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Base oils-Lubes: Market overview
Updated to Q1 2018
Supply of base oils in Asia is poised to remain low in Q1 2018 because of turnarounds at two South Korea-based major Group II and III base oils producers' units in March. However, there could be an increase in spot cargo availability if a Middle East-based Group II maker starts up in the first quarter, though further information on this is not immediately available.
Demand In Asia is expected to rise in the earlier part of Q1 2018, ahead of the Lunar New Year, as buyers typically stock up before the festive holidays. After February, demand would usually wane as seen in the earlier years. However, demand for the first quarter is not expected to dip significantly as inventories of most buyers remain lean because of the largely tight supply during the Q4 2017.
Supply of base oils in Europe could be impacted by scheduled maintenance expected towards the end of Q1, although the first half of the quarter looks to be fairly balanced. The supply of approved Group III product is expected to remain tight amid scheduled maintenance, but the availability of unapproved product is likely to remain balanced.
Demand for base oils in Europe started the year on a positive note, with players noting enquiries for January volumes. Buying interest from Russia is expected to be on the quieter side until mid-January amid public holidays across parts of the country.
SN500 base oils prices have been on a persistent uptrend since October/November 2017, with more gains expected as shortages persist. The persistent gains in Iran-origin Group I could open up opportunities for deep-sea cargoes amid declining European prices. However, upstream prices remain key to that as crude oil prices remain buoyant. In the Group II sector, supply of Asian-origin cargoes are also expected to be relatively tight through the first quarter of 2018, but some supply increases for Middle East Group II base oils are expected. Saudi Aramco’s Luberef is due to start production of Group II base oils in January 2018.
Demand is expected to be stable while the firmer prices may yet deter some buying interest. Market players are looking towards newer supply sources such as Luberef to dampen the price gains, but a lack of alternatives, as well as limited availability of Group II base oils from Asian sources, will lend support to prices. Car sales growth in Iran and Saudi Arabia are expected to be strong and could further support demand for base oils.
US base oil supply is recovering from the effects of Hurricane Harvey, but crude oil and refined product prices are on the upswing. Tight supply conditions dominated the fourth quarter, but began to improve in December. With crude oil prices hitting the $60/bbl mark and first-quarter demand expected to rise from the fourth quarter, improved supply is less likely to result in price reductions.
Base oil demand is good moving into the first quarter and expected to strengthen as the slower months of the fourth quarter yield to increased motor vehicle activity, which is typical of the first quarter. Increasing use of Group III base oils is a factor entering 2018, driven by new engine designs and requirements for low-viscosity oils.
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Base oils-Lubes news & analysis
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Base Oils-Lubes Methodology
About Base oils-Lubes
Base oils are the main component of finished lubricants and are derived from the heavy crude oil fraction in vacuum distillation. They are refined to impart physical and chemical properties that will make a good lubricant. Most base oils are combined with small amounts of chemical additives to form the finished lubricants such as motor oil.
The traditional method of making base oils involves solvent extraction to remove aromatic compounds and solvent dewaxing to take out unwanted waxes. More recently hydroprocessing techniques employing hydrogen and catalysts have been used to make base oils.
Group I base oils which are mostly produced by solvent processing are used in less demanding applications. Group II and III base oils are produced by hydroprocessing and used in higher performing lubricants. Group IV base oils are synthetic oils typically based on polyalphaolefins (PAOs). Group V oils are used in the formulation of oil additives.