The drivers and external forces that can affect base oil pricing and the current outlook for crude and feedstocks will be used to suggest where prices may lie in the future. Obviously, little control can be exerted over geopolitical events and how markets react to these events.

The first step is to decide which direction the immediate markets may take. Most players agree that all base oil types are facing weakening markets over the next few months. This may be due to a number factors, including lower demand cycles from the largest economies and increasing availabilities for almost all base oil grades and types.

API Group I has seen a huge temporary spike in demand throughout Europe and the United States, with some export markets such as West Africa, Central and South America, soaking up almost all of the supply. This demand appears to be slowing; therefore, like Group II and III base oils, the market may start to go longer, with declining prices and ultimately conservative production output that could then rebalance the market.

The outlook for Group I indicates steady decline through 2025, after which the bottom may be reached. Then, necessary uses for Group I grades will prevail, and a limited number of producers will cater to this much diminished sector. Markets are forecast to convert to Group II as the mainstay base stock, with Group III grades playing a parallel role.

This may not go strictly according to plan since many Group I refiners are reluctant to shut down production. While not wishing to invest large sums of capex in these plants, these producers may emphasize producing more of the grades that only Group I technology can supply, such as very heavy neutrals and brightstocks.

The twilight for Group I may not have arrived yet because another important factor is the rate at which traditional markets, such as West Africa, embrace a complete changeover to Group II. A number of these regions are notoriously slow in adapting to change, and one thought is that Group I will continue to form a considerable slice of the base oil pie, perhaps even through the middle of this century and beyond.

As mentioned, prices for Group II base oils have started to weaken after the spring and summer peak, when demand was in balance or even outstripping production. Two aspects are now affecting the market. First, demand is receding through the latter part of 2017 due to decreasing finished lubricant requirements in this period and into 2018. Second, there will be a steady and increasing production build up from new facilities in the Middle East, Far East and Russia. In addition, toward the end of 2018, Europe will see a massive expansion of production from the new 1 million ton capacity operation in Rotterdam.

Group II will certainly be the base oil of the future, as will be seen in more and more formulations for automotive, commercial and industrial applications. The real question could be whether new production will come on stream too quickly for a market not yet ready to make the quantum leap from Group l. Also, will this new production fit snuggly into the supply and demand slate at the correct rate, or is the market facing a temporary oversupply that may last through at least 2025?

Because producers have the ability to temper output from new facilities, these problems may not arise, but there will always be a temptation to run a new plant at a higher rate than perhaps market demand requires. In striving to optimize production and meet financial targets, the scene could be set for a glut of Group II base oils hitting a market that is growing but at a slower pace than output.

It would appear that refining production is not being built to meet market needs. As a corollary, markets must be created to meet the flow of base oils from all the new facilities, which is not an easy solution.

Group III has experienced a roller-coaster ride during the last year. New production coming on-stream has almost swamped a market that was possibly just about in balance. As a result, the market was facing an enormous oversupply situation.

If not for the temporary unintentional outage at the Pearl installation in Qatar, potentially removing around 1 million tons from the market almost overnight, Group III may have experienced some woeful times. However, this production vacuum brought the market back into some form of balance, which initially steadied prices and allowed them to move upward. It also gave incumbent and new players room to maneuver in the various global markets.

The future is perhaps not quite so rosy, with more plants coming on stream during the latter part of this year and through 2018 and 2019. Even though some planned facilities have been mothballed or cancelled, there still may not be enough space for the expanded production that the market has seen over the last year or so.

An oversupply of Group III would seem to be inevitable in the short and medium term. However, stalwart participants in this sector have mooted that with a deluge of material at exceptionally attractive numbers, creating a market that otherwise may not have existed nor expanded in the same way. In other words, the opportunity topurchase superior grades of base stocks at relatively low prices has been too good an opportunity for some buyers. They may now stick with these grades, should they continue to be attractively priced, instead of reverting to original buying patterns.

This scenario is based on a couple of assumptions. First, that Group III grades can be used as substitutes for all original Group I base oils, which is true only in a limited number of cases. Second, that Group III prices will remain depressed indefinitely, another rash assumption when new facilities are looking to recoup maximum contributions from these grades.

The future may or may not be as forecast today and remains subject to unpredictable global and regional events, but progress is surely taking place. Although the general consensus is developing more slowly than many imagined some years ago. Given time, the greater plans will definitely come about, but perhaps not by 2025 or even 2050.