Global base oils - week of Dec 19: Demand outlook

·        Base oils buyers prefer to hold back amid seasonal slowdown, concern about economic slowdown, and crude price volatility.

·        Buyers reluctant to lock in supplies at time of year when prices are typically at steep discount to prices in a few months’ time.

·        Reluctance to lock in supplies compounds current demand weakness, highlights limited tools to manage risk of building stocks now.

·        Reluctance to lock in supplies adds to market volatility, raises prospect of steeper price adjustment next year when demand revives and supply tightens.

·        Such a trend happens most years.

·        IEA sees oil demand in China rebounding in 2023 after contracting this year, drop in oil output from Russia.

·        IEA sees possibility of oil price rally as oil balance tightens in Q2 2023.

·        Global economy braces for slowdown or recession in coming months.

·        Slowing growth, high interest rates show signs of quelling inflation.

·        US Fed set to extend rate rises into 2023, keep rates higher for longer to quell inflation.

·        US economy shows more signs of slowing, inflation shows more signs of having peaked.

·        US industrial production, retail sales fall in November from previous month, pointing to slower economic growth.

·        US gasoline demand falls last week for 37^th straight week, at fastest pace in 21 months.

·        US, Argentina November automobile sales rise more slowly, Chile sales extend contraction.

·        Base oils buyers in Latin America likely to seek more supplies from US amid slowdown in arbitrage flows from other markets.

·        European central bank raises interest rates, with more to come.

·        Eurozone December flash PMI points to slowing contraction, easing inflation pressures vs November.

·        UK central bank raises interest rates to 14-year high; indicates more rate increases may be required to return inflation to target. 

·        Europe’s November car sales rise as fastest pace in 18 months.

·        Spain’s October lube demand falls year on year for third time in four months, rises from September.

·        West Africa demand for US base oils likely to be lower in 2023 than in 1H 2022 amid rise in availability of Russian supplies in Turkey and Mideast Gulf.

·        Asia-Pacific base oils demand likely to remain muted for now.

·        Lower base oils shipments to southeast Asia in Q4 erode a key counterweight to drop in Chinese demand over past year.

·        Slowdown in shipments to southeast Asia likely reflects easing demand growth; firm retail activity in markets like Indonesia and Vietnam likely to limit downside.

·        Prospect of firmer Chinese demand in 2023 likely to balance out slowdown in southeast Asia demand.

·        Chinese buyers face dilemma of securing supplies to meet expected rise in demand during spring oil-change season.

·        Buyers also face risk of fall in lube demand in short term if rise in Covid-19 infections causes widespread disruption.

·        Those concerns likely to boost attraction of supplies from domestic producers, but leave market exposed to risk of supply tightness when demand revives.

·        China’s car sales edge down in 1H Dec year on year, rise strongly from November.

·        India’s demand for very-light grade base oils unlikely to improve any time soon; retail diesel premium to regional base oil prices stays narrow.