Base Oil Report
Having finally reached the pricing floor in February after a sustained period of losses, the European base oil market saw only a brief period of stability before beginning to firm up once more from April.
Tight availability began to spread through the market as a result of multiple factors. The severe oversupply that had been in place around the turn of the year had seen refiners unload large volumes through exports at ever lower prices while several also reduced operating rates. A number of Russian refineries underwent a programme of maintenance turnarounds while the Colas refinery in Dunkerque, France, permanently shut its base oils unit.
However, while the market did indeed become tighter, this constriction of availability was by no means evenly distributed across the various base oil grades.
Supplies of brightstock became extremely short, and the situation was exacerbated by around a month of maintenance on the brightstock line of ENI’s base unit in Livorno, Italy.
SN500 also became less abundant, although to a lesser degree, while SN150 supplies remained largely balanced. However, due to refiners’ preference for selling combined cargoes, prices of the lighter grades were pulled up by the tightness on the heavies.
This difference in availability is expected to continue and become more pronounced because of the increasing presence of Group II material in Europe. Group II base oils can supplant demand for SN150 and SN500 Group I because they have comparable viscosities but superior quality.
However, no Group II (or Group III, for that matter) grades exist with comparable viscosity to brightstock. As such, brightstock is likely to become a specialty product, particularly when further Group I refineries close down, as have been announced.
The price spread between the solvent neutrals and brightstock will grow, although for the time being the lighter products are being supported to a certain extent by the strength of their heavier cousin.
In the Baltic Sea market, the shortage of Russian supply briefly pushed prices up to parity with those in the European export market, albeit briefly. As soon as production recommenced, support for prices fell away and a more regular spread between the regions was re-established.
Ross Yeo Senior Editor Manager (Europe) ICIS
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