Insight: Netherlands’ Jan base oils output adds to regional supply

Rising base oils and lube output in the Netherlands in January coincided with a rebound in production in Italy at the same time as lube demand slowed.

European base oils prices extended their fall during the first few weeks of this year in response to the growing disconnect between supply and demand.

Concern about even lower prices added to blenders’ reluctance to replenish stocks.

Signs of plentiful availability eased concern about their ability to secure supplies as and when required.

Plentiful supplies also gave blenders the option of procuring smaller volumes more regularly.

All those factors compounded a structural slowdown in base oils demand in response to weak lubricants consumption.

The Netherlands’ base oils and lube stocks rose to a four-month high in January in response to rising production.

The increase in stocks would have been even larger but for a rise in base oils exports, also to a four-month high.

But more than 70pc of the Netherlands’ base oils exports typically move to markets in Europe.

The rise in exports in turn added to supply throughout the region.

Group II base oils demand is likely to improve in the coming weeks as blenders’ depleted inventories and the upcoming spring oil-change season trigger moves to replenish stocks.

The steeper fall in Europe’s Group II prices relative to Group I prices during the first few months of the year also boost the attraction for blenders to use more Group II base oils in their formulations.

The unusually steep premium of Group III base oils over Group I and Group II base oils add to the attraction of using more Group II.

Some base oils from the Netherlands also moved to more distant outlets like Singapore, easing the supply surplus.

The island-state took delivery in February of more than 30,000t of base oils originating from the Netherlands.