ILMA Compoundings September 2016 - 22

THE ARGUS ANALYSIS

Spot shipments of unapproved U.S. Group II supplies to Europe
also rose in the first quarter. But such shipments slowed in May
and June as suppliers diverted their surplus supplies to China
and India instead amid a surge in Group II demand and prices in
those markets.
But demand for additional Group II supplies in Asia-Pacific
began to wane in June. Firmer prices for U.S. supplies then
shut the arbitrage to markets in that region. U.S. suppliers
subsequently redirected surplus Group II base oils to the
European market in early July.

More Group III Supplies Arrive
While the steady flow of Group II and Group I exports kept
those markets relatively balanced through July, the Group III
market has instead faced a surge in imports.
Expectations of rising demand, plus higher Group III prices in
the North American market compared with other markets,
attracted interest in moving to the region surplus supplies with
and without approvals. The firmer Group III prices also boosted
buying interest in lower-priced premium-grade supplies without
approvals among blenders with the flexibility to use such
supplies in their lubricant formulations.
A wave of Group III light- and mid-viscosity with limited or
no approvals from several new supply sources subsequently
reached the U.S. in July.
A 10,000-ton cargo of Group III 4cst and 6cst from a new plant
in the Mideast Gulf arrived in the U.S. Gulf Coast in mid-July. The
premium-grade supplies will be distributed from there. A small
volume of Group III 4cst base oils from Russia also reached the
U.S. in mid-July.

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Another 10,000-ton shipment of premium-grade light- and midviscosity supplies from the Mideast Gulf is set to arrive in the
U.S. this month.
These premium-grade supplies with limited or no approvals
were offered at steep discounts to Group III supplies with
approvals.

Looking Ahead to Year-End
The U.S. market faces the prospect of more such surplus
availability in the fourth quarter, at a time of year when demand
typically slows. More Group III light- and mid-viscosity supplies
will be in circulation by then. New supplies of Group I Bright
Stock will also be commercially available from this month.
A lighter round of planned maintenance is expected in the
fourth quarter. Only one major Group II refinery will have a
turnaround in October. The maintenance work will mostly affect
the refiner's export shipments to Europe. But a continuation of
recent and regular moves to export surplus volumes could limit
a supply-build at that time.
A motor fuels supply glut could also affect base oils production.
Unusually weak gasoline and diesel margins in July prompted
U.S. refiners to eye run cuts to reduce the overhang. Such
moves could also reduce base oils output. Some refiners in the
U.S. Atlantic Coast, including one with a base oils unit, trimmed
their crude runs in July. The growing gasoline supply overhang
raised expectations of larger run-cuts after the end of the
summer driving season.
But refiners in the U.S. Gulf Coast were less inclined to cut
run-rates in July. They instead opted to curb the overhang by
changing their product output. Stronger base oil values relative
to competing fuels prices incentivized refiners to boost base
oils production. Some U.S. Gulf Coast refiners began to divert
their feedstock away from the distillates stream in a move to
reduce diesel output and to increase base oils production.
Any further run-cuts in the U.S. Northeast that reduce base oils
output in the near future could be offset for now by increased
base oils production in the U.S. Gulf Coast. But more moves to
cut the motor fuel overhang after the end-of-summer driving
season could spur more widespread production cuts.

Molina is U.S. base oils reporter for Argus Media. She may be reached
at 713-360-7560 or eva.molina@argusmedia.com.

Linking Customer's Needs with Refiner's Quality

Vol. 66 No. 9 * 22 * September 2016 Compoundings

http://www.unisource-energy.com

ILMA Compoundings September 2016

Table of Contents for the Digital Edition of ILMA Compoundings September 2016