Global base oils - week of Jan 30: Demand outlook

·        Global crude oil prices edge down over past week, hold close to recent highs against backdrop of firmer-than-expected economic activity in US and Europe, expectations of strong recovery in China. 

·        OPEC+ meeting this week expected to keep crude oil production levels unchanged.

·        US central bank likely to raise interest rates this week, cut size of increase to 0.25pc amid growing signs of economic slowdown, adding to downward pressure on inflation.

·        US gasoline demand falls last week for 43^rd week to lowest in almost two years.

·        US base oils/lube demand likely to get boost on recent refinery posted price cuts, higher crude oil prices, start of plant maintenance work.

·        Brazil’s firmer lube demand in December 2022 raises prospect of more balanced base oils supplies at start of this year.

·        European central bank expected to raise interest rates by 0.50pc this week amid ongoing concern about high inflation, signs of more muted-than-expected economic slowdown.

·        Europe’s flash PMI for January points to return to expansion on rebound in services activity.

·        Germany raises 2023 economic forecast to slight growth, from 0.4pc contraction previously.

·        UK’s flash PMI for January falls at fastest pace in two years, pointing to likely recession.

·        Weak lube demand and concern of steeper slowdown incentivized European blenders to delay base oils stock replenishment.

·        Delayed moves to replenish inventories set to squeeze round of stock-replenishment into smaller timeframe later in Q1 2023.

·        Italy’s December lube demand extends slide, deterring blenders from replenishing stocks and magnifying market impact of lingering surplus base oils supplies.

·        UK’s November base oils/lube demand falls to lowest since 1H 2020, mirroring slowdown in other European markets.

·        UK’s rising consumption of premium-grade base oils means slower domestic demand has bigger impact on overseas suppliers than on domestic supplies.

·        Europe’s weak lube/base oils consumption contrasts with steady-to-firm demand in Latin America, Africa and southeast Asia, despite pressures on economic growth in those markets.

·        Base oils producers are increasingly likely to target those markets in response. 

·        Any EU buyers that have yet to find alternative sources of Group I base oils in place of Russian supplies may struggle to cover requirements ahead of Feb 5 EU ban on Russian shipments.

·        China’s base oils demand falls 30pc in 2022 from previous year; December demand stays low.

·        China’s low demand, domestic producers’ low output and blenders’ low stocks likely to trigger even stronger pick-up in requirements during upcoming spring oil-change season.

·        Signs of strong revival in economic and travel activity in China during lunar new year holidays likely to add to pick-up in lube demand.

·        India’s December base oils output rises to highest in a decade. Rising domestic supply and competitive prices for the supplies cut demand for overseas shipments.

·        India’s higher base oils output lags size of fall in imports, cutting net supply and raising prospect of pick-up in demand for overseas supplies unless and until domestic capacity rises.

·        India’s lube demand typically peaks in March during final month of financial year. Buyers need to line up feedstock supplies well before then.

·        India’s demand for very-light grade base oils could get support following sustained slide in imports, and retail diesel premium to regional light-grade prices at its highest in almost a year.