INDUSTRY RUNDOWN Market Report Firm Fundamentals Boost U.S. Base Oils Prices Through First Half of 2021 Guo Harn Hong Firm supply and demand fundamentals will continue to boost U.S. base oil prices. These firm fundamentals are set to extend their support for prices until well into the second quarter of 2021. A revival of seasonal demand typically supports prices in the first half of each year. That trend was disrupted in 2020 following the outbreak of the COVID-19 pandemic from the beginning of that year. Prices fell in the first half of 2020 then rebounded sharply in the second half of the year. The size of the price increases in the second half of 2020 were some of the largest on record for any six-month period. That streak of rising prices is set to continue in the months ahead. A seasonal rise in demand for finished lubricants will likely extend their support to the lubricant feedstock. Prices for finished lubricants were raised in response to rising costs and firm fundamentals. Additive manufacturers have also announced price increases. Demand is expected to hold firm in Latin America, a major outlet for U.S. base oil producers. Blenders in that region continue to seek to import supplies from other ARGUS DOMESTIC SPOT US GROUP II N100 & N600 MINUS EXPORT PRICES ($/USG) .35 .30 .25 .20 .15 .10 .05 .00 -.05 -.10 -.15 Jan 2016 Jul 2016 Jan 2017 Jul 2017 Group II N100 dom minus exp 12 MARCH 2021 Jan 2018 Jul 2018 Jan 2019 Jul 2019 Group II N600 dom minus exp | COMPOUNDINGS | ILMA.ORG Jan 2020 Jul 2020 Jan 2021 markets in response to lower regional production. Overseas demand is also strong in other outlets like Africa, the Mideast Gulf and Southeast Asia. PLANNED, UNPLANNED SHUTDOWNS TO KEEP SUPPLY TIGHT At the same time, supply availability in the U.S. remains tight. Supply got even tighter after a winter storm pummelled the Midwest and southern U.S. in mid-February, shutting and curbing base oils production at several key refineries in the region. The freezing temperatures and icy conditions also disrupted land and water logistics throughout the Midwest and southern U.S. The unplanned and extended shutdowns prompted Motiva and ExxonMobil to declare force majeure on the base oils produced at their respective refineries in Port Arthur and Baytown, Texas, from February 19. Weak fuels demand and unusually low fuel margins throughout 2020 and in early 2021 prompted refiners to cut run rates and keep inventories at more manageable levels. But the move has also reduced the feedstock available for base oils production. Base oils output has fallen even as demand held steady relative to fuels demand and margins surged to multiyear highs. Several producers in the region have reported that they are unlikely to have surplus spot supplies in 2021. Spot availability of Group I supplies is expected to be limited amid planned maintenance work in the first half of the year. The move will likely continue to keep supplies balanced to tight over the coming months. FEEDSTOCKS PRICE RECOVERY SUPPORTS BASE OILS PRICES Base oil values are also supported by a sustained rise in feedstock and crude prices since November. Light Louisiana sweet crude prices rose by over 12% in January from the previous month to around $55/bl. Prices are now at their highest since early 2020.http://www.ILMA.ORG