Viewpoint: Ample supply to weigh on base oils market

: Oil products
24/12/18

European base oil prices are likely to fall further in 2025 on a persistent global supply overhang of Group III material and weaker demand for Group I spot supplies.

European Group III spot prices with varying approvals face downwards pressure as overseas producers target European buyers supported by attractive margins and ample spot supplies.

Stricter emission standards and engine oil specifications have supported a switch towards more premium base oils such as Group II and III away from Group I production, which is in long-term decline.

Prices for fca northwest Europe (NWE) Group III 4cst and 6cst supplies with partial or no approvals fell by 16pc and 13pc to €1,125/t and €1,185/t, respectively on the week ending 13 December 2024, the lowest levels since April 2021.

Rising Chinese domestic Group III production capacity has slashed the country's requirements for supplies from South Korea and the Mideast Gulf, incentivising suppliers to look towards the European market.

Buying appetite for tenders out of Bahrain has also increased and spot supplies have arrived at more competitive levels. This has spurred other suppliers to lower offers further as they look to remain competitive and claim market share before the conclusion of upcoming Group III refinery expansions in 2025.

The Mideast Gulf has an estimated Group III production capacity of 2mn t/yr. This is set to increase with state-controlled Saudi Aramco's base oil subsidiary Luberef focusing on expansion projects at its Yanbu facility. This will increase nameplate capacity by 76.2pc, to approximately 1.3mn t/yr of base oils by 2025.

Europe remains the most attractive export outlet owing to smaller Group III production capacity in comparison to other regions. Europe has an estimated nameplate base oil capacity of 7mn t/yr, of which 13pc is Group III.

A shift away from Group III imports in the US has further supported Mideast and South Korean suppliers to redirect supplies from this region and towards Europe.

An announcement by Shell to convert its hydrocracker at its 147,000 b/d Wesseling refinery in west Germany into a Group III base oil production unit looks to increase domestic output by 300,000t/yr. But production is only anticipated to begin in 2026-2028, leaving European buyers mostly dependent on imports in 2025.

European demand has plummeted thanks to amply supply levels — leading to a continuous wait-and-see approach from traders as they anticipate prices to fall further. Participants have reported term contracts finalised at price levels well below year ago levels and anticipate spot prices in 2025 to drop as a result.

European Group I nameplate capacity has fallen by 55pc over the last decade to around 4mn t/yr owing to refinery closures, according to Argus calculations.

In 2024, Eni's Group I 600,000 t/yr Livorno unit shut, and there were several refinery fires and outages elsewhere in Europe. But despite tighter spot supplies, prices fell because of weaker demand.

Demand is anticipated to fall further in 2025 as producers prioritise output of more premium base oil. This includes Polish firm Orlen's Gdansk refinery expansion, adding a group II base oil unit with an estimated capacity of 400,000t/yr of Group II.

Exxonmobil also announced that it will produce a high-viscosity Group II alternative to the Group I bright stock grade by 2025 out of its Jurong refinery in Singapore.

Bright stock currently has no alternative, which supports its production. But Exxon's announcement is likely to weigh on refinery output and shrink the Group I market further.

By Christian Hotten

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

24/12/18

Alabama lock expected to reopen late April

Houston, 18 December (Argus) — The main chamber of the Wilson Lock in Alabama along the Tennessee River is tentatively scheduled to reopen in four months, according to the US Army Corps of Engineers (Corps). The Corps expects to finish phase two of dewatering repairs on the lock on 20 April, after which navigation can resume through the main chamber of the lock. The timeline for reopening may shift depending on final assessments, the Corps said. Delays at the lock average around 12 days through the auxiliary chamber, according to the Lock Status Report by the Corps. Delays at the lock should wane during year-end holidays but pick up as spring approaches, barge carriers said. The main chamber of the Wilson Lock will have been closed for nearly seven months by the April reopening after closing on 25 September . By Meghan Yoyotte Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Element Alpha wins Dec Pakistan NRL bitumen sell tender

