Base oil price volatility is a hot topic these days, said Valentina Serra-Holm in a presentation at the ICIS World Base Oils and Lubricants Conference in February. As proof, Serra-Holm, marketing and technology director at Nynas AB, noted, If you Google Oil price volatility under news you get 236,000 hits.
She explained that base oil refiners have worked in a highly unstable price environment for the past two years. According to the International Energy Agency, crude oil price fluctuations will continue through 2017, despite international efforts to restore market balance and improve prices more consistently.
More intense price instability will be driven by three factors, Serra-Holm explained. First, the market rebalancing work of OPEC and 11 other producers raises the prospect of rising global output. Second, higher prices are bound to affect demand. Third, China could possibly increase production, stimulated by improving prices. She added that oil output in the United States is already rising, and has been for much of the second half of 2016.
The wide swings in crude price pose many challenges, not only for base oil refiners but also for producers of all petroleum-based products. As a result, suppliers and customers will find it difficult to plan on a stable basis. In the last two years, unpredictable crude oil prices have led to high margin volatility for base oil refiners, with base oil prices failing to follow raw material cost increases, she said.
This volatility may also fuel competition between general purpose refining and other uses. For example, some refineries may deem it more lucrative to produce gasoline and diesel and could reduce base oil production, Serra-Holm cautioned. In addition, price volatility makes decisions on investing in new projects more difficult.
The next few years promise to provide some interesting twists and turns in the crude oil market. You can depend on LubesnGreases to keep you abreast of the latest developments and how they will affect your business.
– Howard Briskin
HBriskin@LubesnGreases.com