Base Oil Report


Europe With the summer period usually a quiet time in terms of demand, supply of base oils in Europe was expected to improve following tight conditions earlier in the year, and to some extent it did, but not significantly. Furthermore, prices have generally remained at elevated levels, despite some players expecting them to drop significantly.


So why is the European base oils market defying expectations at the moment?


Domestic Group I prices are said to remain at current levels despite hints of downward pressure from slightly improved supply because Russian material remains robust in value.


Sources have noted a stronger than usual peak demand agricultural season in Russia, with less product being made available to export. At the same time, one source suggested that refiners in Russia are diverting greater base oil volumes into production of their own finished lubricants, with less material being offered elsewhere as a result.


In the European export market, values for SN150 and SN500 have been elevated to around their highest points in two years, while brightstock values have also remained firm. Players are said to have contracted greater volumes, with less being available for the spot market.


Supply of SN150 in the European export market is said to be fairly healthy but market players have experienced difficulty finding a European supplier able to offer all three grades, with some only willing to sell their limited volumes of SN500 and brightstock unless the buyer agrees to take a quantity of SN150.


lent support to the Group III market, with values there generally holding steady for approved product. Unapproved Group III prices have seen some slight pressure amid healthier supply, but again, have not fluctuated greatly.


Looking at European market supply as a whole, most sources believe that the Group I capacity closures seen during 2015 are now taking hold, with outages less easy to overcome and more able to upset the market balance.


Baltic Sea, Black Sea export markets Values in the Baltic Sea export market are holding steady despite supply having improved versus earlier in the year.


Supply varies from refiner to refiner, with some their product on finished lubricant production. Heavier grades are said to be tighter in availability in comparison with SN150, with demand for the latter thought to be low.


Market conditions in the Black Sea export market have been sluggish for the past month, with demand for imports from the key Turkish market low because of a weak Turkish lira versus US dollar exchange rate. Buying interest from the country was said to be focused on domestic product as a result.


US


In the US Group I prices have recently increased sharply across most grades at the start of November amid healthy market demand.


Group II and Group III values were steady, with contractual volumes being fulfilled but spot business stalling due to narrow supply inventories.


Asia


In Asia, Group I base oils such as SN150 and brightstock were gaining support from tight market supply and healthy levels of demand.


With production focus more on brightstock due to healthier demand for this product, SN150 in Asia tends to be lacking in supply. SN500 was seeing quieter levels of demand but values were holding steady.


There has been talk of discounts for SN150 in the European export market because it is healthier in supply in comparison with SN500 and brightstock, but consensus on the size of discount varies. In addition, supply differs between refiners, with flooding in Livorno resulting in ENI declaring force majeure on base oils from their refinery at the end of September. Production at the plant has returned to normal but one source said there was little spot material on offer for now.


Group II prices have also held steady with outages from Hurricane Harvey in the US Gulf lending support to stable numbers, with some sources noting intermittent supply of spot volumes.


Some players have also said that blips in supply of Group II have


Group II base oils in Asia were experiencing mixed fortunes, with tight supply of 150N gaining support from tight supply, with buyers said to be actively seeking cargoes. However, heavier grade 500/600N was experiencing comparatively less buying interest with some limited price changes expected as a result.


Scarce supply of Group III product in Asia could result in firmer prices, with players noting active demand from the US.


Sarah Trinder, Senior Editor, Manager ICIS


LINK www.icis.com


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