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On the subject of base oil prices: interview with Denis Varaksin, DYM Resources


On the subject of base oil prices: interview with Denis Varaksin, DYM Resources

We had the pleasure to meet with Denis Varaksin, managing director DYM Resources, a Berlin-based independent commodity trader specializing in niche oil products such as base oil, slack wax, petroleum coke, and other oil chemical and coal chemical products. Our discussion touched on the subject of base oils prices, logistics, and forecasts for the future.

Denis began our conversation by pointing out that the past year was not a simple one for the base oils market, which witnessed the beginning of a fall in prices from March to May 2020. Prices reached their minimum during the past 10–12-year period. The market started to recover at the end of May/beginning of June, with world prices rising by up to 3 or 4 times.

If we look at a base product from the group I base oils, SN150, prices rose from 300 dollars at the start of the summer last year to 1200 dollars in June of 2021. In June prices stabilised and from July a correction began. Over the course of July to September we saw a decrease in prices of around 30% for light grades, primarily SN70, 80, SN15 and similar positions for group II base oils. The light grades industry is the most competitive now in terms of supply, and there is especially a lot of supply in these segments.

Heavy grades, for example, bright stock was the scarcest grade of the group I base oils and prices for it rose more and fell slower than the prices for light grades of base oils. In general, the largest deficit was observed in group III base oils and in bright stock. Prices for bright stock grew to more than 2 thousand dollars with delivery to the customer, that is to say, that just a couple of months ago we saw levels of 2000 plus delivery to Latin America and the USA. European customers were buying at these prices and since July 2021 the market has also been correcting downward, now in October, the prices are already at around 1500 dollars per tonne of bright stock.

Forecast for October-November 2021

Denis noted that this correction will continue over the course of October and November, and in the coming months, prices are likely to drop. Because there is a lot of supply of product, the demand is recovering, but quite slowly, with the beginning of a period of low demand.

In December, purchases traditionally decrease in Europe and the US. In October, customers are planning their purchasing agenda for November and December. With the Christmas holidays just around the corner, no one wants to accumulate large stocks of raw materials at the end of the year, so prices usually decrease.

Whilst in the peak period in September, we saw quite a large decrease in prices - they fell by 10-20% over the month, depending on the brand and method of delivery. Based on this we expect that prices will fall further.

The base oils market is also highly dependent on the prices of raw materials. If oil prices continue to rise, the fall of base oil prices might stop in winter. If oil prices fall only a little, then the decrease in prices for base oils may be over 20%.

Group III

The scarcest grade was group III. Factories producing group III base oils turned out to be the most sensitive to the output decrease, it was more difficult for them to restore production since they required much more fine-tuning after the decrease in output of spring 2020 during the most serious lockdowns.

Producers of group III base oils faced severe stress because of the drop in output at first, and unstable factory operations as the output was restored later. Production problems led to a shortage which, in turn, led to group III prices soaring up to three times the price per tonne and exceeding 2000 USD. This year the renovation program for large manufacturers of group III base oils was quite active, for example, Neste, one of the major manufacturers, has not offered group III base oils on the spot market since autumn of 2020 to date. For over a year they have not sold their oil on the open market, only under long-term agreements with their regular customers and in small volumes.


Another current global problem is the situation in the freight market.

The cost of transportation to key consumer markets such as the USA and Latin America has grown by 2- 3 times over the year. Some routes, like from Asia to the USA (especially to the West Coast, for example, Los Angeles), have grown from 2000 dollars per 20-foot container to about 10,000 dollars per container, an increase by 4-5 times.

And even for that kind of money, it is not a fact that space on ships can be found. The problem is that ports, including the largest ports in the world, can only offer a limited number of shifts due to coronavirus restrictions. Worker quarantines increase the time for ships to be unloaded. Dozens of container ships are queuing for unloading in the largest ports in America and China.

What will happen to the price of shipping?

Currently, the price of transportation is still growing. September saw an increase in relation to August. In October an increase in relation to September and in November 2021 there is also expected to be an increase in prices on the freight market. 2021 will be a great year in terms of profit for container liners. The deficit in containers and difficulty with logistics do not allow for the export of surplus base oils to Latin America, which is entering a period of high demand. Winter in Russia and Europe is summer in the Southern Hemisphere after all, and so an active demand for base oils will begin. This demand will be very difficult to meet due to the dire situation on the freight market.

DYM Resources

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