appreciation of the Russian rouble versus the US dollar. A stronger rouble would give Russian blenders more flexibility to import base oils from other regions. Such moves would likely displace some Russian base oils from the country’s domestic market, leaving more supplies available for export to other regions. Such a trend beyond the first half of the year would put further pressure on European base oil prices.
While the weak value of the Euro could deter imports, buyers will have little choice for their procurement of Group II base oils that they will need in order to meet more stringent specifications for finished lubricants. The trend will accelerate the switch from Group I to Group II base oils in the region. Such a development will likely reduce demand for Group I base oils and put more pressure on Group I prices and production facilities.
An increase in Group II base oils production in recent years has prompted some blenders to switch to using the higher-quality product. But many blenders have been reluctant to make a permanent switch to Group II base oils because of an insufficient number of regular Group II suppliers. A high Group II price premium over Group I base oil prices, especially for heavy-grades, also discouraged blenders from making the switch throughout much of last year. Plentiful availability of Group I base oils, and the familiarity of using these supplies in formulations, also contributed to the slow transition to a Group II base oil market in Europe.
But a growing number of regular Group II supply options is expected to be available to European blenders in the near term. Group II supply availability from the US could be tighter in the first half of the year because of a heavier round of plant maintenance. But plentiful Group II export supply is expected to be available in the second half of the year, especially for light-grades. A key US Group II producer is also expected to have no upcoming plant maintenance in the second half of 2017. This should prevent the need to allocate Group II supplies to the European market.
New domestic Group II production in China will also likely reduce Chinese demand for Group II light-grade imports form Asian producers. Any drop in Chinese demand for Group II base oils is subsequently likely to see Asian producers having more supplies to target regional and international markets.
Europe base oil prices ($/t)
Europe Intra-grade spreads ($/t)
Europe base oil vs diesel spreads ($/t)
Continued on page 56
LUBE MAGAZINE NO.138 APRIL 2017
55
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