Base Oil Report
Group I base oils in the European domestic market have seen a switcharound in fundamentals, with the lighter SN150 and SN500 grades becoming tighter while heavier brightstock has become oversupplied.
This contradicts the expectations observers had for the impact of Shell and Kuwait Petroleum closing their base oil plants at the start of this year. Because SN150 and SN500 can be replaced, for most applications, with Group II or Group III bases of similar viscosity, there is no Group II or III base oil that is as heavy as brightstock, meaning there are fewer options for replacing it.
As such, it was expected that brightstock would become a specialty product while the other grades were gradually phased out in favour of Group II or III material. Indeed, this appeared to be happening in the first half of the year when brightstock prices increased substantially, and it could yet happen again if further Group I plant closures take place. However, the wide margins that emerged for brightstock production and the diminishing returns for SN150 production led to refineries tweaking their output in favour of the heavy grade, which led to the current situation regarding availability.
Group III availability in Europe has been swelled by material from Abu Dhabi and Russia. While this material is of good quality, particularly the former, neither has OEM (original
equipment manufacturer) approvals. As such, the new material has directly only competed with other unapproved Group III material, with the result being that the range of prices has widened, with approved holding steady at the top and unapproved being pulled down.
Some sources believe the market will move into an even clearer two-tier situation, with approved and unapproved material having distinct pricing. However, others said that the interchangeability between the two is sufficient enough to ensure that there will always be a link and that the two will continue to influence each other. Eventually, therefore, the price of approved material will be pulled down also.
Ross Yeo Senior Editor Manager (Europe) ICIS
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