Base Oil Report
Europe domestic Group I base oil prices were largely stable during the second quarter. Prices at the low end of the ranges increased towards the close of the quarter but nothing was seen pushing above the existing highs. These gains in the lower half of the market were the result of a narrowing spread between European and Baltic base oil prices; the lowest prices in Europe typically relate to imported material from the Baltic region and so were supported by firming pricing there.
That said, the situation in the Baltic market was far from clear, with widely diverse price ideas emerging from different participants. Sellers have operated with contrasting levels of availability and this has resulted in deals taking place at wide spreads and a high degree of uncertainty.
This uncertainty has spread to the European market to a certain extent, given that this had been increasingly supplied by Baltic imports this year, following two western European refinery closures in January.
European Group I exports have been extremely subdued, with very few arbitrage opportunities available. Nigerian demand continues to be hampered by financing problems there, although this situation is slowly improving. In the latter half of the quarter the only viable destination for European exports was North Africa, with arbitrages closed to the Middle East and India unless exceptionally favourable freight rates could be found.
However, this lack of export demand did not lead to a build-up of material, at least partly due to robust domestic demand, and so prices did not come under pressure. Indeed, another reason for the lack of export trading was the fact that few refiners had all three Group I grades available simultaneously. Most importers require a package of grades rather than just one, so this unequal availability among sellers has impeded deals.
Group II prices have held more or less stable, although tightness in the US among the lighter grades is expected to result in higher prices in Europe before long.
Group III prices have come under pressure from continued ample supply, which saw sellers engage in competitive offering to gain market share. Group III prices in Asia began to increase, however, towards the end of the second quarter, meaning that the downside to Europe pricing is likely to be limited.
Ross Yeo Senior Editor Manager (Europe) ICIS
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