Tight Supply and High Demand for Recycled Oil and Paraffin

The base oil market in Europe, Africa, and the Middle East is experiencing unprecedented conditions. The prices of lubricants and base oil have increased significantly since the beginning of 2021. Crude oil price declined more than $3 per barrel after the OPEC+ decision to increase the monthly production from May to July at Monday’s meeting. Other countries such as Iran and Venezuela are also increasing their output. However, the decline did not affect base oil, lubricant, and recycled oil. Base oil and lubricant price rose after the oil small increase in the middle of the week.

Despite the news of growing crude oil production and the return of demand to the market, traders are still trying to analyze the market trend. While it is difficult for manufacturers and traders to analyze these increases in the current situation, the shortage of raw materials and the tight supply of base oil and lubricants in the market have left them with no choice but to accept these hikes. As the Nowruz holiday has just ended in Iran, traders and producers have got back to the market after two weeks and demand for petrochemicals has expanded sharply.

Another wave of the Covid-19 and the increase in the number of cases have also expanded the market sensitivity. there is a possibility of lockdown in many countries, including India and Iran, which has a significant impact on market conditions.

The paraffin market is not in good condition either, the lack of slack wax for paraffin production is risky. There is a high volume of demand in the market but supplies are not enough to cover. Tight supply made Prices of Paraffin not workable in the market right now. Over the past two weeks, China has raised paraffin prices by nearly $300. Increasing shipping costs and high demand for paraffin have pushed FOB Jebel Ali to its highest level in the last three years. However, the volume of paraffin demand for Latin America and Africa has risen.

There are different prices in the recycled base oil market at the moment, however, the range between the lowest price and the highest price does not seem reasonable. Despite the coronavirus outbreak and fluctuations in the market, the volume of orders did not reduce and recycled oil demand is still growing. Due to limitations on raw materials and production, the FOB price remained above $700. The current situation seems to continue at least until mid-June.

As we mentioned in the last weekly report, the price trend is upward. Despite high demand and market conditions, no reduction is expected unless something new happens in the market that changes everything.