INSIGHT
Base Oil Report Europe
Supply of Group I product in the domestic northwest European market is healthy, with some still seeing an element of downward pressure on values despite higher upstream costs. Crude oil’s lift continues to be cited as a big question for European refiners - specifically, how likely they are to lower base oils output and favour other products. Several refiners are believed to have pursued a brightstock-centric strategy given the premiums this heavy grade fetches over light solvent neutrals.
Availability of Group I volumes for the European export market are in comparatively tighter supply because of recent significant price drops and the low margins on offer. That said, market conditions are generally balanced.
Group II imports continue to enter Europe from the US, despite recent Q2 increases in posted prices making an arbitrage to Europe unattractive on paper. Growing competition in this market and ample supply in the form of imports may limit the impact of any support from higher US posted prices.
European, Asian, Russian and Middle Eastern suppliers are offering Group III product in Europe. Competition among non-approved suppliers has been a major theme in the second quarter, as players battle to retain, or in some parts regain, market share. Surprisingly, the first half of 2019 has also seen some notably low prices for some sources of approved material, being offered on a par with semi or non-approved product.
US
Posted prices for Group I and Group II product firmed during May as refiners were more bullish with offers due to robust upstream pricing. Group III prices have seen some downwards pressure as price spreads between approved and non-approved oils narrow amid a gradual move toward parity in Group III oils.
Asia
In Asia, Group I prices are expected to stay largely flat due to subdued buying appetite despite tighter supply from turnarounds at a couple of Japanese refiners’ units. Group II prices will likely be stable to firm in the coming weeks, with the extent of any upside to be capped by ample supply and the retreat in crude and gas oil values from their year-peaks. Group III prices may hold steady in the near term as increased supply of Asian material following the restart of a South Korean unit is expected to be offset by lesser availability of Middle Eastern cargoes coupled with tepid demand.
Middle East Group II prices in the United Arab Emirates (UAE) have increased in May and may continue to see support from signs of shorter supply. Asian-origin Group II cargoes have been heading to the US, where there is talk of more attractive market conditions, rather than to Asia or the Middle East. The decision by the US to end all exemptions for trade in Iran crude oil has not had a major impact on the country’s base oils exports but introduces yet another layer of uncertainty into the already-sluggish sector. Iran is the main Group I base oils producer in the Middle East and it largely exports base oils through the United Arab Emirates, for transhipment then to other destinations including India.
LINK
www.icis.com
Sarah Trinder, Senior Editor, Manager ICIS
LUBE MAGAZINE NO.151 JUNE 2019
43
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