· Crude oil prices rise over past week as unexpectedly strong recovery in China’s manufacturing/services activity in February counters concern about slowing growth in other regions.· High/rising inflation in Europe and US, and firmer-than-expected economic activity at start of year, raise prospect of higher interest rates for longer and likely slowdown in economic activity.· Weaker-than-usual base oils demand at start of year partly reflects slowdown in lube consumption and concern about economic slowdown.· Availability of even small volume of surplus base oils supply compounds demand weakness by prompting buyers to hold back.· Signs of balanced-to-tighter supplies typically spur stronger buying interest; surplus supply has tightened.· Expectations of sufficient supply globally continue to curb urgency to buy or compete for supplies.· US gasoline demand falls last week at slowest pace since last June..· US’ February automobile sales rise for seventh month, adding to signs of healthy economic activity.· US’ December combined domestic and overseas base oils demand falls to lowest since Covid-19 lockdowns in 1H 2020, triggering surge in surplus supplies..· Rise in surplus supplies highlights difficulty for refiners to maintain balance between supply, demand and price.· Rise in surplus supplies incentivizes buyers to hold back in anticipation of lower prices and in anticipation of easy ability to cover requirements as and when required.· Size of drop in demand reflects weak fundamentals and high prices that kept overseas arbitrage opportunities shut.· Size of drop in demand outweighs lower-than-usual US supply, mirroring similar trend in other markets.· Drop in US’ December demand mostly reflects slump in exports; domestic demand holds steadier in narrow range – reflecting relatively firm US economic activity.· Brazil’s steady base oils imports in recent months highlight country’s balanced supply, provide attractive outlet for US refiners. Trend likely to continue..· Argentina’s January lube demand rises, mirroring recovery in Brazil, and contrasting with weaker consumption in other markets. Trend boosts attraction of prioritising Latin America market.· Rising/record inflation in European markets like France add to expectations of sustained rise in interest rates.· France’s February car sales rise for sixth time in seven months.· Germany’s domestic and overseas lube demand slumps at end-2022. Sustained slowdown reinforces blenders’ preference to hold back..· Trend leaves blenders needing to replenish stocks in shorter timeframe ahead of seasonal rise in lube demand from late Q1.· Europe base oils demand shows signs of falling more steeply than lube demand at end-2022/early 2023.· Trend would leave blenders with lower feedstock supplies and add to strength of revival in demand.· China’s February manufacturing activity expands at fastest pace in more than a decade.· Drop in Asia-Pacific base oils exports to China in January highlight the country’s weaker demand in first few weeks of 2023..· Rise in Asia-Pacific shipments to China in February reflect firmer buying interest. But demand remains muted compared with year-earlier levels and compared with recent signs of strong economic rebound in China.· Signs of lower Chinese demand compared with previous years raises prospect of regional refiners again facing persistent surplus volumes to clear throughout the year.· Pakistan’s rising base oils imports, and rising imports as share of total domestic supply, reflect country’s growing consumption of premium-grade base oils.· Trend mirrors markets like Turkey and reflects shrinking number of outlets for Group I supplies.· Japan and Thailand’s lube demand at start of year continues to show weakness for industrial oils and strength for passenger-car engine oils, mirroring performance of country’s industrial and services sectors.· Thailand sees surge in number of tourists from China in January vs 2022 levels. Number of Chinese tourists likely to rise even more sharply over the coming months.· India’s base oils demand for overseas supplies shows signs of firming as surplus supply tightens, prices bottom out.· India’s demand for very-light grade base oils likely to get support at current price levels..Global base oils - week of Feb 27: Supply outlook
