Global base oil prices forecast to ease in 4Q

OREANDA-NEWS. October 01, 2015. Global base oil prices are to fall over the coming months because of rising surplus supplies and waning demand, according to a new short-term forecast.

Heavy-grade base oil prices will fall more steeply than light-grade prices as a recent supply tightness eases, according to a short-term base oil price forecast published in Argus Base Oils Outlook. Demand for heavy-grade base oils in many key markets like China will also fall as blenders switch to using more lighter grade base oils during the winter months to produce more engine oil lubricants better suited to the colder weather.

Expectations of price pressure on heavy-grade base oils follow the surge in prices of the product in the US market in recent months. These have coincided with softening Asia-Pacific prices amid rising surplus supplies in the region from producers in Taiwan and South Korea. The premium of US prices over Asia-Pacific Group II prices surged in September to more than \\$240/t, its widest level since early 2013. The widening price spread, combined with growing availability of Asia-Pacific supplies, has started to attract increasing interest in moving shipments to the US market.

Even with pressure from rising supplies and a seasonal slowdown in demand, the drop in heavy-grade prices will be limited, leaving values at still firm levels relative to light-grade supplies.

Outright prices are then expected to stabilise and then firm from the first quarter of next year. The premium of US Group II heavy-grade prices over Asia-Pacific prices is forecast to narrow from its recent highs but remain much higher than during most of 2014.