The reasoning behind these moves is that suppliers no longer have a vast surplus of material in storage that can be accessed at a moments notice.

Thus, they are unable to ship to receivers who may have become accustomed to making prompt decisions, for example, for cargoes that will load within days of the completion of commercial negotiations.

This new scenario has come about because of the overall lack of availability in the Group I base oil market. However, there may be a more compelling reason for the lack of availability for export sales.

Many Western European producers are aware that their domestic or local market has come under pressure not only from imported material from Eastern Europe, Russia and Belarus, but also from the growing ingress of Group II material from Far East and U.S. sources. European producers of Group I have reacted by heightening attention to what they perceive as a core business that yields higher returns and realizations. Therefore, they have been directing efforts into protecting this business and also promoting sales of Group I products to their local distributors and blenders.

This move echoes the markets of some 40 years ago when national and major oil companies production of base stocks was designed for and aimed at the so-called local market.

Only after the needs of that sector were satisfied was material offered for sale to a small, new band of traders who were able to take surplus material from local markets into third world regions where base oils were a relatively new concept, and where finished lubricants were imported instead of blended locally.

The importance of domestic markets has resurfaced as refiners and their marketers have tried to maximize and squeeze every last cent out of base oil production, which has gone through some negative times in terms of acceptable netbacks and contribution to that particular part of the crude slate. Alternative products such as diesel and other gas oil derivatives have increased the pressure on base oil to hold its own against these other more profitable products.

One problem facing the continuation of Group I base oil production is that refineries can continue all other streams while totally excluding base oil manufacturing at marginal or even no cost penalty. The fact that a majority of European base oil producers also market their own identifiable brands of finished lubricants has added incentive to concentrate on areas that can provide consumer awareness and brand loyalty. Companies rely on sales of these materials to enhance profitability through both retail and commercial sales of gasoline and diesel engine oils along with all types of branded industrial oils.

Although this move to concentrate on domestic markets has come about almost by accident, Group I production is important for the future. This is due to the fact that Group I oils will still be required by most blenders even as the use of Group II and Group III base oils grows in Europe. Noticeably, the supply of Group I products is already coming under severe pressure from the falling number of European refineries engaging in producing these grades.

Fewer and fewer sources will be around to make Group I material available. But with less competition in the market, those producers who do survive and continue to make Group I base oils available may stumble upon an exclusive supply scene, where only a few sources will be able to fulfill market requirements. Of course, one way to preserve this status is to maintain a profitable base oil section that can compete with other product sectors from the refinery.

The evolution of the European base oil market has not always been planned down to the last minute detail. Rather, it has developed due to a variety of reasons and different elements falling into place over the last 30 years to become what it is today. The absence of any indigenous major Group II production being commissioned within Europe is only one challenge in a market that in years to come will be most certainly rely on Group II and Group III grades for the mainstay of finished lubricant manufacture.

However, perhaps from a global perspective, the time may have come for European supply sources, which have served the world with exports of Group I base oils to regions such as the Far East, India and Middle East, West Africa and South America, to play a smaller part in the supply chain. Perhaps Europe will continue to produce lower quantities of Group I base oils that may have significantly higher values if availability becomes scarce. This scenario may ultimately see those producers who stay in the game reap rich rewards sometime in the future.