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Europe Group II base oil imports could exceed quota in Q1 2020 REGULATION


The new 200,000t quota on Group II base oil imports into Europe for the first half of 2020 could be exceeded before the end of the first quarter if recent trade patterns repeat themselves.


Europe’s Group II base oil imports from the US, South Korea, Singapore and Taiwan amounted to more than 260,000t in the first two months of 2018 and 2019. Imports from those sources exceeded the 200,000t level during the same period in 2017.


The quota raises the prospect of altering those Group II trade flows into Europe next year. Imports above the quota from countries that do not have trade agreements with the EU will be subject to a 3.7pc import tax. The higher cost would change the economics of those shipments. That could impact the attraction of some of those imports.


But the quota also incentivises a rush by importers to stockpile volumes before the quota limit is reached. Such activity could push imports to exceed the 200,000t level even earlier than in recent years.


Buyers are also uncertain about when an import tax would be reflected in their purchase prices. The EU will discuss the possibility of increasing the quota limit in the lead up to the second half of 2020. If a decision is made to implement the same 200,000t quota from July then the same incentives and possible impact on normal trade flows would apply again.


Based on current Argus Group II spot prices, the tax could add as much as €20-25/t to imports above the quota from sources like the US and Mideast Gulf, which do not have trade agreements with the EU. Countries with EU trade agreements include Singapore, Canada, South Korea and Japan.


The quota provides a competitive advantage for Group II base oil production situated within Europe. ExxonMobil’s 900,000 t/yr Group II base oil unit at its Rotterdam refinery began operations in the first quarter of this year. A second European refinery is considering upgrading to Group II base oil production next year.


Argus Base Oils Forum 19 February 2020 | London


At this year’s London forum, Argus will be discussing the causes and repercussions of the recent rise in supply. We will look at the global outlook, along with regional perspectives and the challenges and opportunities that these create over the year ahead.


Petroleum illuminating the markets


Register for this complimentary forum at: http://view.argusmedia.com/base-oils-forum-2020


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