Global base oils - week of March 6: Demand outlook

·        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.