ILMA Compoundings July 2018 - 19

US PARAFFINIC BASE OIL PRODUCTION ('000 BL)
5,400

5-year spread

5-year average

2017/18

5,150
4,900
4,650
4,400

light-grade output. This has added to the continuing tightness of light-grades.
The more limited supplies have supported firmer lightgrade prices. But the sharp rise in feedstocks and competing
fuels prices in May still squeezed light-grade base oils
margins. The Argus domestic spot Group II N100 premium
to four-week average VGO prices fell in mid-May to a threemonth low of 54 cents per gallon.
Gains in motor fuels prices in May further narrowed the
Group II light-grade premium to competing fuels, such as
diesel. The Argus domestic spot Group II N100 premium
to four-week average diesel prices dipped to 31 cents per
gallon, its lowest since early February. The premium to diesel
has fallen by 27 cents per gallon since mid-March.
A further fall in the base oil premium to diesel would
boost the attraction for refiners to maximize distillates
production by diverting VGO away from their lube plants.
Base oils producers have avoided such a switch to produce
more diesel since early 2017.
EXPORT MARKET ABSORBS SUPPLIES
Group II producers have kept the domestic U.S. market relatively balanced since late last year by clearing their surplus
supplies through the export spot market.
Surplus extra-light and light-viscosity base oils continue to
move into the Mexican market. These supplies are then used
as a fuel extender for diesel.
The Indian and Mideast Gulf markets have also been
ready outlets for surplus Group II supplies from the U.S.
These markets have absorbed most of the excess Group
II mid- and heavy-viscosity supplies from the U.S. since
November 2017.
In the coming months, though, these export markets
might be more difficult to tap. The Indian market is
expected to see availability over the coming months from
Asia-Pacific following the completion of plant maintenance
in that region. Indian demand will also slow over the summer months during the monsoon season.
NAPHTHENIC BASE OILS PRICES RISE
U.S. naphthenic base oils prices also firmed in May on the
back of higher crude prices, steady demand and balanced
supplies amid a series of planned and unplanned refinery
maintenance.

4,150
3,900
3,650
3,400
3,150
Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

US DOMESTIC BASE OIL DEMAND ('000 BL)
5,000

5-year spread

5-year average

2017/18

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

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Several naphthenic refineries had extended planned
maintenance from mid-January and February. The reduced
output helped to keep availability balanced at a time of year
when supplies typically build amid weaker seasonal demand.
Several refineries in the U.S. and Caribbean also had
unplanned shutdowns in April and May. This helped to curb
supply availability for all grades and supported higher prices
starting in May.
All producers raised their prices between 20 and 25 cents
per gallon in early May. Crude prices had increased in
early May by 15 to 18 cents since the last time naphthenic
producers raised their prices in mid-January.
The pale 60 premium to crude prices began to narrow from
mid-March as some spot supplies appeared and crude prices
began to rise. But after the round of price increases, the pale
60 premium to four-week average WTI prices rebounded in
mid-May to a one-month high of $51.77 per barrel.
Molina is the editor of Argus Americas Base Oils.
She can be reached at 713-360-7560 or
eva.molina@argusmedia.com.

Feb

ILMA Compoundings July 2018

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