ILMA Compoundings - March 2020 - 16

INDUSTRY RUNDOWN

Market Report
U.S. Supply and Demand, EU Import Quota
and IMO 2020
By Amanda Hay
U.S. base oil markets started 2020 facing upward price
pressure amid a firmer crude complex and expectations of tighter supply early in the year due to planned
turnarounds.
Cost pressures that began to mount in December and
easing supply length prompted price increases ranging from
25 to 30 cents per gallon, mostly on API Group II but also
on some Groups I and III oils as of press time.
Motiva led the round of increases, raising its posted price
by 30 cents per gallon across all grades in Groups II and III.
Most other U.S. producers followed.
The increases were steeper than most market participants
would have expected, given that crude gains since early
December were largely erased by mid-January.
Moreover, supply views were mixed. Some players said
product remained available for contract customers, although
spot availability was tighter, and did not expect the market
to tighten much with turnarounds.
SUPPLY OUTPACES DEMAND IN LATE 2019
Conditions were a shift from the back half of 2019, which
was largely characterized by soft fundamentals.
With supply outpacing demand, two separate postedprice increases prompted by temporary crude spikes -
20 cents per gallon in July by Chevron and 12 cents per
gallon in September by ExxonMobil - ultimately did not
find support as crude futures quickly retreated.
Each increase was rescinded, and base oil posted prices
remained stable as the crude complex struggled to find
a direction.
Market players were looking for a clearer cost trend, and
supply was readily available relative to steady-but-soft demand.
Most players started to anticipate a potential posted-price
reduction by early October as West Texas Intermediate
(WTI) crude futures had plunged to $52 per barrel and
Brent to $57 per barrel.

16

MARCH 2020

| COMPOUNDINGS | ILMA.ORG

Posted prices remained stable, however, on challenged
margins and little change in either direction in crude prices
through the fall.
Instead, domestic length was managed through temporary
value allowances (TVAs) for some customers and through
export markets, where prices were significantly pressured.
A feedstock cost uptrend started to emerge in early
December, and U.S. base oil supplies began to dwindle,
with TVAs disappearing.
Crude and vacuum gas oil (VGO) maintained upside bias
through the month and into 2020, especially as U.S.-Iran
tensions flared in early January and sent crude futures to
their highest point since attacks on Saudi Arabia oil infrastructure in September.
As quickly as crude soared, however, it plunged, underscoring global supply realities.
Motiva's announcement followed a crude-price retreat to
the lowest point in about a month. The complex finished
lower for several consecutive sessions, underpinned by backto-back U.S. crude stock and distillates builds.
The complex's retreat, paired with views that supply was
still sufficient to meet demand, led to some buyer pushback
on the increases.
EU IMPORT QUOTA WILL CHALLENGE US EXPORTS
Starting Jan. 1, a quota for duty-free Group II base oils went
into effect for imports into Europe, a key market for the U.S.
Under the quota, up to 200,000 metric tons of material
per six months would be exempt from tariff, and a 3.7%
duty would be applied on volumes surpassing that limit.
Material of a viscosity between 150N and 600N is included.
The challenge for U.S. producers will lie in the fact that
European demand for Group II material outpaces local
supply sources, and many market players view the volume
threshold as too low.
Some market players expect the 200,000-metric-ton threshold to be surpassed fairly quickly in each six-month period.


