The science of base oil forecasting has been honed and developed over the years to build in as many variables and factors that may affect the ultimate outcome, not just for prices but also for volumes and potential markets that can readily be identified. Companies such as Kline, Argus and Platts spend millions of dollars, and employ a host of staff to perform studies to analyze what has happened and what may take place over a given period of time.

The base oil sector of the oil industry would appear to be a small and perhaps insignificant part of the greater whole. But millions of dollars are invested by oil majors, national oil companies and also smaller private initiatives based on these forecasts.

It is true that underlying fundamentals such as crude oil levels and feedstock prices have a major part to play in where base oil numbers lie. These factors represent the raw material costs that provide the foundations on which base oil prices are built.

These primary factors provide the drivers controlling markets and production from the various base oil installations around the globe. These production centers do not collude or collaborate with one another; therefore, competitors are focused on establishing and maintaining a market share to boost profitability and contributions from every part of their production slate.

Today, nearly half way through the year, some predictions for base oils throughout the regions are beginning to become reality. Actual events have affected the various regional markets, producing outcomes that many pundits probably missed by a wide margin. The use of historical trends and analysis of past events is only a small part of what may or may not happen in the future. While many forecasts contain the certainties and also probabilities of known events and factors, many more unidentified and indeed unidentifiable elements can play a major part in what will happen in the base oil arena.

This year has seen the inclusion of planned maintenance and turnarounds at various refineries that will always have a predictable effect on base oil availability from standard production. But no one could have foreseen the outages that have unexpectedly or accidentally occurred at some plants.

For example, no one could have seen the temporary production stoppage at the Pearl installation in Qatar, which has had a massive effect on the availability of gas-to-liquid API Group III+ base stocks. This unplanned stoppage has also impinged on other sources of Group III base oils, some of which were new to the market and others that were in transitional phases, with fundamental changes in marketing procedures. This is but one example where no forecasting could have taken account of events, and where all ideas or preconceptions of where the Group III market would be at this stage could not have predicted these events.

New production is easy to build into a business plan, and identifying possible and probable markets for new sources of material is relatively simple. But events have a strange way of turning facts into fiction. For example, the Group II market is about to see a massive increase in the availability of these base oils from Rotterdam in 2018 and from Saudi Arabia later in 2017. This will add a possible 1.5 to 2 million tons of new production to a market that admittedly is growing, but not perhaps at such a sudden exponential rate.

Forecasts predict that Group I utilization will continue to decline and that Group II availabilities will replace the lower classed material. Some Group I material is currently being produced from installations that require, or will require in the not too distant future, major capital reinvestments to maintain production at present levels. Many producers have decided not to make these investments, and Group I availability will continue to decline. But is this is what the markets want or indeed require?

Many modern blenders and finished lubricant manufacturers have announced that they will not divorce from Group I base oils, and that their production will continue to depend on these primary stocks as part of a balanced portfolio of lubricants. This sort of announcement may convince Group I refiners to continue production of these grades, which may command a price premium over the more freely available Group II and III base stocks in the future.

An old adage states, Nothing can be said to be certain, except death and taxes. This certainly applies to the base oil arena, where various scenarios can be played out at the drop of a catalyst or unforeseen geopolitical events, over which very few industry pundits have any element of control. Base oil markets will continue to develop and will change, expand and contract over the coming years. The guess is that forecasting will continue to play a major part going forward so that industry players have the confidence to invest and maintain a presence in this small, yet lucrative part of the much larger revenue generating oil refining business.