The COVID-19 pandemic triggered a long, large, global run-up in base oil prices, as well as profit margins. By the summer of 2021, gross base oil refining margins had increased between two- and five-fold, depending on grade and geographic region.
Since then, however, prices and margins have plateaued and in some cases retreated, raising questions of where the market is headed as the world hopes to emerge from the health crisis. Some analysts and market insiders predict it is bound back to where it was before the pandemic – a chronic surplus of capacity that exerted downward pressure on prices and compressed margins.
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Base Oils Emerge from Pandemic
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There is broad consensus that one of the main factors to the run-up in base oil prices was a constriction in availability of feedstocks used to make base oils. Demand for finished lubricants – and therefore base oils – also fell initially, but then began a gradual rebound that outpaced the recovery for fuels. Without enough feedstock to keep up with demand, shortages developed for all grades of base oils in all regions, and the rise in prices accelerated.
By the summer of 2021, base oil prices – depending on location and grade had roughly increased by between 58% and more than 200% since before the pandemic began, according to Lubes’n’Greases Base Oil Pricing Data. Gross refining margins had risen even more – more than doubling in the North America, more than tripling in Asia and increasing between three- and five-fold in Europe.
Analysts say the price run-up ended because demand for fuels finally recovered enough for refiners to restore operating rates close to pre-pandemic levels. Moreover, with constraints on feedstock supply largely removed, some predict that the large surplus in base oil production capacity – which continues to increase – will again become a principal factor in prices and profit margins.
For a deeper view of the situation, read Lubes’n’Greases’ Special Report: Base Oils Emerge from Pandemic, which also contains updates on the rerefining industry and China’s base oil supply base.