Base Stocks

Base Oil Report: Trends


Base Oil Report: Trends
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Patterns Emerge from the Pandemic

With conferences cancelled, face-to-face meetings no longer possible and international travel near the bottom of everyone’s lists, the base oil scene has changed considerably over the past 6 to 8 months. 

It seems like a long time since players in the base oil industry were meeting together and arranging future discussions for buying and selling base oil, forecasting market demand and anticipating developments in various sectors of the global base oil markets.

These times have gone and may never reappear in the same format again. The industry has been forced to react to the current pandemic, which has devastated economies and markets on a global scale. 

How is this panning out for the base oil industry? Examining each base oil group, patterns emerge in the regions that are coming about as reactions rather than forward-thinking initiatives. 

Asian markets for API Group l base oils have recovered somewhat. Major players are moving stocks of Group l material into the region to meet demand, which appears to be strengthening in China and other key areas such as India and Southeast Asia. 

The weather is playing a role, with severe storms in the Pacific causing flooding and heavy monsoon rains in India and Bangladesh affecting logistics and operations.

The Group l market in Europe has taken a different route, becoming tight with reported shortages, particularly for export markets. Heavier viscosity grades have been most affected, with some sellers advertising zero availability of grades such as bright stock and solvent neutral 900. Producers cut back output earlier in the year due to lack of demand and have recently been content to sell available base oils in local markets. Sales within the region have higher margins, and offtake of material has fewer peaks and troughs than the export scene.

Suppliers ranging from Russia to the eastern Mediterranean have opted for localized sales rather than discounting prices for export to West Africa, the Middle East and India, where more competitively priced alternatives have been available from East Asia and the United States.

In the U.S., Group l has been hit by tropical storms that have swept through the Gulf Coast, causing curtailment to shipping. This has curbed the movement of possible exports of Group l barrels that had been targeted at West African and Indian customers.

API Group II markets appear to have made a recovery in East Asian trading after a number of main producers went through turnarounds during the summer months. Turnarounds may have been fortuitous, since this limiting factor seems to have kept the lid on the supply-demand situation.

In Europe, Group II may have been handed an opportunity with the limitations and tightening in the Group l supply chain. With the obvious downturn in all base oil markets during the pandemic and the quieter summer period, this group of base oils appears to be holding its own with a raft of new inquiries from first-time buyers.

Importers of Group II base oils to Europe still face the specter of tariff restrictions, limiting quantities to 200,000 tons of imported material during the second half of this year before a duty of 3.7% is applied. Due to downturns in demand earlier in the year, the tariff limit may not have been felt to its full extent. If recovery continues in base oil markets, this barrier will play a major role in future trading within the European Union.

Globally, API Group III base oils are making a resurgence, with East Asian markets opening up once again for both domestic and imported material. Large cargoes from Middle East Gulf producers are moving once again to Chinese distributors. In the Middle East there has been a major downturn for Group III, although new markets in regions such as South Africa and the Americas have created demand for exports from the three major producers in the United Arab Emirates, Qatar and Bahrain.

Within Europe, Group III markets are returning with passenger car and heavy-duty vehicle production starting up again. Vehicle movement is getting back to around 85% of pre-COVID levels, providing much-needed outlets for finished lubricants. Many of these engine oils are highly dependent upon Group III base oils as a constituent part of the formulation, creating a boost for sales. The market is well supplied by sources in Spain and Finland of Group III oils with full slates of finished lubricant approvals, along with fully and partially approved grades from Malaysia and the Middle East.

Without the pandemic, demand for Group III base oils in Europe was forecast to expand exponentially, and this may still be the case, albeit more slowly.

U.S. Group III sales were rising quickly prior to the coronavirus onset, as Chevron’s Richmond, California, refinery started to produce Group III oils under license from Neste. Imports of Group III from sources in the Middle East also play a major part in U.S. markets, which do not require the same original equipment manufacturer approvals as in Europe.

The base oil scene is in a state of flux, with reactionary activities of producers, resellers, traders and blenders taking place around the regions. Each faces a different folio of problems and solutions, varying by region. The formidable and ongoing task of operating in a new normal is here to stay, with reactions to changing market conditions happening almost daily.  

Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Send him comments or topic suggestions at

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