BASE OILS
European Group I base oils availability outlook uncertain for 2023
Samantha Wright, Senior Editor Manager, and Eashani Chavda, Senior Editor, ICIS
The European base oils market is approaching a pivotal moment for domestic production as sanctions on Russian oil products are set to begin in February 2023. This could drive a tightening in Group I supply domestically, but the export market is currently facing an oversupply for the first quarter of 2023.
European domestic Group I base oils prices have weakened in early Q1 with low demand and healthy supply driving the market downturn. Domestic demand was particularly weak in December as buyers aimed to keep inventories low ahead of the new year.
Typically, January demand would rise due to restocking activities. However, restocking has been muted this year as the market continues to fall.
The domestic market is slower in comparison to the export market where triple-digit price drops have encouraged buying appetite.
Domestic activity is sluggish, largely driven by players’ expectations that prices will fall further in the coming weeks. As a result, buyers have been purchasing on a hand-to-mouth basis, while resellers have also held off on replenishing stocks to avoid being stuck with expensive material while the market softens.
Supply is ample in northwest Europe, which is also a factor contributing to increased activity in the export market. The UK market is tighter in comparison, due to reduced imports from Russia as a result of the ongoing Russia-Ukraine war.
24 LUBE MAGAZINE NO.173 FEBRUARY 2023
Domestic players look to the export business for more clarity on the Group I base oils market outlook, though uncertainties continue to hang over the European market.
The main concern regards the Russian oil products embargo which is due to begin on 5 February. Some players expect lengthy market conditions to continue, while others fear the effects of sanctioned Russian oil products could tighten the market in late Q1-Q2.
Concerns over base oils supply, feedstocks and energy costs are likely to dominate price discussions in 2023. Domestic demand expectations have been rather steady so far, with the market balance more likely to be driven by supply conditions.
European export supply is expected to outpace demand in the first quarter of 2023, with buying interest likely to remain weak through the first half of the year.
There was an unexpected excess of supply in the first few weeks of January, which was caused by players unable to destock effectively in December due to a lack of demand.
This, combined with new production in January, led to ample offers heard in the market in January and no interest from buyers.
There were signs of some small demand from key
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