Global base oil market 2023
Global base oil market 2023 – The supply and demand base oil equation will continue to tilt to the excess of inventories in 2023. Global base oil nameplate capacity has exceeded demand for the last 10 years. Supply availability has been tighter than the nameplate capacity suggested between 2020-2022 because of increased supply disruptions.
The tightness in supply has been driven by Covid-19 and various geopolitical tensions. As supply-demand normalizes in 2023, there are increased expectations for an over-supplied market scenario to return because of weaker market fundamentals and economic conditions. There are expectations that many of these excess volumes will target South America.
Inflation is at multi-decade highs. Global central banks led by the US Federal Reserve are pursuing the most aggressive monetary tightening in generations. A recession is now increasingly expected in the US and Europe, according to economists from Deutsche Bank.
Stricter EU sanctions on Russian oil products will make global supply movements more challenging in 2023.
Many buyers reacted quickly to the beginning of the Russia-Ukraine conflict in late February 2022 and curbed Russian base oil imports ahead of official EU sanctions on oil products.
Base oil rail tank car deliveries to Baltic ports fell significantly. This is the main export outlet of Russian base oil to Europe. Sanctions on payments to Russian banks and individuals, as well as shipment bans, also compounded the drop in exports to Europe.
Russian base oil producers have since found alternative outlets for their base oil, re-orientating their shipment flows to the domestic Russian market and markets like Turkey, India and Latin America.
Russian shipments to Turkey have significantly increased because the Turkish government has not imposed any sanctions on Russian base oil.
Imports of Group I Russian base oil increased by 60% in January-October 2022 from a year earlier and more than doubled compared with the same period in 2020, government data show.
The EU will implement a full embargo on Russian oil products as of 5 February. Insurers will also no longer provide coverage for vessels moving oil products from Russian ports in the Baltic Sea. War risk premiums will also no longer cover movements out of the Black Sea, which should curb base oil movements from Russian ports in the Baltic. But this should not impede shipments from Russia to Turkish ports in the Black Sea.
Russian origin vessels will be able to carry base oil through the Bospherous strait to discharge at southern Turkish ports with the proper paperwork. The essential insurance ban will also affect Russian cargoes targeting west African markets.
In addition to these new complications for moving Russian supplies to markets like South America, current shipping hindrances, container shortages and higher freight rates continue to curb Russia’s export shipments.
Firmer global base oil margins to diesel could prompt higher base oil demand after EU’s full embargo on Russian oil products takes effect.
But the full ramifications from this ban on global trade flows remain to be seen.
Click the image below and read the complete version of the article “Oversupply expected for global base oil market in 2023” in Lubes em Foco Magazine issue 87:
