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Updated to Q1 2019
Supply of light viscosity SN150 from Asia continued to be scarce, while southeast Asia-origin SN500 and brightstock were largely balanced. A couple of Thai refiners – the main spot exporters in the region – continued to run their facilities at full capacity despite the rebound in gas oil prices since January. Spot supply from Japan remained tight as a major Japanese refiner had been piling up on its inventory because one of its refineries will be shut for a turnaround in mid-April.
Overall demand was sluggish in January and first-half February due to the Lunar New Year holiday in early February. The holiday is being celebrated in China, Taiwan, South Korea and some southeast Asia countries. Buying activity subsequently picked up in March after the holidays but demand from the key downstream lubricants sector had been weaker as compared to previous years at this time. Indian demand was relatively stronger as buyers started re-stocking following the rebound in prices.
Asia’s Group II base oils supply was largely stable in the first quarter as major exporters in South Korea and Taiwan were running their facilities at full capacity. This was despite crude and gas oil prices having rebounded since January. Some of these refiners had cut their base oils production by 10-20% in October and November last year when gas oil prices surged to a multi-year high.
Overall demand was lacklustre in January and first-half February due to the Lunar New Year holiday in early February. The holiday is being celebrated in China, Taiwan, South Korea and some southeast Asia countries. Demand began to pick up in March as buyers started re-stocking after prices had bottomed out in early February. Demand for light grade 70N in India was particularly strong in late-February due to shorter supply from the shutdown at a Middle Eastern refinery.
Supply of Group III from northeast Asia declined due to the turnaround at a major South Korean refiner’s unit in March for one month. Supply from other South Korean refiners was constant as they were running their units at close to full capacity. Supply of lower-priced Middle Eastern cargoes was also relatively lesser in the first quarter as more volumes were heard being shipped to Europe because of more favourable prices there.
Overall demand was lacklustre in January and first-half February due to the Lunar New Year holiday in early February. Demand for northeast Asia-origin 4 and 6cst remained better than that of 8cst, which is why the prices of the former two Group III grades are higher. Some buyers in northeast and southeast Asia were still unable to accept Middle Eastern material as they have specific requirements.
Supply of Group I base oils during the first quarter was ample as demand was seasonally slow in Europe. In addition, overall European base oils capacity had grown significantly since the beginning of the year, with ExxonMobil starting its new Group II plant in Rotterdam during the quarter. There were suggestions supply was balancing out towards the end of the quarter amid buy-tenders in the market, but at the same time, players were still noting downward pressure on market prices.
Group I base oils demand in Europe during the quarter was sluggish on the back of seasonality and competition from other base oils grades. Competitively priced Group II product from the US was creating stiff competition in key export destinations such as west Africa, meaning greater amounts of product were staying within Europe. Demand picked up towards the end of the quarter with a number of tenders in the market from countries including Venezuela, Cuba and Egypt.
The Europe Group II base oils market supply outpaced demand during the first quarter, with product entering the market from the US and Asia, while ExxonMobil started its world scale Group II capacity in Rotterdam mid-quarter. Players noted ample availability from the US, with this proving to be stiff competition in some European Group I export market destinations. Healthy supply did exert some pressure on Group II prices but not to the extent players had expected considering growing competition in Europe.
Demand for Group II base oils was largely steady during the first quarter although supply outpaced demand as ExxonMobil started its world scale Group II capacity in Rotterdam midway through the quarter. Prices softened as a result of the slight supply/demand imbalance, but not to a significant extent, even though competition in the market had grown. It was unclear whether large numbers of buyers had switched from Group I to Group II product in anticipation of the new domestic Group II capacity.
Supply was ample thanks to multiple producers in a competitive field with some aggressive offers. Little impact was seen from the Korean supplier S-Oil not offering significant spot molecules ahead of its planned March turnaround. Supply of non-OEM approved, or semi-approved, material, was particularly ample. Approved was more balanced. Offers from local sellers as well as the Middle East and South Korea continued. Of the grades, there were hints 4cSt became more balanced later in the quarter compared to 6cSt and 8cSt.
Stable-to-strong Group III demand was seen, with one supplier noting an increase from month to month since January. UK demand is healthy, with seller feedback pointing to buying interest despite offering higher levels. In the UK, demand was booming according to trader feedback, with interest in purchases over the past 12 months seen as a result of shifting consumption from Group I to Group III. Advancing lubricant formulations threw more focus onto Group III+ and Group VI or poly alpha olefins (PAOs).
Middle East Group I base oils supply was sufficient through the first quarter. The US decision to re-impose sanctions on Iran from November 2018 had severely curtailed supply from Iran. But the United Arab Emirates market was heard to be sufficiently supplied, especially since mid-2018, while demand also slowed since around the same time. Cargoes from alternative origins such as Russia and Europe continued to weigh on prices and offset any drop in Iran supply.
Since the US decision to re-impose sanctions on Iran there has been heightened uncertainty and tighter restrictions related to supply from the country. Demand from the UAE market for Iranian material also slowed due to availability of deep sea and Russian cargo and also due to worries about running foul of US sanctions. Late in the first quarter demand showed a mild recovery but a cautious tone prevailed.
Middle East Group II 150N and 500N spot supply were ample in the first quarter as deep-sea cargoes alleviated tightness of supply of Asian material. Supply of Asian material increased in early 2019. Some maintenance shutdowns towards the end of the first quarter resulted in further tightening, but supply of deep-sea cargoes continued until early in the second quarter. Pricing competition intensified through the first quarter as more Middle Eastern cargoes emerged, putting broad pressure on Group II prices.
Middle East Group II base oils demand was weak since H2 2018 and showed little improvement in Q1 2019. Spot supply of 150N was tight but 500N supply increased although slow demand limited any gains. Seasonal slowdowns and uncertainty over US-Iran sanctions and the US-China trade war kept buyers cautious. High inventory levels also dampened demand for large spot volumes but demand showed some improvement late in the first quarter.
Middle East Group III base oils supply was mostly stable through Q1 2019. Slow demand was noted since the Ramadan and the Eid ul-Fitr holidays in 2018 but Asian spot supply was also limited. The Middle East was believed to have exported significant volume of Group III to buyers in Asia at competitive prices but few Group III cargoes were offered to regional buyers in Q1 2019.
Middle East demand for Group III remained limited in Q1 2019, the region not being a large consumer of Group III. Substitution was seen with Group III being used in place of some Group I applications due to tight supply of some grades and competitive prices. Key Middle Eastern refiners were offering cargoes to regional buyers but uptake was slow and prices remained flat to softer.
Group I base oil supply in the first quarter was mixed because some grades were longer in supply than others; heavy grades were balanced.
Group I demand was seasonally slow in the first quarter.
Group II supply was ample in the first quarter in pace with the fourth quarter and seasonality.
Group II base oil demand was slow in the first quarter because of seasonality, but constant with what was seen in December.
Group III base oil supply is remaining constant as traditional importers and newer domestic producers are recognising the requirements needed for US supply.
Group III base oil demand is in a constant increase because of the needs to meet new engine and fuel economy requirements.
We offer the following regional Base oils-Lubes analysis and news coverage to keep you informed of factors and developments affecting prices in the Base oils-Lubes marketplace.
News & analysis
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The main use for base oils is in the manufacture of lubricants, of which there are many thousands of types.
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.
The ICIS Base Oils & Lubricants Conferences portfolio provides an expanse of opportunities for anyone involved in the lubricants value chain to gain essential information and meet with industry peers at one, multiple or all of our conferences.