JEDDAH, Saudi Arabia – European demand for all types of mineral base oils is trending toward lackluster as 2023 enters its home stretch, an editor with Independent Commodity Intelligence Services said at an industry gathering here last month, and that is weighing against supply-side forces that would tend to push up prices.
ICIS Senior Manager Editor Samantha Wright told the ICIS Middle East Base Oils and Lubricants Conference Oct. 18 that the European markets for API Group I, II and III oils were similarly affected by the major disruptions of the past few years: the COVID-19 pandemic and the war in Ukraine.
Demand and prices for all three grades at first declined during the pandemic’s first few months in Europe, but then rose to record levels as lubricant demand rebounded and supply was constrained by cutbacks in refining operations. Group I prices – both for exports from Europe and sales within the region – and Group II prices mostly remained elevated until the fourth quarter of 2022, then fell rapidly for several months until leveling out in the second quarter of this year, though still at levels higher than before the pandemic.
Group III prices in Europe also fell back toward earth, though their slide did not begin until the second quarter of this year.
Russia’s invasion of Ukraine initially caused prices for Group I sales within Europe to surge again, both because of spiking crude oil costs and because it reduced availability of Russian feedstocks in Europe, Wright said. Prices for Group I exports rose because the conflict closed Baltic and Black sea ports used for Russian base oil exports, leading demand to shift toward other European sources.
Europe’s Group II market was similarly affected by feedstock costs and supply disruptions. The Group III market felt an additional impact from the halt of Group III imports from Russia, which helped tighten availabilities.
Prices for Group I sales within Europe rose a bit during the first half of the year as rising feedstock costs squeezed margins, Wright said. Group I export values rose, too, though not as much. Group II levels, on the other hand, trended slowly downward throughout much of this year. Although likewise affected by feedstock costs, European Group II demand was constrained by a decrease in the amount of finished lubricant blenders substituting Group II for Group I stocks, she said. On the other hand, recent hikes in Group II exports from the United States, which supplies significant quantities to Europe, prods European values upward.
Group III prices have fallen more heavily in the second half of the year because of increased imports from Asia, which have significantly bolstered supply, especially for oils not carrying full slates of finished lubricant approvals.
“Heavy imports from Asia are driving an increasingly wide range of” of Group III products, Wright said.
For the past few months, demand for all three grades has been muted because of uninspiring economic activity. Weak demand for finished lubes reduces demand for all three grades of base oils, exerting downward pressure on prices, she said.
Were it not for that, the likelihood of price hikes would increase for a number of reasons. A recent run-up in crude costs squeezed margins again. Margins on fuels are faring significantly better, she noted, and this could cause refiners to shift feedstock away from base oils production to fuels, thereby constraining base oil output, which would tend to push up prices.
Overall Wright described a situation of stasis, saying economic concerns look likely to continue dampening demand for all three grades of base oils, that compressed base oil margins will continue to create some upward pricing pressure but that demand and supply appear balanced. She did say that supply of Group III oils with full slates of approvals is tight and likely to remain so.