Group I base oil prices have hit highs this month above the 2021 pandemic-related peaks, as a result of overlapping and extended refinery maintenance and reduced Russian supplies.
An estimated 24pc of European Group I nameplate capacity is offline this month, totalling around 92,800t, Argus calculations show. This is a result of three key refineries undergoing overlapping maintenance.
Hungarian firm Mol's Group I base oil 198,000 t/yr Szazhalombatta plant is offline from mid-May until mid-June and Spanish firm Cepsa's 271,000 t/yr San Roque plant began a two-three week halt at the beginning of June.
Italian integrated firm Eni is expected to resume production at its 645,000 t/yr Livorno plant at the end of June. The refinery has been offline since November following scheduled maintenance and a subsequent fire in the lubricants area of the plant.
The refineries continue to supply customers, albeit on allocation, and from inventory previously accumulated before the maintenance. The Russian invasion of Ukraine limited base oil supplies to Europe as the EU imposed sanctions on Russian banks, impeding spot transactions.
Russia typically produces an estimated 1.2mn t/yr of Group I base oils, the majority of which caters to the European market. Several European base oil buyers imposed self-censorship ahead of EU sanctions and stopped importing Russian base oils, some even breaking contracts, further limiting supplies.
As such, volumes available to the spot market have fallen significantly, firming domestic base oil prices to levels above the surges caused by pandemic-related restrictions throughout 2021.
The average Argus-assessed spot price for June for domestic Group I SN 150 base oils on a fob northwest Europe basis increased by 31pc on the year to $1,695/t. The upward trend was similar for average prices in January-June, which were assessed 21pc up at $1,411/t.
European Group I base oil supply availability is expected to remain tight until July when all refineries return from respective maintenance. But alternatives to Russian volumes remain limited as arbitrage options from Asia-Pacific and the US are closed as a result of vessel availability and high freight rates.
Prices appear more attractive from Asia-Pacific and the US, averaging $1,095/t and $1,553.25/t, respectively, for June for SN 150 on a fob Asia and domestic US basis. But logistic delays relating to the bottlenecking of container vessels amid lockdowns in Asia and sharply higher freight rates had discouraged volume movements. In the US, suppliers have prioritised the domestic market, building up stocks ahead of refinery maintenance and the hurricane season.
As such the European base oils market looks to remain tight in the coming month.
