would be more of a niche product and therefore be of greater value because of the Group I capacity closures seen during 2015-2016. However, as the refinery outages and the maintenance season hit in 2017, base oil prices began to recover across the board as supply tightened.
Group I prices have been robust for most of the year. With unscheduled outages allegedly taking place in at least three locations in Europe during the 1H of 2017, market supply dried up and prices grew steadily for the first half of the year.
Although supply conditions were said to have improved over the traditionally quieter summer period, they have remained balanced-to-tight for the remainder of the year so far and players suggest that this is because the capacity rationalisations seen during 2015 are now taking hold and making themselves felt in the market.
Heavier base oil grades are seeing more of a robust price trend than lighter grades as they are generally tighter in supply. In the European market at present, brightstock and SN500 are more difficult to get hold of than SN150. This again could be a symptom of recent Group I capacity closures in the market, with brightstock production only viable through the Group I production process. It is unclear whether any significant price changes will occur before year-end but there are a few changes on the horizon which are causing a feeling of uncertainty in Europe.
the $50/bbl mark for most of the year, more recently they have surged above $60/bbl amid tensions in oil-producing regions and also strong compliance to the output curbing agreement from OPEC nations.
Crude oil price moves tend not to filter immediately into the base oils market and most sources believe that supply and demand fundamentals outweigh any changes in upstream markets but this remains to be seen. Some suggest the current crude oil prices, if sustained, could impact base oil prices from January onwards. However, there is an even bigger change on the horizon for the future market outlook in Europe: ExxonMobil’s Group II production unit being constructed at its Rotterdam refinery.
Construction of the new hydrocracker at the refinery is expected to complete in Q4 of 2018 with a shift in market dynamics expected by market players from 2019 onwards. According to ExxonMobil’s website, construction is running to schedule.
Earlier in the year at the 21st ICIS World Base Oils conference in London, Ted Walko, global base stocks and specialties marketing manager at ExxonMobil said that Group II product is well-designed to meet performance specifications in the EU and that the European market will benefit from local supply.
ExxonMobil expect the Group II market to have 60% of market share by 2030 with the diverse number of applications that Group II can serve driving demand for the product. In addition Mr Walko said that Group II manufacturing was cost advantaged versus other types of base oils.
There is suggestion a Group II export market could open in Europe as a result of the aforementioned expansion. There is already a small amount of Group II production in Europe but the region tends to import the majority of its Group II product from the US.
Graph 3 Source: ICIS
One of these influences is recent crude oil price movement.
Although crude oil values tended to fluctuate around
ExxonMobil have cited this regional imbalance as the reason for their Rotterdam Group II expansion. However, Europe’s position as a net Group II importer could change once the plant is up and running, with a change in trade flows a possibility.
It is not just Group II production that is increasing, Group III product from Russia is more readily available in the European market this year.
Continued on page 26 LUBE MAGAZINE NO.143 FEBRUARY 2018 25
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