ILMA Compoundings January 2018 - 16

INDUSTRY RUNDOWN

Market Report
Base Oils Market Will Feel 2017's Effects
into First Quarter and Beyond
By Eva Molina
The U.S. base oils market remained balanced-to-tight
through 2017, supported by persistently tight supplies.
The supply tightness supported firm base oils prices
throughout the year. The Argus domestic U.S. Group
I SN 150 and Group II N100 prices stayed steady on a
weekly basis for most of the year through mid-October.
U.S. Group I and Group II base oils prices held unusually firm relative to feedstocks and competing fuels
prices through most of 2017. The Argus Group II N100
premium to vacuum gas oil (VGO) and diesel rose to a
4½-year high in mid-June 2017. In early November, the
Argus Group II N100 premium to VGO and diesel prices
remained nearly 40 cents per gallon higher than levels
at the same time a year ago.
STORMS KEPT SUPPLIES TIGHT INTO Q4
The U.S. base oils market continued to be affected in the
final quarter of 2017 by the lingering supply disruptions
caused by a couple of hurricanes that hit the U.S. Gulf
Coast in late August and October. ExxonMobil's Baytown,
Texas, and Motiva's Port Arthur, Texas, base oils plants were
shut down for four to five weeks starting in late August
because of flooding caused by Hurricane Harvey. Chevron's
Pascagoula, Mississippi, refinery had an unplanned shutdown for more than two weeks starting in early October
because of Hurricane Nate.
Group II and Group I supplies remained limited and
unusually tight in the fourth quarter, when producers
typically seek to clear a growing surplus caused by a seasonal
slowdown in demand. The refineries that had unplanned
storm-related shutdowns continued to work to rebuild
stocks and backfill shipments well into the fourth quarter
of the year.
The supply tightness prompted a round of Group II and
Group I posted price increases in October. All Group I producers raised prices for their solvent neutrals. Most Group

JANUARY 2018

| COMPOUNDINGS | ILMA.ORG

II producers raised prices for all grades. The exceptions were
Motiva and ExxonMobil, which remained in force majeure
and on allocation at that time.
The round of base oils posted price increases in October prompted a series of finished lubricant price increases.
Higher crude and feedstock prices in the fourth quarter also
supported firmer base oils prices at a time of year when these
prices typically face downward pressure.
Hurricane Harvey made landfall in southeast Texas in
late August, just as spot supplies were improving after a
heavy round of Group II refinery maintenance from March
through early July. Most Group II producers had at least one
turnaround during that timeframe. The recovery in supplies
during the summer prompted all of the major Group II
producers to lower their base oils prices in mid-August.
SURGE IN EXPORTS ADDS TO TIGHTNESS
A surge in U.S. base oils exports added to and helped sustain
tight supplies throughout the year. U.S. exports increased
by more than 52 percent in the first eight months of 2017
compared with the same period a year earlier. This trend is
likely to continue in 2018.
Regular shipments of Group I heavy grades began moving
to southeast Asia in February 2017. These helped to supplement a shortage of supplies after the shutdown of TonenGeneral's Group I base oils unit in Japan after a major fire at
the plant in January.
More Group II supplies from the U.S. Gulf Coast moved
to Europe in 2017. Some of this movement was related to
the expected start of Group II production in the region in
early 2019.
The Mexican fuel market has become a key outlet for surplus light-viscosity paraffinic and naphthenic base oils in the
U.S. The use of extra-light-viscosity base oils as a fuel extender
for diesel has grown in the Mexican market over the past two
years. U.S. base oils exports to Mexico increased 65 percent

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ILMA Compoundings January 2018

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