Widening Brightstock premium over other base oils to linger amid high energy costs

The heavier base oils grade Brightstock may hold onto its large premium over low-viscosity grades until the end of this quarter on the back of tight supply and high energy costs.

• Widening premium partly driven by high energy costs
• Limited availability for Brightstock
• Upcoming expanded capacity in H2 2025 could shift market direction

Participants with specific requirements for the heavier grade may need to look at either paying up for the premium or taking a wait-and-see approach. Later in the year, weather-driven seasonal drops in energy prices may make producing and storing Brightstock slightly cheaper, while expectations of additional base oils capacity due to come on stream may ease the supply tightness.

As opposed to other low viscosity grades, Brightstock needs to be stored at higher temperatures of 50-55°C, according to market participants. The heating requirements result in higher storage, production and shipping costs than for other grades. But the heavier material may be preferred by some buyers in the market because of its higher viscosity.

The spread between Brightstock and other grades such as SN150 or SN500, also part of Group I base oils, may increase in cold winter months especially in northern Europe where heating needs are greater.

WIDENING SPREAD
Recent high energy prices in most of Europe combined with a tight supply have contributed to a further widening of the spread. When an oversupply and reduced demand weighed on SN150 and SN500 in the past few weeks, the heavier grade remained steady, widening the spread to the other grades. In fact, the Brighstock-SN150 spread has stayed at a two-year high since 17 December.

The situation is likely to persist in the next few months, said ICIS senior analyst Michael Conolly, pointing to “the lack of availability due to closure of lots of Group I plants globally and the lack of substitutes for heavier grades like Brightstock”. Lighter grades in Group I may be substituted with light Group II grades in various applications.

A market player agreed: “The biggest problem is the volume is just not enough.” The return from maintenance in late December of Cepsa’s plant at Algeciras may help inject some Brightstock supply, but not this may not displace the existing spread.

One active trader said southern Europe was observing lower production costs for Brightstock. This was most likely driven by lower energy prices in countries such as France or Spain, a second trader explained. High French nuclear capacity has capped electricity prices.

ICIS gas and cross-commodity expert Aura Sabadus said: “Spain has a lot of LNG [capacity] but cross-border interconnectors to Europe are limited, meaning that the majority of its gas stays in the country.” This also helped keep gas prices more subdued than in other northern European countries such as the Netherlands or Germany.

Base oils make up the key component of finished lubes and greases in automotive and manufacturing industries.

Infographic by Yashas Mudumbai