils as services activity slows.

· Typical pick-up in demand after summer holidays likely to be more muted amid concern about finished lube demand/lower prices.

· European base oils demand could face additional pressure from expectations of lower prices, prompting buyers to hold back.

· Asia-Pacific base oils demand likely to get support from expectations that prices have bottomed out.

· Weak Chinese economic growth prospects likely to curb seasonal rise in base oils demand, dampen economic prospects in Asia-Pacific.

· China’s manufacturing PMI falls in August for first time in three months, demand outlook weak.

· More widespread lockdowns in China compound disruptions caused by recent heatwave.

· China’s car sales likely rose by close to 20pc in August year on year but fell from July.

· South Korea’s July industrial production lags expectations; PMI falls to lowest since mid-2020.

· Indonesian demand could face pressure after government raises fuel prices sharply.

· Higher Indonesian fuel prices raise prospect of higher interest rates.

· Any slowdown in SE Asia lube consumption would squeeze one of last key sources of growth.

· Indian base oils demand likely to hold firm – steady buying curbs need to replenish low stocks. But peak demand season boosts requirement for additional volumes.

· India gets more rainfall than average in August; above-average rainfall forecast for September.

· India’s retail diesel price premium to Asia light-grade base oil prices edges down. Premium firm vs May-July, much lower than 2021 levels.

· Wider diesel premium typically coincides with stronger demand for light-grade base oils.