Base Oil Forecast: Over-supply, New Uses


DUBAI, United Arab Emirates – Construction of new base oil plants will keep the lubricants industry comfortably over-supplied with high-quality stocks for the foreseeable future, an industry consultant told a gathering of base oil buyers and sellers here yesterday. But the speaker also predicted that blenders will findas-yet-unidentified uses for Group II, Group III and gas-to-liquids base stocks, and thereby prevent prices from crashing.

Purvin & Gertz Vice President Blake Eskew laid out his forecast in a presentation at the ICIS Middle Eastern Base Oils and Lubricants Conference. According to his calculations, projects announced to date will raise global base oil capacity by 7.2 million metric tons per year between 2006 and 2011, an increase of 20 percent. This will outpace growth in global lube demand, Eskew said, citing Purvin & Gertz projections that demand will expand by 25 percent over the much longer period from 2005 to 2020.

Moreover, he noted, all of the coming projects are designed to produce API Group II, Group III or GTL stocks – all generally deemed to have higher performance qualities than Group I stocks, the dominant category worldwide today. Demand for premium stocks is rising, Eskew said, especially in the transportation sector, but supply should stay comfortably ahead.

The two-day conference drew approximately 200 attendees, and numerous members of the audience raised questions about price forecasts from Eskew and other speakers. Citing anti-trust concerns, Eskew avoided making specific predictions about prices, but he did suggest the surplus supply of quality and overall base oil volume will tend to exert downward pressure on prices.

We do think the price cycle will move off its peak, he said, referring to the steep run-up the past two years, but [will settle] into a somewhat higher equilibrium than in the past.

Some in the industry have predicted that new plant construction – especially large GTL projects planned in Qatar – could create a glut of premium stocks, causing prices for all categories to crash. Eskew said that is unlikely, even though the amount of planned volume looks formidable.

Instead, he predicted that ready availability of premium oils will spur lubricant blenders to develop better-performing finished products and original equipment manufacturers to demand them. Indeed, that has been the historical pattern, he said, citing the example of Group II oils in the United States. Refiners developed and produced Group II before the industry needed it, but once those stocks were available, automakers in particular pushed development of lubricants that would use them to last longer and lubricate better.

The availability [of Group II and Group III stocks] has stayed ahead of demand, but availability was absolutely critical to the development of demand, he said. Im sure we will see that again, and that OEMs and blenders will find uses that have not yet been thought of for these high-quality base oils.

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