Base Oil Market Statement May 2021
In the UK, we produce Group I base oil at a single refinery and although that refinery has not shutdown or moved to short-time working, the impact of Covid, short-term Brexit border issues and the national lockdown has impacted on both the overall supply and demand for products, particularly fuel which has had a resulting effect on base oil supply.
Currently petrol and diesel sales are running at around 85% of the seasonal norm, and this has impacted refinery production levels. Demand for Jet fuel, also produced in the refinery process, is down by around 80% of its usual seasonal norm due to restrictions on international air travel. So Jet fuel is being diverted to diesel fuel production.
In Europe, we produce Group II base oil at a single plant in the Netherlands with a nameplate capacity of around 1 million tonnes a year. This production is used within the European Union, is exported to the United Kingdom and to other countries. In Europe, we also import Group II base oil from other countries including North America. These imports are subject to a tariff free quota of 200,000 metric tonnes from January to June 2021 and 150,000 metric tonnes in the second half of the year. In 2018, prior to the opening of the Group II plant, we imported around 1.8 million metric tonnes of Group II base oil into Europe.
Europe is also currently experiencing a third wave of coronavirus and many countries are ether in lockdown or moving towards a national lockdown which will impact upon market demand for products and corresponding supply chain issues. Recently Argus reported that logistics issues were impacting upon supply chain movements as companies struggle to secure vessels. Argus also reported that demand for lubricants in some markets in Europe was strong, with Italy and Germany both reporting strong demand.
The market is also short on brightstock at present which has been exacerbated due to the impact of coronavirus, reduced demand for fuels, refineries suffering feedstock shortages and the longer-term trend in Europe to rationalise Group I plants and move to Group II for automotive and increasingly industrial applications.
Over the summer period some European plants are also expected to close for maintenance. This will also impact supply over what is traditionally a quieter demand period for fuel, with supply for base oil not expected to return to normal until the third quarter.
In April, Eashani Chavda from ICIS reported in Lube magazine that ‘European domestic Group I spot prices climbed in early March with increased tightness, particularly for the heavier grades, driving the uptrend. SN500 and brightstock FCA (free carrier) northwest Europe spot prices hit record highs, according to ICIS data from 2013. Group II spot prices held steady although sellers are separately considering further increases for the second half (H2) of March. While Group III spot prices were stable to firm on the back of ongoing shortages. European, Baltic and Black Sea export prices all jumped, with European export values seeing the biggest increase amid a confirmed deal in the region. Export availability remains extremely tight, and demand is at unprecedented levels on the back of global shortages.’
Chevron’s summary of the situation is as follows: The tight supply is due to a combination of factors including Covid-19 impacts that resulted in fuels demand destruction and limited feedstock supply to base oil plants; hurricane impacts in the US Gulf Coast late last year and recent winter storms in US further strained supply with many base oil producers already at low inventories; planned maintenance schedules for multiple base oil plants in the first half of 2021 that is pulling supply capacity out of the market.
Every month ICIS produce a base oil report in Lube magazine updating readers on price movements and supply availability in Europe, Asia, the Middle-East and America. The latest report can be found at www.lube-media.com and, if you haven’t done so already, I would encourage you to subscribe to keep up to date with the latest developments.
I would also encourage you to keep an eye on the home page of www.lube-media.com which has a series of graphs and charts from Argus Base Oils on current price movements.