http://www.ILMA.ORG

ILMA Compoundings - March 2020

Table of Contents for the Digital Edition of ILMA Compoundings - March 2020

ILMA Compoundings - March 2020 - Cover1
ILMA Compoundings - March 2020 - Cover2
ILMA Compoundings - March 2020 - 1
ILMA Compoundings - March 2020 - 2
ILMA Compoundings - March 2020 - 3
ILMA Compoundings - March 2020 - 4
ILMA Compoundings - March 2020 - 5
ILMA Compoundings - March 2020 - 6
ILMA Compoundings - March 2020 - 7
ILMA Compoundings - March 2020 - 8
ILMA Compoundings - March 2020 - 9
ILMA Compoundings - March 2020 - 10
ILMA Compoundings - March 2020 - 11
ILMA Compoundings - March 2020 - 12
ILMA Compoundings - March 2020 - 13
ILMA Compoundings - March 2020 - 14
ILMA Compoundings - March 2020 - 15
ILMA Compoundings - March 2020 - 16
ILMA Compoundings - March 2020 - 17
ILMA Compoundings - March 2020 - 18
ILMA Compoundings - March 2020 - 19
ILMA Compoundings - March 2020 - 20
ILMA Compoundings - March 2020 - 21
ILMA Compoundings - March 2020 - 22
ILMA Compoundings - March 2020 - 23
ILMA Compoundings - March 2020 - 24
ILMA Compoundings - March 2020 - 25
ILMA Compoundings - March 2020 - 26
ILMA Compoundings - March 2020 - 27
ILMA Compoundings - March 2020 - 28
ILMA Compoundings - March 2020 - 29
ILMA Compoundings - March 2020 - 30
ILMA Compoundings - March 2020 - 31
ILMA Compoundings - March 2020 - 32
ILMA Compoundings - March 2020 - 33
ILMA Compoundings - March 2020 - 34
ILMA Compoundings - March 2020 - 35
ILMA Compoundings - March 2020 - 36
ILMA Compoundings - March 2020 - 37
ILMA Compoundings - March 2020 - 38
ILMA Compoundings - March 2020 - 39
ILMA Compoundings - March 2020 - 40
ILMA Compoundings - March 2020 - Cover3
ILMA Compoundings - March 2020 - Cover4
https://www.nxtbook.com/ygsreprints/ILMA/G127535ILMA_vol71_no7
https://www.nxtbook.com/ygsreprints/ILMA/G126213ILMA_vol71_no6
https://www.nxtbook.com/ygsreprints/ILMA/G125546_ILMA_vol71_no5
https://www.nxtbook.com/ygsreprints/ILMA/G124996_ILMA_vol71_no4
https://www.nxtbook.com/ygsreprints/ILMA/G123886_ILMA_vol71_no3
https://www.nxtbook.com/ygsreprints/ILMA/G123315_ILMA_vol71_no2
https://www.nxtbook.com/ygsreprints/ILMA/G122980_ILMA_vol71_no1
https://www.nxtbook.com/ygsreprints/ILMA/G121540_ILMA_vol70_no11
https://www.nxtbook.com/ygsreprints/ILMA/G120882_ILMA_vol70_no10
https://www.nxtbook.com/ygsreprints/ILMA/G120035_ILMA_vol70_no9
https://www.nxtbook.com/ygsreprints/ILMA/G121XXX_ILMA_vol70_no8
https://www.nxtbook.com/ygsreprints/ILMA/G120XXX_ILMA_vol70_no7
https://www.nxtbook.com/ygsreprints/ILMA/G119XXX_ILMA_vol70_no6
https://www.nxtbook.com/ygsreprints/ILMA/G118112_ILMA_vol70_no5
https://www.nxtbook.com/ygsreprints/ILMA/G117382_ILMA_vol70_no4
https://www.nxtbook.com/ygsreprints/ILMA/G116888_ILMA_vol70_no3
https://www.nxtbook.com/ygsreprints/ILMA/G115555_ILMA_vol70_no2
https://www.nxtbook.com/ygsreprints/ILMA/G114774_ILMA_vol70_no1
https://www.nxtbook.com/ygsreprints/ILMA/g110500_ILMA_vol69_no12
https://www.nxtbook.com/ygsreprints/ILMA/g110500_ILMA_vol69_no11
https://www.nxtbook.com/ygsreprints/ILMA/g110500_ILMA_vol69_no10
https://www.nxtbook.com/ygsreprints/ILMA/g109884_ILMA_vol69_no9
https://www.nxtbook.com/ygsreprints/ILMA/g109284_ILMA_vol69_no8
https://www.nxtbook.com/ygsreprints/ILMA/g108494_ILMA_vol69_no7
https://www.nxtbook.com/ygsreprints/ILMA/g107507_ILMA_vol69_no6
https://www.nxtbook.com/ygsreprints/ILMA/g106483_ILMA_vol69_no5
https://www.nxtbook.com/ygsreprints/ILMA/g105803_ILMA_vol69_no4
https://www.nxtbook.com/ygsreprints/ILMA/g104743_ILMA_vol69_no3
https://www.nxtbook.com/ygsreprints/ILMA/g103647_ILMA_vol69_no2
https://www.nxtbook.com/ygsreprints/ILMA/g102869_ILMA_vol69_no1
https://www.nxtbook.com/ygsreprints/ILMA/g101930_ILMA_vol68_no12
https://www.nxtbook.com/ygsreprints/ILMA/g100836_ILMA_vol68_no11
https://www.nxtbook.com/ygsreprints/ILMA/g99200_ILMA_vol68_no10
https://www.nxtbook.com/ygsreprints/ILMA/g98468_ILMA_vol68_no9
https://www.nxtbook.com/ygsreprints/ILMA/g97711_ILMA_vol68_no8
https://www.nxtbook.com/ygsreprints/ILMA/G96767ILMA_vol68_no7
https://www.nxtbook.com/ygsreprints/ILMA/G95397ILMA_vol65_no6
https://www.nxtbook.com/ygsreprints/ILMA/G94323ILMA_vol68_no5
https://www.nxtbook.com/ygsreprints/ILMA/G93127_ILMA_vol69_no4
https://www.nxtbook.com/ygsreprints/ILMA/G91785_ILMA_vol68_no3
https://www.nxtbook.com/ygsreprints/ILMA/G90956_ILMA_vol68_no2
https://www.nxtbook.com/ygsreprints/ILMA/G89146_ILMA_vol68_no1
https://www.nxtbook.com/ygsreprints/ILMA/G87981_ILMA_vol67_no12
https://www.nxtbook.com/ygsreprints/ILMA/G85409_ILMA_vol67_no11
https://www.nxtbook.com/ygsreprints/ILMA/G83595_ILMA_vol67_no10
https://www.nxtbook.com/ygsreprints/ILMA/G81672_ILMA_vol67_no9
https://www.nxtbook.com/ygsreprints/ILMA/G80238_ILMA_vol7_no8
https://www.nxtbook.com/ygsreprints/ILMA/G79388_ILMA_vol7_no7
https://www.nxtbook.com/ygsreprints/ILMA/G78361_ILMA_vol7_no6
https://www.nxtbook.com/ygsreprints/ILMA/G77448_ILMA_vol7_no5
https://www.nxtbook.com/ygsreprints/ILMA/G75899_ILMA_vol67_no4
https://www.nxtbook.com/ygsreprints/ILMA/G75036_ILMA_vol67_no3
https://www.nxtbook.com/ygsreprints/ILMA/G72720_ILMA_vol67_no2
https://www.nxtbook.com/ygsreprints/ILMA/G72220_ILMA_vol67_no1
https://www.nxtbook.com/ygsreprints/ILMA/G70970_ILMA_vol66_no12
https://www.nxtbook.com/ygsreprints/ILMA/G69813_ILMA_vol66_no11
https://www.nxtbook.com/ygsreprints/ILMA/G67522_ILMA_vol66_no10
https://www.nxtbook.com/ygsreprints/ILMA/G66343_ILMA_vol66_no9
https://www.nxtbook.com/ygsreprints/ILMA/G64859_ILMA_vol66_no8
https://www.nxtbookmedia.com