There has traditionally existed what the market describes as the base oil lag, which refers to a situation where crude and other petroleum products moved directionally in price. When this occurred, there almost always followed a delay before base oil producers raised or lowered numbers to reflect upward or downward moves from crude and feedstocks.

This practice appears to be on the wane, and the market seems to be geared to changing prices more frequently. This practice perhaps reflects more accurate product values by quickly accounting for the effect of raw material and other spot changes on operating costs.

In the past, base oils were generically referenced as a whole product group, or at least most parties only identified with API Group I grades as a guide to where future prices might go. This is no longer the case, with each group of base stocks adopting varied and very different trends. As a result, base oils cannot be identified as a single product category. Rather, they must now be split into at least the different types of base oil, with their own production methods that remain separate from the other groups.

Even within base oil groups, various grades have shown individual pricing distinctions. For example, Group I brightstock has shown a degree of pricing strength due mostly to it being almost unique in terms of viscosity. Thus, demand for this grade was forecast to be maintained while solvent neutral trains would ultimately be abandoned, and some plants would become solely brightstock production units. The outcome of this scenario is still not decided because it is extremely difficult to produce only a heavy grade using a furfural process without producing at least some other heavy neutrals.

Some companies plan to remove light solvent neutrals from the Group I portfolio and replace them with Group II light viscosity grades. While these grades are slightly more expensive, they carry specification advantages that can offset the increased cost. This has already occurred with some producers of Group I grades within Europe. However, there is also mounting resistance to move absolutely in this direction, and some blenders are opting to import Russian SN 150 to replace lost Group I production or to avoid being offered only Group II oils as a substitute.

Group I grades in Europe are certainly being radically affected by refinery closures and production cutbacks that restrict the availability of these oils in both local and global export markets. As a result, blenders and manufacturers of finished lubricants are increasingly being pushed to use Group II and III, and even Group IV and V, in the future.

Group I products are a thing of the past, with no new plants to produce these grades having been opened for at least the past thirty years. There have been upgrades and replacement lines since then, but the market has essentially decreed a movement away from Group I grades, which admittedly are dated and have performance limitations for some new applications.

Are these grades finished and outdated? Comments from some finished lubricant manufacturers in Europe suggest not. While they recognize that North American and Far East markets are moving to Group II as the natural successor to Group I, they say that this scenario does not apply to the same extent in Europe. There, Group I grades will continue to be used in blending many industrial and process oils for the foreseeable future. The move to multigrade automotive oils will certainly boost the use of Group II base oils, but the European model is not so heavily weighted toward this sector.

Other moves to use heavy naphthenic viscosity grades as replacements for brightstock may also be flawed due to performance limitations. Even with viscosities being comparable, new additive packages will have to be developed to account for anomalies.

Naphthenic producers and sellers are determined that they can compete and will endeavor to develop replacement products that can be used, for example, to blend marine lubricants such as cylinder oils in the future. Until now, the majority of all marine lubricant manufacturers have employed brightstock in cylinder oil formulations.

All these changes affect the pricing of individual grades, with heavier viscosity Group II grades being more in demand in warmer climates where lighter viscosity base oils were used only sparingly, even during the heyday of Group I grades. Also to be taken into account are plans within Europe to massively increase Group II production, with one major company’s facility set to be operational sometime during 2017, producing up to one million tons of Group II per year.

Additional capacity is also nearly operational in Saudi Arabia at Yanbu, where the refinerys capacity will increase from 280,000 tons per year to 710,000 t/y. A large part of the increased output will be Group II base oils, within a region that currently does not use these grades to any large extent. Therefore, it is not difficult to imagine that European markets will be targeted.

Several Russian refineries are also upgrading to produce Group II and III base stocks, again within a region where these grades are yet to be firmly established. This will create further availability of both Group II and III base oils in a market where current demand is static at best.

Group III markets are being called the predictable train crash, where production has already reached levels that are causing an oversupply. Throughout Europe and the Middle East, new facilities have come on stream against a backdrop of limited available market opportunities, with one inevitable result. Prices for 4-, 6- and 8-centiStoke Group III grades are about to come under extreme pressure, with new and existing suppliers desperate to gain and retain market share in an area awash with these base oils.

With more new units being opened in the Far East and Russia, this particular sector of the base oil market will take some time to come into balance, and prices may not even cover refinery operating costs. But these plants will continue to run at reduced capacity until global supply and demand can absorb the new level of production.

The future looks bright in many ways, but there are certainly going to be pitfalls, setbacks and casualties along the base oil pathway.