Energy

<p style="text-align: justify;">&nbsp;</p><p style="text-align: justify;">As the lubricant blender market has discovered, since end 2020 the Gr III base oil market has gone short and consequentially prices have substantially gone up.</p><p style="text-align: justify;">From a &ldquo;buyer&rsquo;s&rdquo; market as Gr III was until 2020 now the Gr III base oil market can certainly qualify as a &ldquo;seller&rsquo;s&rdquo; market.</p><p style="text-align: justify;">What has happened?</p><p style="text-align: justify;">The main root cause has probably to do with refineries. We need to consider that the typical refinery output is around 60% in automotive fuels while only 2-3% are base oils hence automotive fuels dictate production levels.</p><p style="text-align: justify;">Less automotive fuels requested by the market?&nbsp; Lower amounts of all the products that will come out from the distillation tower. In principle it is as simple as this.</p><p style="text-align: justify;">The Covid 19 pandemic with all its lockdowns and travel restrictions have determined lower fuel consumption globally and this equates to less base oil.</p><p style="text-align: justify;">In some cases this comes together with rescheduling of refinery maintenance and/or revamping:&nbsp; better shutting down now a refinery for maintenance when demand is low rather later on when demand is back to normal?</p><p style="text-align: justify;">What can happen going on?</p><p style="text-align: justify;">As we know commodities like crude oil derived products have typically a cyclic behaviour so this would make us assume that sooner or later the Gr III market will go back to more normal levels as far as price and availability especially because there are no Gr III refineries closures in the air, rather some new one to be built and/or expansions of the existing refineries should be coming in the next years but there is a &ldquo;but&rdquo;.</p><p style="text-align: justify;">Europe has now to comply with Euro 6 emission levels with Euro 7 being already discussed, China adopted China Standard 6 (comparable to Euro 6) in January 2021, India is already aligned with Euro 6 with Bharat stage 6, just to mention the biggest car markets.</p><p style="text-align: justify;">In general, more severe emission norms lead to lower viscosity engine oils prevalently made with higher quality Gr III and/or Gr III+ base oils.</p><p style="text-align: justify;">What does all this mean?</p><p style="text-align: justify;">Sooner or later fuel consumption will go back to where it was pre Covid hence base oil production will grow as well but this won&rsquo;t automatically translate into lower prices compared to today since we can expect increased demand of Gr III base oils to cover engine oil quality enhancement required by the adoption of more severe emission norms.</p><p style="text-align: justify;">Someone could think that in a scenario like this of increased demand new refineries including Gr III base oil production will be built across the world but again, there is another &ldquo;but&rdquo;: with the global tendency to move to e-mobility, hybrids, full electric, who will invest in new crude oil refineries in the future?</p><p style="text-align: justify;">A &ldquo;crystal ball&rdquo; era is now in front of us.</p><p style="text-align: justify;">&nbsp;</p><p style="text-align: justify;">&nbsp;</p>