Base Oil Report
European domestic and export base oil prices increased through March and early April before plateauing and holding steady through the second quarter.
The increases were the combined result of rising feedstock vacuum gasoil prices during January and February, and tightness that had emerged on the back of numerous Russian maintenance shutdowns and a corresponding decrease in Russian imports to Europe.
Baltic Sea export prices also increased during the time, and actually came under greater upward pressure because of the local impact of the Russian maintenance programme. Unusually, Baltic Sea export prices for SN500 overtook the equivalent European export prices in late march, albeit for just one week.
Despite having increased along with (and even faster than, in the case of SN500) European export prices, Baltic export prices did not enjoy the same stability during the remainder of the second quarter. With the restart of Russian production, prices soon decreased once more.
While normally falling Baltic prices would be expected to pull down the European market, the link between the two markets appears to have weakened, and the spread between European and Baltic export prices became unusually large.
The first reason for this is believed to be a reduction in the amount of crossover demand that can switch between the two markets, with buyers making up quality differences with additives, the cost of which are covered by the lower Baltic prices. With the increasing shift toward higher quality base oils, driven by the emergence of Groups II and III, fewer Group I buyers in Europe appear willing to switch over to lower quality Russian material, irrespective of price differences.
A second reason is the diverging trends of SN150/SN500 and brightstock. The aforementioned emergence of Group II and Group III base oils has eroded demand for Group I SN150 and SN500. However, there is no grade of Group II and Group III base oil that is equivalent to brightstock, the heaviest of the Group Is, in
terms of viscosity. With no available replacement, brightstock demand will remain. But with the gradual closure of Group I production, supply will diminish.
Brightstock is therefore becoming a speciality product while its lighter cousins are losing ground to higher spec material.
However, European refiners are loathe to end up stuck with quantities of relatively unwanted SN150 and SN500. As such, better prices were offered for brightstock, which might otherwise have traded at a premium, if the buyer agreed to take SN150 and SN500 as well. This extra demand supported prices of the latter grades at a time when they were expected to follow the Baltic market downwards.
At the time of writing, however, the first discounts have been seen for these lighter grades and substantial losses are expected in the coming weeks, as the gap with the Baltic market is closed. Brightstock prices, on the other hand, are widely to expected to remain firm and could even move higher.
Ross Yeo Senior Editor Manager (Europe) ICIS
LINK
www.icis.com
UKLA President’s Report
Continued from page 3
also recruited an assistant for Suzy in Laurie McHale. I wish him well for the future, he is in safe hands.
I would also like to take this opportunity to thank Nigel Bottom, Past President for his guidance and support this year.
Moving forward, I am really pleased to announce that subject to agreement at the UKLA AGM on the 18th October, Hugh Dowding (Member of the Commercial Board of RS Clare) will be taking over as President. I am sure many of you know Hugh either from his Polartech days or as the long standing President of UEIL. His experience in the industry and with European trade associations will, I am sure, help the UKLA to continue on its positive course. I am sure you will all join me in wishing him all the best in the role.
Finally I would like to thank my employer Multisol Limited for giving me the time to take on this role and the members for supporting me this year!
I wish you all the best for the future. Warm regards,
Simon Brander Email me at
simon.brander@
multisolgroup.com or Tweet me @UKLA President
LUBE MAGAZINE NO.128 AUGUST 2015
49
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