Global base oils - week of March 27: Demand outlook

·        Crude oil prices partially recover over past week, remain down sharply for month of March.

·        Crude price volatility, wider base oil premium to gasoil likely to incentivize buyers to hold back or procure smaller volumes in anticipation of steady/lower prices.

·        Signs of plentiful availability give buyers option to procure smaller volumes more regularly.

·        Rising interest rates increase trading/storage costs, add to attraction of procuring smaller volumes more regularly. 

·        Signs of blenders’ moves to hold lower stocks than usual raise prospect of more regular moves to replenish the lower inventories.

·        Strategy gives blenders flexibility to adjust procurement and stocks depending on market outlook.

·        Strategy complicates refiners’ output/supply plans amid uncertainty about demand.

·        US central bank raises interest rates last week, projects steeper slowdown in US economic growth this and next year.

·        US March purchasing managers' index points to expansion for second month, although yet to reflect repercussions of banking crisis.

·        US’ weekly gasoline demand extends fall; contraction is smallest in almost a year.

·        Slower-than-usual seasonal pick-up in base oils demand in US/Europe increases importance of outlets like West Africa/India to clear surplus supplies.

·        Brazil’s February lube demand slips to one-year low, complicating US refiners’ ability to clear surplus supplies in the Americas.

·        Europe’s March services PMI rises, manufacturing PMI falls.

·        Pattern extends ongoing economic trend that has supported Europe's PCMO consumption, squeezed industrial oils consumption.

·        France’s January lube demand rises yoy for first time in eight months on firmer auto/industrial oils consumption and lower-than-usual year-earlier level. 

·        France’s January lube demand stays weaker than usual for time of year, prolongs blenders’ feedstock supply.

·        France’s lube demand likely remained weak in following months amid signs of lower consumption in other markets in February.

·        Concern about lube demand outlook incentivizes blenders to maintain lower base oils inventories, delay replenishment plans.

·        Europe’s base oils demand shows signs of falling faster than lube consumption in recent months.

·        Trend would tighten blenders’ feedstock supplies and raise prospect of stronger pick-up in demand in coming weeks to meet lube production requirements.

·        Base oils/lube demand in Mideast Gulf typically slows during fasting month of Ramadan.

·        Slowdown would coincide with arrival of large volume of arbitrage shipments from different markets.

·        Asia-Pacific demand shows signs of holding firm, even with lower crude oil prices.

·        China’s March car sales show signs of falling year on year, but at slower pace than Jan-Feb 2023.

·        China’s February base oils imports rise to eleven-month high, pointing to pick-up in demand.

·        Imports still fall more than 20pc from year-earlier levels, stay much lower than usual for time of year.

·        Relatively low import volume suggests China’s demand recovery remains gradual, unlikely to put significant upward pressure on regional prices.

·        A slow demand recovery could prompt China’s refiners to maintain low base oils output or raise production more slowly.

·        South Korea’s rising base oils exports to Latin America in February suggest strength of recovery in Chinese demand remains insufficient to close trans-Pacific arbitrage.

·        India’s demand likely to hold firm – buyers likely to put more pressure on very-light grade prices after dip in regional gasoil prices.