Gradually, smaller blenders grew in strength throughout the Western world. While their finished lubricants were almost always sent to third world and export markets, these new blending operations bought directly from the major producers, who sold base oils to them at higher margins.

At the same time, base oil production was maximized because the refineries had ample feed stocks and more than acceptable profits. However, refineries experienced peaks and troughs during periods when off take was not constant.

At this stage, producers looked for alternative destinations for surplus material, and this is when traders came into their own. Many of these traders were initially involved with other petroleum products or chemicals, and the diversification into base oils became a natural progression in their search for larger margins and easier access to new markets where no base oil production took place

There were areas where for political, economic or payment reasons, major producers chose not to operate or were banned from operating. This opened the door for third-party traders to purchase the material on a Free on Board (FOB) or Free Carrier (FCA) basis, charter sea going vessels and deliver the material on a Cost, Insurance and Freight (CIF) or Cost and Freight (CFR) basis.

The trader role, however, has changed dramatically over time, with fewer companies operating in this market due to several factors that have arisen over the last few years. For example, a number of traditional export markets and third world countries now produce their own base stocks in increasing quantities. In addition, new refineries have become operational that have added base oil to their crude slate.

Another aspect has been the eventual recognition by mainstream refiners that they might be losing out on direct sales to historically unacceptable receivers. In this instance, some producers have altered terms of trade and contract conditions to allow business to be transacted in ways and in areas that originally were off limits.

However, the biggest change in the role of traders has been the introduction of API Group II and III base oils to the market. Producers typically keep the marketing and distribution of these grades under their own control. In addition, large centralized production capacity, global base oil refining and world-wide logistics have remained firmly within the domain of the operating companies.

Producers are no longer content to supply material at the refinery gate because they have woken up to the fact that they can gain added value for these products by following the supply chain down to the end-user. Few instances can be found of Group II, and particularly Group III, base oils being sold FOB or FCA. Rather, most business is being transacted directly or through appointed distributors who control either a geographic area or a particular sector of the base oil market.

For example, one of the largest distribution networks for Group II has been set up by a major Group II producer within Europe, Central America and South America. Targeted markets have been identified that take material from a new centralized production center in the U.S.

Far Eastern suppliers have used similar schemes since their Group II and III production hit European markets in the mid-1990s. As a result, few traders have been involved with the supply of these grades within Europe, even though Europe has very little Group II base oil capacity. Group III sales are also closely guarded by producers, particularly for material flowing from GTL sources.

Therefore, traders are being limited to moving parcels of Group I base stocks from and to locations around the world where arbitrage allows such movement to take place. This is not to say that in the future some traders will not be involved in the supply of Group II and III into regions where direct sales are difficult, such as some parts of Africa or where commercial trading terms between major producers and receivers cannot be agreed upon. Indeed, certain traders have indicated that they may be prepared to act as distributors for producers seeking to expand into regions not covered by direct sales.

The role of traders has changed significantly over the past ten years, but their services still appear to be needed to move certain cargoes from one area to another, for example, from the Baltic to West Africa. Perhaps with new types of material flowing to the market, other doors will open for third party traders who buy on FOB or FCA, arrange shipment by sea, rail, or road, and re-deliver and sell on the basis of CIF or CFR, depending on receivers insurance.

There may be fewer traders in the base oil market, but those still around command parts of the business that may never be open to direct sales from producers to certain end-users.