Buyers pause as Group I price rally screeches to a halt

Clara Toellner, Europe Base Oils Reporter, Argus Media

European Group I base oil prices have fallen after a 12-month rally that kicked off in June 2020 amid improving domestic supply and weaker demand. Bright stock and SN 500 prices rose the most since the middle of last year. They then fell the fastest, by $100/t in June alone. Prices for SN 150 rose less sharply over the past year, then fell by a smaller $50/t in June.

Even with that price correction, base oil values remained unusually high on an outright basis and relative to crude and diesel.

Many Group I buyers are holding back from purchasing to limit their exposure to these high-priced supplies.

They expect prices to fall further in the coming weeks on the back of weaker fundamentals. Demand typically faces a seasonal slowdown during the summer months. Other blenders already built inventories in April and May and are working through those stocks.

Europe’s Group I supply is set to continue to improve. There has so far been no plant maintenance work lined up for the second half of this year. Even if some maintenance work does take place, it is likely to be much lighter than the first half of this year.

The heavy round of overlapping plant maintenance in the first half of this year fuelled the supply shortages that supported the surging prices.

Some one third of Europe’s virgin Group I plant capacity was shut down for maintenance work

during the first half of the year. The works cut up to 112,500t of capacity from the market.

Two plant closures removed an additional 140,000t from the market during the first half of the year. The combined impact of the maintenance and closures during that six-month period was equivalent to the annual production of a small-to-medium-sized base oil unit. The maintenance work has now been completed.

But the closures represent a permanent reduction of Europe’s Group I nameplate capacity. These units’ output included bright stock, whose availability has been unusually tight. That tightness triggered a rise in prices that more than quadrupled over the past year.

A further recovery in supply will depend on refinery run rates and any additional planned or unplanned maintenance work in the second half of the year.

Figure 1: NW European SN 150 price chart


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