Base Oil Report

Europe – summer slowdown getting underway Due to the approaching summer season, some are already noting a slowdown in the Domestic European Group I market, which is typical for July. Availability of lighter grades has been healthy and long for much of 2019 due to greater local competition from Group II and III amid the switch to higher performing base oils, plus overseas competition in the export market from Group II. In northwest Europe, the market is moving towards more balance, while central Europe remains longer. Southern Europe verges on the tighter side for lighter base stocks.

US – 2H 2019 set to see improved supply/demand balance

For base oils entering the second half of the year, in the Americas there is domestic stability and an improved supply/demand fundamentals balance, particularly in Group II and III. How Group II demand holds up given the stalled export market is a factor going forward for that group. There is little question that Group III demand is strong and likely to continue to gain strength forward into 2020. The first half of the year began with sagging demand and base oil pricing that just narrowly kept margins at viable levels. However, changing factors lifted prospects and set the first half of the year into a price-increase flurry beginning late in the first quarter and stretching into the second.

Middle East – political tensions exert pressure Group I base oils prices in the Middle East are expected to remain under pressure amid persistent political tensions between the US and Iran, the main Group I producer in the region. Iranian market sources said they were still having discussions with overseas buyers, but price levels were under downward pressure because fewer buyers were showing any strong interest to take on fresh shipments. There were also persistent difficulties with securing shipping vessels to move the cargoes and that often resulted in delayed deliveries, the sources said.

Asia – bleak outlook on oversupplied conditions Asia’s spot base oils market is facing a bleak outlook in the second half of the year due to oversupply, with new Group II capacity coming on stream in China, and amid a general weakness in upstream crude values. Demand for Group I material is likely to remain lacklustre although the extent of any downside would be capped given refinery turnarounds in Japan and Singapore.

For the Group II base oils market, the oversupply condition is worsening due to start-ups of several new units in China in the second quarter. Amid an oversupply in China, South Korean and Taiwanese refiners - the key exporters of Group II lots in Asia - have started to turn their attention to other markets such as Southeast Asia, India and the Middle East for their cargoes.


Sarah Trinder, Senior Editor, Manager ICIS



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