The roller coaster ride actually began in mid-2011. After an uneventful first quarter, demand started to pick up – first in the Asia-Pacific region, then in the Americas and other regions. European markets – even their API Group I grades – were also caught up in the flow. At the same time, overall base oil supply was falling, largely due to previous decisions, mostly by Group I producers, to cut output.

During the summer, base oil availability became critical, with buyers almost desperate to lay hands on volumes. Most refiners in Europe, the Far East and the Americas were sold out two or perhaps three months in advance, and spot business was a rarity. Buyers searched in vain for adequate and suitable material, driving the prices upwards in a sharp spike which was relished by producers.

In late summer demand for Group I and Group II base oils started to wane in the Far East. General manufacturing activity in that region slowed as demand from other parts of the world fell. With factories running less, the need for lubricants started to fall, as did the requirement for base oils to blend these lubes. Far Eastern base oil production was running too high, so refiners sought alternative markets for Group I and more particularly Group II.

This led to downward pricing pressure in other regions. Europe held out longest, with producers nailing to the mast their highest prices since before the recession. They insisted that fundamentals such as crude oil and feedstock prices were still at high levels and that there were few indicators that these values would decline in the foreseeable future. Based on this line of reasoning, base oils in Europe and Africa remained highly priced, with mouth-watering realizations for producers and very healthy margins for traders and blenders.

The Middle East started to feel the effect of the Far Eastern sell-off. At the same time, however, traditional Iranian supply sources for Group I base oils were coming under increased pressure due to sanctions imposed by many Western companies and banks. To some extent these developments offset each other.

High prices in Europe finally cracked when availability of Russian oils through the Baltic Sea started to grow. Russian production had lost receivers in China, so alternatives were sought. Prices out of Russia were starting to dilute, creating a differential between these sources and mainstream production in Europe, so many buyers were tempted to throw the towel in on quality and move to cheaper base stocks.

As sure as gravity, mainstream stocks in Europe started turning long, and, to maintain market share in the face of imports from Russia, Belarus and other Central European countries, European majors and national producers were forced to capitulate and started to reduce price levels.

Snowball effect is a well-known term, but the decline in prices was more akin to an avalanche. Base oil prices plummeted from October through December, ending the year 40 percent lower than the 2011 highs of early summer. Only when raw material costs started to overtake sales values did the suppliers cry a halt to the prices falling. Group II prices were also affected but not Group IIIs.

The question for purveyors of Group I and Group II base oils is, did they keep prices artificially high for too long and as a result cause prices to ultimately fall farther than they otherwise would have. Could producers, by giving in a bit earlier on, have prevented the large discounting which ensued? Or would base oil prices have reached the same levels anyway, dictated purely by buying pressures and the influence of raw material costs?

There is no denying that some buyers take high prices personally, especially when supplier margins are fat. But it also is certain is that producers and refiners will always try to maximize, or at least optimize, selling prices against market share. This applies to any and all products made at a refinery, and base oils are not set apart. While suppliers have commitments to blenders and branded finished lubricants, this does not take priority over having to make maximum contributions to the slate.

Two things are obvious: First, base oil prices will continue to oscillate up and down. Second, one side will always be happy at the trend, the other side not.