ILMA Compoundings April 2018 - 23

cents per gallon in 2016. The addition of more heavy-grade
production will likely continue to place pressure on prices.
It will also continue to narrow the heavy-grade premium to
light grades. A surplus overhang of heavy-grade base oils will
also prompt producers to clear these excess supplies in the
export market. The West African market has become a ready
outlet for surplus heavy-grade paraffinic and naphthenic
base oils from the U.S.
US EXPORTS TO STAY HIGH
U.S. base oils exports will need to stay at elevated levels
this year to keep the domestic market balanced. A surge in
exports in 2017 helped to keep Group II supplies tight. The
tighter supplies supported firmer base oils prices and margins
through most of last year.
U.S. base oils producers have increased their exports in
recent years to clear the structural supply overhang from the
domestic market. U.S. base oils exports in 2017 increased
by 44 percent from 2016, according to the U.S. Energy
Information Administration (EIA). The sharp rise in exports
helped to offset the steady drop in domestic demand, which
fell by 17 percent in 2017, according to the EIA.
U.S. Group II producers continue to send arbitrage
shipments to the Indian and Mideast Gulf markets during the
slower winter months. These moves to export a large volume
of supplies from December through February had helped to
counter weaker regional demand in the Americas. The recent
startup of Group II production in the Mideast Gulf has raised
concerns about whether the U.S. market will be able to clear
its surplus supplies in these overseas markets later this year.
U.S. Group II and Group I exports also continue to
target key outlets in Europe and Latin America. More
North American Group II base oils with and without global
approvals continue to move to Europe ahead of the startup
of regional Group II production later this year.
A large volume of surplus light-grade base oils continues to
move to Mexico. The Mexican market remains a ready outlet
for surplus U.S. light-grade paraffinic and naphthenic base
oils. U.S. exports to Mexico increased by 50 percent in 2017.
Base oils with viscosities lighter than N150 continue to be
used as a fuel extender for diesel in Mexico. A steep excise
tax on diesel imports continues to support firm Mexican
demand for light-grade base oils to supplement the country's
diesel supplies.
There is also firmer demand in Latin America for premium-grade base oils to manufacture lubricants. This has led

US BASE OILS EXPORTS BY DESTINATION (000 bl/yr)
7,500
7,000

Canada

6,500

Mexico

Brazil

ARA

Nigeria

India

6,000
5,500
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0

2012

2013

2014

2015

2016

2017

US DOMESTIC BASE OIL DEMAND ('000 bl)
5,000
5-year spread
5-year average
2016/17

4,750
4,500
4,250
4,000
3,750
3,500
3,250
3,000
2,750
Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

to more Group II and Group III supplies from the U.S. and
other regions to move to Latin America. Most of the Group
II supplies to the region come from the U.S.
Group I and naphthenic base oils production in Latin
America has continued to steadily decline. The declining and
inconsistent regional production has made Latin American
buyers more reliant on imported base oils from the U.S.
The U.S. base oils market will stay balanced if producers can
continue to place their excess supplies in the export market.
Molina is the editor of Argus Americas Base Oils.
She can be reached at 713-360-7560 or
eva.molina@argusmedia.com.

Oct

Nov

ILMA Compoundings April 2018

Table of Contents for the Digital Edition of ILMA Compoundings April 2018