Most agreed that prices would not rise at the same meteoric rate as they had fallen, since raw material costs were not expected to recover to the dizzy heights when crude stood at $115 per barrel. With expectations that crude might rise only to around $70, price ambitions for base oils were, and in some cases still are, limited.

However, talk of base oil prices following a rising path appeared to be short-lived because many protagonists, particularly from the buyers side, were calling for further cuts in lube and base oil prices, citing product oversupply and boundless availability of material globally.

Word on the street was that API Group II, in particular, was long, and going longer, both in the short term and as far forward as anyone in the market could see. Group III markets were thrown into the same basket, with new production of these grades coming on stream almost monthly. And, of course, with demand still not showing its head above the parapet.

Since the meeting, things may have started to change. A number of Group II producers, both in the Far East and United States, have announced significantly longer Spring turnarounds than normal, potentially trimming the number of barrels of this type of material that could be coming to market. Buyers have reacted to this scenario with degrees of skepticism, commenting that with even more production coming on stream between now and 2020, this market is facing a long call well into the future. But some of these buyers are now struggling to cover all requirements at price levels that they assume to be competitive.

In the Group I sector, Russian supplies of export grades became scarce during March, either due to Russian refinery turnarounds or just not having material available for export. The very low prices and contributions seen during January and February have discouraged production of base oils in favor of gas oil, making way for a shortage of material available for export through Baltic and Black Sea ports.

Also, the rate of decrease in Russian base oil prices was causing diminished stock positions for resellers and distributors in the Baltic, where base oil parcels were being negotiated, fixed and agreed. Only then did the process of obtaining these supplies from various Russian refineries commence. Hence, there could be a time delay of up to one month between refinery gate sale and FOB loading.

A temporary shortage in this relatively small corner of the market normally would not generate any scares, but these occurrences have come at a time when buyers in West Africa are looking to replenish inventories, having recognized that base oil markets were close to, or had reached, their nadir and that current opportunities for lower prices may not be repeated.

Instead of being able to load large parcels from the Baltic for ports in Nigeria and Ghana, receivers and buyers in these regions are turning to alternative suppliers in mainland Europe and the U.S. This clear signal to producers that demand is being artificially created by a shortage in one critical part of the market has alerted those suppliers to the possibility of increasing prices across the board.

Furthermore, some buyers in West Africa had heard that Group II prices from some producers were competitive with those of Group I solvent neutrals. This encouraged receivers to look at alternative base oils that may or may not be more competitively priced. This, in part, may have opened West Africa to using Group II base oils, a progressive movement, but perhaps limited due to ignoring the fact that as soon as Group I prices start to rise, so will Group II levels, also taking into account a possible shorter market due to the turnaround reasons noted above.

During March, rumors spread of difficulties in obtaining sufficient quantities of some Group III grades for markets in South America. These reports first appeared to be one-off rare occurrences, given the length of supply for these products. But supplies had been curtailed and were being allocated to existing customers and regular buyers. Looking for suppliers in Europe or the Middle East was a possible option, but the report specifically cited shortages of Group III material.

The days of taking for granted that supplies of Group III base oils will never be in doubt may be limited. This caution also applies to other base oils such as bright stock.

Having always been in relatively strong demand, bright stock may become even more popular as a grade necessary to formulate certain types of finished lubricants such as marine cylinder oils. Producers of bright stock have been aware of this situation for some time, but bright stock cannot be produced on its own; other Group I solvent extracted grades have to be included in the slate.

With more and more Group I facilities being abandoned, even the lure of attractive prices for bright stock is not enough to justify the capital expenditures needed to revamp many existing refinery units. Therefore, surviving producers of this grade may be in for a bonanza, providing yet another incentive to hike prices still higher.

The rationale behind the current base oil market is that while certain views hold that the supply scene is long and thus cannot sustain prices at higher levels, other equally valid outlooks state that some parts of the supply chain are becoming weaker, and certain products may become shorter in the months and years to come.