The new kid in town that everybody is talking about, as the Eagles might say, is the ExxonMobil API Group II base oil plant in Rotterdam, Netherlands. The facility will have an estimated capacity of 1 million metric tons per year and be brought on stream in early 2019.

While most of the additional output was expected to be for ExxonMobils own downstream operations and customers in Europe and Africa, the startup is likely to cause a shift in supply and demand fundamentals and trade patterns.

Significant volumes of API Group II oils manufactured in the United States are regularly shipped to Europe to meet growing Group II demand there, but some of these barrels may not be required once the new plant begins production. Suppliers might need to find new outlets in the domestic market as well as overseas.

The startup of a number of new units in China later in the year and the ongoing efforts by Middle East producers to export base stocks could exacerbate conditions. Abundant global availability of most base oil grades and squeezed margins have already led to trimmed operating rates at regional base oil units.

Producers margins had been particularly vulnerable at the end of September and early October as crude oil prices climbed to four-year highs, but oil values have softened in recent weeks.

However, with the reinstated U.S. sanctions on Irans oil exports, crude numbers could once again spike-particularly if the U.S., Saudi Arabia and other oil exporters cannot make up for the lost Iranian barrels-once again placing pressure on base oil prices and margins.

Oversupply conditions are not a novel occurrence for base oils, and the industry has found smart strategies for mitigating their impact in the past.