Global base oils - week of Jan 2: Demand outlook

·        Global economy faces prospect of recession/slowdown in 2023 in response to high interest rates.

·        Crude oil prices extend rebound since mid-December, show signs of firm bottom at $70/bl.

·        Expectation of economic recovery in China could cushion slowdown in other regions.

·        China’s rapid switch from zero-Covid to living with Covid triggers surge in infections, raises prospect of drop in economic activity in short term.

·        Slower global lube demand, concern about outlook, lack of concern about access to base oils supplies curb buyers’ urgency to replenish stocks.

·        Base oils demand likely to see seasonal pick-up later in Q1, at same time as supply tightens.

·        Timing of rise in demand likely to come at similar time to EU ban on imports of oil products from Russia from early February. Ban includes diesel, vacuum gasoil and base oils.

·        US auto sales likely fell in December year on year and from November as demand slows, supply rises.

·        US gasoline demand falls last week for 39^th straight week, drops at slowest pace in a month.

·        Brazil’s November lube demand extends slowdown, raising prospect of base oils supply-build at year-end.

·        Europe’s lube demand falls in Q4 as economic slowdown extends to services sector, curbing PCMO consumption.

·        Italy’s November lube demand falls more slowly as auto oils demand holds firm, industrial oils contraction slows.

·        European blenders’ preference to maintain low stocks leaves them well prepared for drop in consumption, less prepared for possibility of firmer-than-expected consumption.

·        European buyers show little rush to build stocks ahead of prospect of tighter supplies in 1H 2023 following loss of base oils supplies of Russian origin.

·        Regional plant maintenance work also usually peaks in first half of each year.

·        If Europe’s lube demand exceeds expectations, blenders' need to replenish depleted stocks over coming months would likely coincide with tighter supply and higher prices.

·        Surplus supplies from Europe to Nigeria likely to tighten in 1H 2023, forcing the West African country to turn to other supply sources.

·        Asia-Pacific base oils demand likely to improve once buyers are confident prices have bottomed and supply is tightening.

·        China’s removal of quarantine restrictions in 1H January raises prospect of rise in travel to/from China.

·        Gradual normalisation of travel to/from China likely to support economic growth throughout Asia-Pacific region.

·        China’s economic outlook could be different from post-Covid economic bounce of other countries, which relaxed Covid-related restrictions more gradually.

·        China’s December manufacturing PMI shrinks for third month and at faster pace, highlighting impact of surge in Covid infections in the country.

·        Expected revival in Chinese base oils demand in 2023 likely to boost competition for supplies from key sources like Singapore.

·        China’s base oils demand already starts gradual recovery in Q4 2022, with imports and production rising in November and exports falling.

·        Chinese buyers avoid building stocks in Q4 2022 amid wariness about impact of zero-Covid, followed by switch to living with Covid.

·        Chinese stock-building in preparation for spring oil-change season likely to take place during shorter time period after lunar new year holidays.

·        India’s lube demand stays strong in Q4 2022, outpacing domestic base oils production and boosting need for rise in overseas supplies.

·        Availability of those overseas supplies likely to be tighter in 1H 2023. 

·        India’s demand for very-light grade base oils could get boost amid weaker prices relative to diesel.