Global base oils – week of March 13: Demand outlook

·        Crude oil prices fall over past week amid concern that US/Europe interest rates will rise higher than expected, slowing growth for longer than expected. 

·        Blenders’ current perception that base oils supply is sufficient curbs urgency to buy, keeping supply more readily available.

·        Trend highlights how buyers’ perception of supply situation has artificial impact on base oils demand.

·        Artificial impact on base oils demand may be different from lubricants end-user consumption.

·        Perception that supply is sufficient gives blenders flexibility to procure supplies as and when required.

·        Blenders more likely to procure smaller volumes more regularly to retain flexibility if demand continues to fall.

·        Strategy cuts blenders’ exposure to lower demand and lower value of inventories if prices fall.

·        Strategy increases blenders’ exposure to stronger-than-expected demand or lower-than-expected supply.

·        US central bank set to raise interest rates higher than expected for longer than expected. But economic growth signals turn more mixed.

·        US weekly gasoline demand extends sustained fall; contraction at slowest in almost a year.

·        Signs of steadier consumption in the Americas market late last year and early this year leave supply more balanced, especially in Latin America.

·        More balanced fundamentals in Latin America likely to sustain base oil arbitrage opportunities between Europe and Latin America during the year.

·        Europe’s central bank set to raise interest rates 0.5pc in coming week; high core inflation combined with weak economic growth complicate subsequent rate moves.

·        UK’s February car sales rise for seventh month; sales of alternative-fuel vehicles hold above 50pc of total sales for sixth month.

·        Size of slump in European lube demand at end-2022 leaves supply overhang even as refiners cut output.

·        Factors that cut European lube demand at end-2022 linger in Q1 2023, deterring blenders from replenishing stocks.

·        More muted seasonal rise in demand from European buyers in recent weeks contrasts with year-earlier, when surge in demand compounded supply tightness and rise in prices.

·        Scope of recovery in Chinese economic growth and demand for overseas base oils supplies likely to have major impact on size of surplus supplies in Asia-Pacific over coming months.

·        Lower-than-expected pick-up in Chinese base oils demand would trigger ongoing flow of Asia-Pacific supplies to other markets.

·        Prospect of more muted/cautious demand in China and India over coming months would curb competition between the two markets to secure supplies.

·        Avoidance of such competition would limit any supply tightness.

·        Strength of recovery in Chinese demand shows mixed, contradictory signals.

·        China’s pick-up in demand following end of Covid lockdowns remains more muted than other countries’ pick-up in demand after their lockdowns ended.

·        Thailand’s base oils exports to China rebound in January but remain lower than year-earlier levels.

·        Indonesia moves large volume of Group I supplies to Malaysia in January rather than to China.

·        Trends add to signs of weaker-than-usual Chinese demand ahead of spring oil-change season over coming weeks.

·        Chinese demand for overseas supplies should get boost from domestic plant maintenance work over coming months.

·        Trend suggests recovery in domestic base oils output would cut demand for overseas supplies.

·        Flows from Taiwan to China rise in February and early March.

·        Flows from Singapore to China surge in early March.

·        Pick-up in shipments point to stronger Chinese demand, at least in the short term.

·        India’s February lube demand slows, curbing blenders’ urgency to lock in more overseas supplies.

·        Lower February demand curbs impact of domestic plant maintenance, leaves blenders with more supplies ahead of seasonal rise in lube demand in March.

·        India’s February automobile sales rise year on year and vs February 2021, except for two-wheelers.

·        India’s March automobile sales likely to get boost from festivals, better availability and prospect of higher vehicle prices from April.

·        Possibility of weaker-than-usual monsoon season in India because of El Nino conditions could impact rural automobile demand later in the year.

·        India’s demand for very-light grade base oils could start to ease if regional prices extend rise.