Base Oil Report
In the fourth quarter of 2015 the European base oil market was marked by the news that Kuwait Petroleum will sell its refinery in Rotterdam at the end of the year at which point production of base oils, waxes and bitumen will cease. While other, larger base oil units will also stop production, such as at Shell’s Pernis refinery, the Kuwait Petroleum news was confirmed much later and so created more a stir in the market.
Customers began to seek out alternative supply arrangements in order to ensure they are not left short in the new year, and this flurry of buying interest effectively brought forward the impact of the closure ahead of the scheduled end-of year date.
The reduction in supply is most keenly felt in the brightstock market, as buyers do not have the option of switching to Group II and Group III supply because of a lack of comparable viscosity.
Group I prices in Europe normally decrease from around November because of declining demand as market participants run down their stocks to ensure lower working capital on entry to the new year. This season’s downturn has yet to be seen for two reasons.
Firstly, prices are already at their lowest levels since 2009 because of the crude oil crash in the summer. This low level reduces the scope for prices to move further down.
Secondly, the tightening supply brought about by the capacity closures has meant there is less material in tank for most players, and so less need to run down stocks.
SN150 and SN500 prices have held more or less steady, while brightstock prices have increased in the export market for the reason mentioned above, whereby brightstock is most effected by the closures.
In the domestic market, prices have held steady with the exception of those in euros, which saw a slight firming on the back of the stronger dollar.
Despite this currency exchange rate effect, Group III prices in euros eased off on the back of abundant supply and aggressive offering from some suppliers looking to increase market share. Those producers whose material has the highest level of OEM (original equipment manufacturer) approvals, and which therefore commands the highest prices, were seen to be actively seeking increased market share, thereby pushing down the highest prices. This then acted to push down those prices at the low end of the range, maintaining the existing spread.
Ross Yeo Senior Editor Manager (Europe) ICIS
LINK
www.icis.com
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