Italy’s June base oils output edges lower

Italy’s base oils output stayed unusually low in June for an eighth month, forcing blenders to line up alternative supply sources to cover their requirements.

Output of 53,990t in June fell from 59,280t the previous month, government data showed. The volume was the second highest in the past eight months.

The relatively higher volume was up from average output of less than 43,000 t/month in the five months to end-April.

But it remained low relative to typical levels of more than 84,000 t/month in 2021.

The low output coincided with a drop in supplies from Russia.

The tight fundamentals supported a surge in European Group I base oils prices during the first five months of the year.

Italy’s base oils output stayed lower for longer because of the extended shutdown of a key base oils plant.

Term buyers typically have little need to turn to other suppliers during plant shutdowns. Refiners usually build stocks ahead of the turnarounds to cover such contract commitments.

Buyers had to turn to other suppliers this time because of the unexpected length of the shutdown.

Buyers seeking steady volumes on a regular basis were incentivized to commit to term contracts from other sources.

The high price and volatile supply of Group I base oils relative to Group II base oils also incentivized buyers to use more Group II instead.

Such moves could slow the speed of a pick-up in demand for Italy’s Group I base oils as the country’s output recovers.

The restart of the base oil unit in the third quarter of the year raised the prospect of a rise in output during that period.

The rise in supplies would also coincide with an economic slowdown in Europe over the coming months.

The prospect of such a slowdown is likely to prompt blenders to be even more cautious about their procurement plans.