Remains of the Day
Against the backdrop of a world shaken by the ongoing covid-19 pandemic and the protests calling for racial justice that erupted not only in the United States but around the globe, there was no doubt that momentous changes lay ahead.
While the demonstrations were not expected to have a direct effect on base oil market fundamentals, participants acknowledged that general uncertainties and the economic recession were weighing on consumer confidence. This, in turn, was impacting product requirements.
Even though the base oils market remained fairly subdued, encouraging signs of improved demand started to emerge in early June. The segments that supply passenger car motor oils and other lubricants saw a moderate upswing in demand with the easing of lockdown restrictions and a return to driving, even as car sales in the largest economies—including Japan, India, China and the U.S.—have plummeted.
The different base oil segments have been affected in their own way by the pandemic, depending on geographic location. The API Groups I and III categories in Europe, for instance, have born most of the brunt of the demand destruction and price pressure. The European Group II category has also been negatively impacted, but not as much as the Group I export sector, as availability of Group II cuts was more limited in that market.
Conversely, in the U.S., Group II has seen significant oversupply due to the number and high capacity of plants producing these cuts.
In Asia, the Group I sector experienced a painful demand drop because of reduced industrial and heavy-duty transportation activity, and while availability of Group II and III cuts was plentiful, it was curtailed by reduced operating rates at most base oil facilities.
Prices in most regions were showing similar tendencies towards stabilization in early June, mainly supported by strengthening crude oil values and thinning margins. Discounts became less prevalent, while expectations of potential upward adjustments drove buyers to secure base oil cargoes wherever storage was available.
Nobody knows what the new normal will look like or how long it will take for fundamentals to go back to pre-pandemic levels, but everyone is aware that there is no turning back and that everyday life and the business environment have been altered forever.
Gabriel Wheeler is base oil editor for Lubes’n’Greases. Contact her at Gabriela@LubesnGreases.com