Global base oils - week of Feb 20: Demand outlook

·        Crude prices fall over past week as prospect of even higher interest rates and stronger US dollar counter expectations of rising crude oil consumption.

·        IEA raises 2023 global crude oil demand forecast again; China accounts for almost half the rise in demand.

·        IEA projects crude supply could lag demand in 2H 2023.

·        US central bank set to keep raising interest rates and keep interest rates higher for longer as strong January US retail sales/jobs data and rising producer prices reflect still-resilient economic growth.

·        Lube blenders globally remain cautious about restocking at time of year when stock-replenishment typically starts to gather pace.

·        US gasoline demand falls last week for 46^th straight week.

·        Latin Americas lube demand holds firm through Q4 2022 – leaving base oils supply more balanced at start of 2023.

·        Latin Americas base oils demand likely to hold steady in early 2023 after slowdown in shipments from US to region in Q4 2022.

·        Firm Latam demand would contrast with weak European lube demand, likely to attract more arbitrage shipments if availability builds in other regions.

·        Europe’s lube demand shows signs of falling more sharply than usual at end-2022.

·        Weak European demand magnifies impact of surplus regional supply in recent weeks even with lower total supply.

·        A pick-up in European demand would reflect more accurately current state of base oils supply.

·        Asia-Pacific demand likely to be firmer in China, steady in other regions.

·        Weaker Chinese demand in January prompts more regional supplies to move to other markets instead.

·        Demand in southeast Asia could slow down over coming weeks after blenders replenish stocks with large volumes from South Korea and Taiwan in January.

·        Strength and sustainability of Chinese demand over coming weeks likely to be major factor determining regional supply-demand balance as southeast Asian demand pauses.

·        If Chinese demand lags expectations, Asia-Pacific region could start to see reappearance of surplus supplies.

·        Chinese demand shows signs of rising in February.

·        Chinese blenders’ preference to hold off building stocks until after lunar new year holidays reflects ongoing caution about outlook.

·        Chinese blenders’ preference to hold off building stocks until after lunar new year holidays cuts time available to lock in supplies before seasonal pick-up in demand.

·        Chinese blenders would be replenishing stocks from low level following sustained slump in domestic base oils production and imports.

·        China’s car sales in 1H February rise strongly year on year, expected to see gradual recovery.

·        Indian buyers face more competition from China for Asia-Pacific supplies amid narrower price-gap between India and China prices since late last year.

·        India’s January base oils imports rise from December but stay low, leaving domestic output to cover growing share of domestic requirements.

·        India takes delivery of arbitrage cargo from US in January. Flow of additional shipments from US to India likely to be much lower than in 1H 2022.

·        India’s imports of very light-grade base oils rise in January. Firmer demand coincides with wider retail diesel premium to regional base oils prices.

·        India’s retail diesel premium to regional base oils prices remains relatively wide.