This was against a geo-political backdrop of uncertainty, with President Donald Trump sounding off against North Korea and Iran and ongoing strife in the Middle East.

Opec continued to maintain production cuts, and crude stocks remained at workable levels without any significant peaks in inventories either in the Middle East or in the United States.

This scenario bodes well for base oil producers, since sellers were able to start moving prices upward in line with costs for raw materials in the form of vacuum gas oil and other feedstock streams.

Entering January 2018, API Group l prices had already started to react to the changing fundamentals, and there were some very significant resistance points breached during the month, such as Dated Brent passing U.S. $70 per barrel for the first time since 2014, giving impetus for crude to rise across the board.

Although there is always a time lag between crude and petroleum products prices moving and base oils, this delay appeared to be narrowing with base oil prices reacting faster than previously noted.

Group l supplies across Europe at this time were more or less balanced with demand, although there were some light neutral shortages reported. This was perhaps a result of some producers either cutting back on these grades or removing them from their production slates altogether. The intention for many sellers was to substitute the growing availability of Group II light-viscosity grades for Group l light solvent neutrals, although this did not, and has not, taken off as yet.

The future was becoming a little uncertain, however, since there were a number of major turnarounds looming, both in the European mainstream and Russian refineries, which shortened the market for Group l supplies. Added to these negatives was Nigeria eventually emerging from the financial problems that had prevented many large Group l parcels from entering that market during the second half of 2017. Demand started to take off, whilst supplies and availabilities started to tighten.

This was the perfect storm for prices to rise more, which was exactly what started to happen in February and March. Light neutrals and bright stock both became relatively short, followed by heavy neutrals such as SN500 and SN600, all of which raised prices further.

Group II had a relatively smooth ride through the first few months of the year, with a number of reasonable increases in source markets for oils that are imported into Europe, reflecting raw material cost hikes. These were passed along the supply chain to European end users and blenders, who in turn were able to raise finished lubricant prices to their customers to recover costs.

There had been few increases during the latter half of 2107, hence these gradual markups were acceptable to industry at the time. Sellers and distributors defended them by citing higher feedstock costs, which were obvious to see, but when these same feedstock costs started to drop in late March and April, buyers became resentful and complained that further increases were unjustified.

The selling numbers for imported Group II supplies started to stabilize and have indeed remained so since the end of the first quarter, with only slight tweaks to particular grades from time to time. Also, exchange rate spreads between the dollar and the euro stayed narrow, which also granted a degree of stability to euro selling prices in European markets.

Group II camps focused mainly on preserving or in some cases expanding market share, looking for steady growth in what has been forecast as the fastest evolving sector in the base oil industry.

With new ACEA formulations coming to the market towards the end of this year, the potential for expansion of Group II sales is a reality, and that will translate into a loss of market share for Group I oils produced in Europe. The European Group ll market will continue to grow over the next few years, possibly following the U.S. trend, which has seen these base stocks dominate.

Moving into April and May, most of the large Group I suppliers had come out of a turnaround. Crude and feedstock levels started to stabilize and at points started to retract. This was amidst the U.S. pulling out of the Iran nuclear deal and the re-imposition of sanctions. North Korea had still not come to the negotiating table, and tensions were running high.

The base oil markets were full of mixed feelings, with some people positive that prices had stabilized and were perhaps showing signs of weakening, while others were nervous that this potential mayhem could trigger large and unexpected petroleum product price fluctuations.

One base oil that appeared to have few growth limitations was in the Group lll sector. New production from the Middle East Gulf and Russia hit the international markets in 2017, and this was only the first step for both new and existing producers to ramp up supplies of these grades and establish themselves firmly on the European stage. Both indigenous and imported material started to play a larger part in the supply scene and coming into 2018 merely cemented that fact.

Large cargoes of approved and partly approved product are now being sold in Europe. There is also an expanding supplies hub of all grades being utilized in a growing number of applications, not only as in the past as a diluent for Group I base stocks, although this practice continues.

Group III prices have moved forwards and upwards, and during the past six months there appears to have been a re-establishing of worth and real values in respect of Group II grades, which suffered a two-year surplus that knocked European prices to unacceptable levels for producers. This angle has been addressed, and these base oils have been reasserted in pricing terms, now drawing ahead Group ll levels, which was an objective for suppliers.

The past is easy to recount, but the future is much harder to predict. Forecasters advise that crude prices will continue to rise over the next quarter and then flatten during the last part of the year. Base oil markets are sturdy, but most players are looking for a stable and progressive second half of 2018.