Global base oils market snapshot – Week of 21 September

Author Iain Pocock, Editor

Base oil prices have extended their rise in response to increasingly tight supply. Surging margins have failed to trigger a rise in supply. The tightness has also prompted unusual trade flows as buyers struggled to secure volumes.

Group I bright stock prices have extended their rise relative to crude and middle distillate prices in all the key markets. Prices and margins have risen in response to the extreme supply tightness of the product. The premium of fob Europe export bright stock over diesel has risen by more than $250/t since June to its highest since early 2018.

The higher prices have failed to trigger a strong rebound in supply, especially in Europe. Refiners’ muted reaction partly reflected limited feedstock availability. Low middle distillate prices have prompted many of them to operate at lower run rates. The move has cut production of feedstock for their base oil units.

Bright stock values surge as supply dwindles

Bright stock values surge as supply dwindles

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The supply tightness has extended to the Group III base oil market, even if for different reasons.

Group III prices in the US and Europe have extended their rise relative to other base oil grades and relative to crude and diesel prices. The premium of US Group III prices over diesel has risen to its highest since 2016 and close to its highest since 2013.

The price strength reflected a strong recovery in passenger car engine oil demand since June. At the same time, tight supply partly reflected the distortion of seasonal demand patterns because of Covid-19. Aligning supply with demand is all the more complicated because of the extended shipment time to import Group III cargoes from South Korea and Mideast Gulf.

Group III price gains outpace Group II, diesel

Group III price gains outpace Group II, diesel

Tight availability of spot supplies has slashed liquidity in the export market and complicated procurement for markets such as India that are more reliant on imports.

Indian base oil imports from Qatar rose in August to a record high. Buyers have sought more supplies from the Mideast Gulf country this month. Monthly imports from Qatar are typically much lower. Indian buyers have sought alternative supply sources as availability has dwindled from more regular sources like northeast Asia, Europe and the US.

Indian buyers turn to other sources for supplies

Indian buyers turn to other sources for supplies

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