ILMA Compoundings November 2016 - 17

THE ARGUS ANALYSIS

U.S. Base Oil Market
Balanced Despite
Weaker Demand
Eva Molina

T

he U.S. base oil market remained relatively balanced through October as several producers maintained a manageable surplus
of light- and mid-viscosity supplies. The smaller surplus of these supplies offset the weaker-than-usual pickup in seasonal
demand. Availability of Group II heavy grades tightened ahead of planned maintenance at several refineries in the fourth
quarter of this year and first quarter of 2017.
Domestic demand for base oils was slower than usual in August and September. Demand typically rebounds from the second half of
September as blenders replenish inventories that were depleted through the summer months. But many blenders were still working
off the supplies secured earlier in the year amid slower sales for finished products.
The weak demand had prompted blenders to lower their lubricant prices to boost sales in August and September. The price cuts
came after they had raised lube prices in the previous two months.
Competitive discounting led by the major producers further eroded lubricant margins. Prices for bulk automotive engine oils have
fallen to levels in some regions that are just above the cost of production. Several lubricant producers were seen selling their 15W-40
heavy-duty diesel engine oils at levels below cost in other regions like the southeast U.S.

Group II Light- and Mid-Viscosity Surplus Limited
The impact of the demand weakness was curbed by a relatively small surplus of Group II light- and mid-viscosity supplies that was
limited to a few producers. A couple of the major producers and re-refiners had small volumes of Group II light grades available on a
spot basis, but several major Group II producers will have little to no spot supplies ahead of scheduled maintenance.
A major Group II producer has already started building inventories ahead of planned maintenance in the first quarter of 2017.
Another major Group II refinery began an extensive turnaround in early October. The shutdown is expected to last 50 to 55 days. The
turnaround includes the shutdown of the base oils plant and work on a crude unit.
By contrast, base oil grades that were limited or balanced for most of last year are facing a growing oversupply this year. There has
been a persistent supply overhang of Group I bright stock all year. Group III availability has also improved, with a steady influx of 4cst
and 6cst base oils from new sources to the U.S. since mid-July.

New Bright Stock Production Adds to Oversupply
Domestic Group I bright stock capacity has increased, adding to the oversupply of the heavy-grade product. Ergon started offering its
new bright stock product, HyGold 5000BS, from its 25,000 barrels per day Vicksburg, Mississippi, refinery for shipment from October.
Ergon completed the first production run of its new Group I bright stock in September, following modifications to the plant that
now allow it to produce as much as 150,000 t/yr (1mn bl/yr) of the new Group I bright stock. Ergon had previously only produced
naphthenic bright stock at Vicksburg and paraffinic Group I bright stock at its 250,000 t/yr Newell refinery in West Virginia.
The new Group I bright stock product is not an exact drop-in replacement for paraffinic Group I bright stock. Some of the
specifications of the new Ergon supplies are different from typical paraffinic Group I bright stock. Its viscosity index of 81 is lower than
usual. But its viscosity of 5,329 at 100˚F is much higher than usual.

Compoundings November 2016 * 17 * Vol. 66 No. 11



ILMA Compoundings November 2016

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

From the CEO: Takeaways from the ILMA 2016 Annual Meeting
Board Brief: Competing in the Current Economy
Voices & Views: Warning: Potential Design and Print Delays in 2017
Notes from ELGI: Make Sure ELGI Events Are on Your Calendar
Annual Meeting Highlights in Photos
The Argus Analysis: U.S. Base Oil Market Balanced Despite Weaker Demand
Family Business: In Praise of Peer Groups
Rules & Regs: Prop 65 Update: OEHHA Revises 'Clear and Reasonable' Warnings
Power Play: IRS Releases New Draft Affordable Care Act Instructions and Forms
Legal Ease: Independent Contractors: The Crackdown Continues
The White Paper: Promoting Safety During the Holidays
The Heart of ILMA: Member News
ILMA Attends Afton University
Lanxess Aquires Chemtura
Industry News: Ford Position on API CK-4 and FA-4
Advertising Index
ILMA Compoundings November 2016 - 1
ILMA Compoundings November 2016 - 2
ILMA Compoundings November 2016 - 3
ILMA Compoundings November 2016 - 4
ILMA Compoundings November 2016 - From the CEO: Takeaways from the ILMA 2016 Annual Meeting
ILMA Compoundings November 2016 - 6
ILMA Compoundings November 2016 - 7
ILMA Compoundings November 2016 - Board Brief: Competing in the Current Economy
ILMA Compoundings November 2016 - 9
ILMA Compoundings November 2016 - 10
ILMA Compoundings November 2016 - Voices & Views: Warning: Potential Design and Print Delays in 2017
ILMA Compoundings November 2016 - 12
ILMA Compoundings November 2016 - Notes from ELGI: Make Sure ELGI Events Are on Your Calendar
ILMA Compoundings November 2016 - Annual Meeting Highlights in Photos
ILMA Compoundings November 2016 - 15
ILMA Compoundings November 2016 - 16
ILMA Compoundings November 2016 - The Argus Analysis: U.S. Base Oil Market Balanced Despite Weaker Demand
ILMA Compoundings November 2016 - 18
ILMA Compoundings November 2016 - 19
ILMA Compoundings November 2016 - Family Business: In Praise of Peer Groups
ILMA Compoundings November 2016 - 21
ILMA Compoundings November 2016 - 22
ILMA Compoundings November 2016 - Rules & Regs: Prop 65 Update: OEHHA Revises 'Clear and Reasonable' Warnings
ILMA Compoundings November 2016 - 24
ILMA Compoundings November 2016 - Power Play: IRS Releases New Draft Affordable Care Act Instructions and Forms
ILMA Compoundings November 2016 - 26
ILMA Compoundings November 2016 - Legal Ease: Independent Contractors: The Crackdown Continues
ILMA Compoundings November 2016 - 28
ILMA Compoundings November 2016 - The White Paper: Promoting Safety During the Holidays
ILMA Compoundings November 2016 - 30
ILMA Compoundings November 2016 - ILMA Attends Afton University
ILMA Compoundings November 2016 - Lanxess Aquires Chemtura
ILMA Compoundings November 2016 - Industry News: Ford Position on API CK-4 and FA-4
ILMA Compoundings November 2016 - Advertising Index
ILMA Compoundings November 2016 - 35
ILMA Compoundings November 2016 - 36
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