INDUSTRY RUNDOWN Market Report US Base Oils Market Balanced in Q1 2018 By Eva Molina The U.S. base oils market has remained balanced in the first quarter of 2018. U.S. base oils producers moved to clear their surplus supplies in the export market in December through February to counter expectations for seasonally slower domestic demand. More than 140,000 tons of base oils from the U.S. moved to India and the Mideast Gulf between December and February. Most of the exported supplies were Group II midand heavy-viscosity grades from the U.S. Gulf Coast. This move to clear surplus supplies in the export market has kept the domestic market balanced in early 2018. Surplus supplies typically build during the first two months of the year amid seasonally weaker demand. Limited supplies combined with higher crude and feedstocks prices prompted all base oils producers to raise their prices in January. The sharp rise in feedstocks prices since October prompted a few more Group II producers to raise their posted prices for the second time in a month. These Group II producers had raised their postings by 27 to 38 cents per gallon by early February. HIGH FEEDSTOCK COSTS SQUEEZE MARGINS Crude and vacuum gasoil (VGO) prices increased in January to their highest levels since late 2014. They remained at those levels in early February. Prices for low-sulfur VGO in the U.S. Gulf Coast have increased by 40 cents per gallon since early October, when Group II posted prices increased. WTI and Brent crude prices have also increased between 31 and 35 cents per gallon during the same period. These elevated feedstock prices have pressured base oils margins. U.S. base oils margins fell in early February to their lowest levels in almost a year. The Argus domestic U.S. Group II N100 premium to four-week-average VGO prices fell to 40 cents per gallon, its lowest level since early March 2017. The Argus domestic U.S. Group II N100 premium to four-week-average diesel prices dropped to 29 cents per gallon. This was also its lowest level since early March 2017. The round of base oil price increases in January prompted several independent and major lubricant blenders to raise 18 MARCH 2018 | COMPOUNDINGS | ILMA.ORG prices for their finished products. Most domestic blenders raised their prices with effective dates in February and March. This series of base oil price increases, combined with a round of additive price increases, shortened the usual lag time between feedstock and lubricant price increases. The previous round of lubricant price increases announced in October and November did not reflect higher additive costs. Lubricant additive manufacturers have announced price increases of 5-7 percent that took effect between December 2017 and February 2018. Domestic blenders saw a pickup in orders for finished products in January as customers sought to secure supplies before the price increases took effect in February. The stronger-than-usual domestic demand for base oils and increased orders for finished products have signaled a possible earlier start to the spring buying season, which typically begins in March. Buyers' anticipation of higher base oils prices amid firmer crude prices prompted some blenders to secure supplies in January in an effort to get ahead of any further price increases. Mexican demand also rose in the second half of January. The weaker U.S. dollar relative to the Mexican peso also spurred an increase in Mexican demand for U.S. supplies. The second round of base oils price increases is likely to help the recent finished lubricant price increases to stick. The remaining lubricant price increases take effect in March. But finished products' margins remained under pressure because these lubricant price increases have not accounted for the second round of base oils price increases. SURGE IN EXPORTS CLEARS GROUP II SURPLUS Group II supplies are limited after a large volume of surplus supplies was cleared in the export market in December through February. More Group II supplies moved from the U.S. Gulf and Pacific coasts to India and the Mideast Gulf in February. More than 40,000 tons of mostly Group II N220 and N600 grades from the U.S. were lined up to load onto vessels before moving to India and the Mideast Gulf throughouthttp://www.ILMA.ORG