Base Oil Report
European Group I base oil prices have come under considerable pressure since the end of the summer from falling feedstock prices, plentiful supply and weak demand.
Key to decreasing prices in both the domestic and export markets is the upstream crude oil losses of late, and the resulting decreases in the price of vacuum gasoil (VGO), from which base oils are produced. Even as base oil prices have fallen, VGO prices have done likewise, either maintaining or, in some weeks, actually improving production margins.
The result has been that, even with plummeting base oil prices, production rates at most refineries have been maintained at high levels, which has kept supplies long.
Domestic demand took longer than normal to recover from the usual summer slowdown, while export demand for European exports has been hit by competition from low-priced Group II base oils and the expectation among buyers that prices will continue to fall.
The start-up of Chevron’s new Group II plant in Mississippi in the US has resulted in significant volumes of competitively priced Group II material competing with Group I base oils both in the European domestic market and in importing regions that typically purchase European Group I exports. This is particularly true of India, which has been the recipient of Group II imports from the US as well as Asia Pacific.
The consequence is that European refiners have been forced to offer ever lower prices in order to shift stock and prevent the oversupply growing. Yet with the decrease in the price of VGO, these discounts have not led to an erosion of production margins.
Nevertheless, as the end of October approached, refiners began to show resistance to the downward momentum. This is believed to be a largely psychological reaction to the preceding price collapse, rather than a decision supported by market fundamentals.
Further price developments will depend
on whether crude oil stabilises, and if a pause in the downward base oil price trend causes demand to re-emerge.
Meanwhile, Group III prices have followed a different pattern. Producers have been keen to recoup losses on euro sales incurred by the weakness of euro versus the dollar in recent months, and euro prices were increased in October.
However, this increase was in contrast to the falling feedstock VGO prices, and also to price developments of other base oil Groups. As such, further increases were curbed.
Ross Yeo Senior Editor Manager (Europe) ICIS
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18 February 2015: pre-conference seminar / 19 – 20 February 2015: main conference 19th
ICIS World Base Oils & Lubricants Conference
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Challenges and opportunities in Europe within the new global landscape
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