24/12/18

Element Alpha wins Dec Pakistan NRL bitumen sell tender

London, 18 December (Argus) — Pakistani refiner NRL has awarded its latest single cargo bitumen sell tender to Switzerland-based trading firm Element Alpha, after withdrawing its two previous tenders for October and November loading dates. Unlike in the previous tenders, which specified 6,000t of pen 60/70 bitumen to be loaded at Karachi's Port Qasim port, NRL has on this occasion agreed to sell a 4,500t bulk bitumen cargo of the same penetration grade to Element Alpha at a price in the $370-380/t fob Karachi range, sources involved the tender process said. International bitumen market participants said the cargo is expected to be loaded on the 5,249dwt Bitumen Kosei in the 20-30 December timeframe. The tanker is making its way towards Pakistan having delivered a cargo to Durban, South Africa, that had been loaded at Bahraini state-owned refiner Bapco's Sitra refinery and export terminal. International trading firms said Pakistani exports need to be price competitive with Bahraini exports in particular to be attractive, and that gaps between bids into NRL's October and November tenders for 6,000t cargoes and values sought by the exporter had contributed to their non-awards. Pakistan has become a growing source for cargo flows into South Africa over the past year or so, vying with supplies from the Mideast Gulf and with European Mediterranean flows shipped around west Africa. The last monthly NRL tender to have been awarded was a 6,000t cargo in the $390-400/t fob Karachi range under its September offering that went to an international trading firm . By Keyvan Hedvat Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

ISCC sets shipping, aviation green fuels PoC framework

24/12/18

ISCC sets shipping, aviation green fuels PoC framework

London, 18 December (Argus) — The International Sustainability and Carbon Certification (ISCC) has issued a framework to provide 'Proof of Compliance' (PoC) for the use of low emission fuels in the aviation and maritime sectors. The PoC is intended to address challenges arising from the unavailability of Proof of Sustainability (PoS) documentation for downstream operators, such as airlines and shipowners. These downstream operators are typically the obligated party in showcasing compliance with EU regulations such as the EU emissions trading system ETS and FuelEU Maritime . A major biofuel supplier expects that the framework could be used as soon as next month. ISCC said that the PoC was developed in alignment with regulatory requirements and will serve to supplement the ISCC EU scheme. The ISCC has also published a guidance document, template, and audit procedures for PoC documents. According to the guidance document, the issuance of a PoC document for a batch of certified fuel is only possible if the underlying PoS document has been surrendered to relevant competent authorities, and that a claim for the same batch of fuel further downstream is not prohibited by the relevant competent authorities. The PoC document must also include a reference to the original underlying PoS to allow for cross-referencing, as well as information on which scheme the fuel has already been counted under in which the PoS was surrendered. ISCC added that the PoC document can in principle also be used for claims in voluntary markets but recommended that involved parties examine the implications of claiming the same fuel volumes towards voluntary targets. This comes after market participants reported regulatory uncertainty regarding the use of some marine biodiesel blends throughout the year. In the Netherlands, shipping companies which purchase marine biodiesel blends including fatty acid methyl esther (Fame) might not receive PoS for RED-certified biofuel, as suppliers further up the chain would probably have already submitted these to redeem the corresponding class of Dutch renewable tickets (HBEs). Buyers could instead receive a raw material and intermediary product delivery document, in the form of a sustainability declaration with many of the same relevant details. By Hussein Al-Khalisy Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

