ILMA Compoundings February 2017 - 14

INDUSTRY RUNDOWN

Market Report
US Base Oils Market Outlook for 2017
By Eva Molina and Alvin Chew
U.S. base oil prices are projected to trend upward in 2017,
according to the Argus Base Oils Outlook. Prices in the first
half of 2017 are expected to rise on the back of an increase in
seasonal demand and a steady crude outlook. Base oil prices
are then expected to trend downward in the second half of the
year. The structural oversupply of paraffinic light grades and
bright stock are expected to place pressure on prices during
the seasonal slowdown in demand in the second half of 2017.

FIRM CRUDE OUTLOOK TO SUPPORT BASE OIL PRICES
According to the Argus Crude Outlook, the crude oil price forecast
for 2017 is expected to be firm. This reflects OPEC's agreement
in November to cut production to 32.7million b/d for six months
from Jan. 1, 2017. Such a move is OPEC's first decision on output
restraint in eight years. The Brent crude forecast for 2017 was
subsequently revised upwards to the $50s/bl to low $60/bl range.
This higher trade range for crude, together with more bullish base
oil fundamentals in the first half of 2017, will likely cause base oil
prices to trend higher.

BRIGHT STOCK PRICES TO REMAIN UNDER PRESSURE
U.S. Group I prices are expected to face pressure from an increase
in structural supply of light-grade base oils and bright stock,
according to the Argus Base Oils Outlook.
While prices will remain under pressure from more supply,
firmer crude prices are expected to provide some price support for
Group I base oils. Group I producers will seek to maintain steady
domestic prices by continuing to clear their surplus supplies in the
export market.
Group I prices eased in the fourth quarter of 2016, amid a
seasonal slowdown in demand and a surplus of solvent neutrals and
bright stock. Group I producers curbed their surplus supplies by
reducing their base oil production and increasing exports. A large
volume of surplus Group I supplies moved to Latin America, west
Africa, India and the Mideast Gulf in the fourth quarter of 2016.
Any Group II heavy-grade tightness in the first half of 2017 is
likely to support export demand for Group I heavy neutrals and

FEBRUARY 2017

| COMPOUNDINGS | ILMA.ORG

support firmer prices. But bright stock prices will remain under
pressure from increased production.
Several Group I plant closures in Europe and the U.S. Gulf
Coast in early 2016 were expected to tighten availability of bright
stock in the Americas. But several U.S. refiners responded to persistently firm bright stock margins and expectations of tightness by
boosting their production.
Instead of tightness, the Americas market faced oversupply. As
a result, the discount of the Argus bright stock spot price to U.S.
posted prices increased in the third quarter of 2016 to its widest
level in more than six years.

GROUP II PRICES TO TREND HIGHER ON REDUCED
OUTPUT
U.S. Group II prices are expected to trend upward during the next
12 months, according to the Argus Base Oils Outlook. Planned
maintenance at several major U.S. Gulf Coast refineries in 2017
is expected to curb excess production of Group II base oils.
A major refinery will have an extensive turnaround in March.
The maintenance is expected to last at least 45 days. A couple of
Group II refineries have scheduled turnarounds later this year.
Firmer crude prices and planned maintenance is expected to
provide some price support for light grades during the seasonal
slowdown in demand in the winter and summer months.
A smaller-than-usual surplus of virgin Group II light grades in
the fourth quarter of 2016 curbed the need for producers to clear
large cargoes before the end of the year. Several major Group II
refiners had limited spot availability in the second half of 2016 due
to plant maintenance in the fourth quarter of last year and first
quarter of this year. A producer reduced its monthly shipments to
Europe in the second half of last year amid tighter supplies during
a nearly two-month-long turnaround at one of its facilities in the
fourth quarter.
Surplus Group II heavy-grade supplies are expected to remain
limited during the first half of 2017. A couple of major Group II
producers will have limited spot supplies of the heavy grade before
planned maintenance late in the first quarter.

http://www.ILMA.ORG

ILMA Compoundings February 2017

Table of Contents for the Digital Edition of ILMA Compoundings February 2017