Group I base oil prices to strengthen vs Group II
Group II heavy-grade base oil prices in the US and Asia-Pacific rose strongly relative to Group I prices and relative to light grade-prices from the second quarter of this year. Prices surged because of a seasonal rise in Group II demand and tighter than expected supplies.
Engine oils in markets like China use a much larger volume of heavy grades in their formulations during the summer months compared with winter-specification engine oils.
Supplies were also curbed by both unexpected, as well as planned, production issues and maintenance in the US and Asia-Pacific.
Group II heavy-grade base oil prices in Asia-Pacific subsequently climbed in October to their highest premium to Group I prices in almost four years. US Group II heavy-grade prices rose in October to their highest relative to Group I since the start of last year.
But Group I heavy-grade base oil prices are forecast to strengthen relative to Group II prices over the coming months, according to the latest Argus Base Oils Outlook. In Asia-Pacific and the US the Group II premium to Group I is forecast to narrow to less than $30/t by the second quarter of next year, from a premium of more than $75/t in Asia-Pacific in November and more than $100/t in the US.
The expected outperforming of Group I heavy grades relative to Group II reflects the impact of firmer demand in some markets as high Group II prices prompt blenders to switch back to Group I. Plentiful availability of Group I in markets like India also contrasted with erratic and generally tight supplies of Group II, boosting the attraction of Group I base oils.
Plant closures in Europe and Russia this year have already tightened Group I heavy-grade supplies in this region. Availability is to tighten further with the imminent closure of several more Group I plants in Europe. The tighter availability will complicate the regular shipment of supplies to markets like Africa.