US funding bill to allow year-round E15 sales

24/12/18

US funding bill to allow year-round E15 sales

Washington, 17 December (Argus) — A stopgap government funding measure that leaders in the US House of Representatives unveiled late Tuesday would authorize year-round nationwide sales of 15pc ethanol gasoline (E15) and offer short-term biofuel blending relief to some small refiners. The 1,547-page bill, which is set for a vote in the coming days, is needed to avoid a government shutdown that would otherwise begin on Saturday. The bill would fund the government through 14 March and extend key expiring programs, such as agricultural support from the farm bill. It would also provide billions of dollars in disaster relief and pay the full cost of rebuilding the Francis Scott Key bridge in Maryland, which collapsed earlier this year after being hit by a containership. The inclusion of the E15 language, based on a bill by US senator Deb Fischer (R-Nebraska), marks a major win for ethanol producers and farm state lawmakers who have spent years lobbying to permanently allow year-round E15 sales. The bill would also provide short-term relief to some small refiners under the Renewable Fuel Standard that retired renewable identification numbers (RINs) in 2016-18 in cases when their requests for "hardship" waivers remained pending for years. The bill would return some of those RINs to the small refiners and make them eligible for compliance in future years. E15 was historically unavailable year-round because of language in the Clean Air Act that imposes more stringent fuel volatility requirements during summer months. In president-elect Donald Trump's first term, regulators began to allow year-round E15 sales by extending a waiver available for 10pc ethanol gasoline (E10), but a federal court in 2021 struck that down . Federal regulators have issued emergency waivers retaining year-round E15 sales over the last three summers. Enacting the stopgap funding bill would also make it unnecessary for eight states to follow through with a costly gasoline blendstock reformulation — set to begin as early as next summer — they had requested as a way to retain year-round E15 sales in the midcontinent . Oil industry groups last month petitioned EPA to delay the fuel reformulation until after the 2025 summer driving season, citing concerns about inadequate fuel supply and the prospects that a legislative fix would make required infrastructure changes unnecessary. Ethanol groups say the E15 legislative change could pave the way for retailers to more widely offer the high-ethanol fuel blend, which is currently available at 3,400 retail stations and last summer was about 10-30¢/USG cheaper than 10pc ethanol gasoline (E10). Offering the fuel year-round would be "an early Christmas present to American drivers," ethanol industry group Growth Energy chief executive Emily Skor said. House speaker Mike Johnson (R-Louisiana) has faced blowback from many Republicans in his caucus for negotiating such a sprawling bill that has tens of billions of dollars in new spending, after vowing to buck a practice of preparing a "Christmas tree bill" that forces lawmakers to vote on a must-pass bill right before the holidays. Johnson said today the bill remains a "small" funding bill, but that it needed to expand because of "things that were out of our control" such as hurricanes and economic aid for farmers. The Republican backlash could make it more difficult for Johnson to pass the bill, but Democrats are expected to provide broad support. By Payne Williams and Chris Knight Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Alabama lock to remain closed until spring

24/12/17

Alabama lock to remain closed until spring

Houston, 17 December (Argus) — The US Army Corps of Engineers (Corps) has determined that the main chamber of the Wilson Lock on the Tennessee River near Florence, Alabama, will remain closed until spring 2025 as repairs continue. The Wilson Lock, the first lock on the Tennessee River, closed on 25 September after cracks in the lock gates on both the land and river sides were discovered. The main lock was closed to prevent further damage in the main chamber, although the auxiliary chamber was kept open for navigation. The Corps had been eyeing an earlier opening date for the main chamber since the start of November. Although months of repairs have taken place, the Corps resolved to keep the main chamber closed to preserve the lock and maintain personnel safety. The Corps, in partnership with the Tennessee Valley Authority (TVA), is still assessing the root cause of the cracking. A second de-watering of the gate is scheduled for the first three months of 2025 to repairs. No official date has been set for the lock reopening, although some barge carriers have heard of a late April opening date. A regular 15 barge tow has endured 5-6 days of delay through the lock on average, according to carriers. The Corps' Lock Status Report on the Wilson Lock reported a nearly two-week delay for tows navigating through the lock. This has been costly for shippers by forcing them to pay delay fees. Wilson Lock is the second lock in Alabama to undergo a lengthy closure this year. Most lock and dams along the US river system are over 70 years old, likely resulting in more closures in the coming year. By Meghan Yoyotte Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Business intelligence reports

Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.

Learn more