ILMA Compoundings April 2018 - 22

INDUSTRY RUNDOWN

Market Report
US Base Oils Market Faces Rising Supply,
Elevated Exports in 2018
By Eva Molina
In 2017, U.S. domestic base oils production and imports
increased while exports surged and domestic demand
decreased. These same supply-demand trends have
continued in the first quarter of 2018. This has raised expectations for increased base oils supplies this year because
of stronger domestic production and increased imports.
Export volumes are also likely to continue to rise to offset
increasing supplies and decreasing domestic demand.
LIGHTER MAINTENANCE TO SUPPORT OUTPUT
A lighter round of planned refinery maintenance for 2018
has raised expectations for stronger and steadier base oils
production throughout the year. Less planned maintenance
has also raised expectations for plentiful spot supplies.
Last year saw a heavy round of planned and unplanned
refinery maintenance. All of the major U.S. Group II refineries had two shutdowns between March and September 2017.
Half of the shutdowns during this period were unplanned.
Only one major Group II refinery in the region has
scheduled maintenance this year: A North American refinery
of premium-grade base oils will have a 40-day planned turnaround in the fourth quarter. Meanwhile, a couple of major
U.S. Gulf Coast refineries have experienced production
issues and unplanned maintenance in the first quarter of the
year. A major Group II refinery had unplanned maintenance
on the larger of its two crude units in late February.
Another U.S. Gulf Coast refinery has had lingering
production issues that are likely related to damage sustained
from extensive flooding caused by Hurricane Harvey. The
remnants of the Category 4 storm dropped record rainfall
in southeast Texas in late August 2017 and caused unprecedented flooding along the Texas coast that disrupted
production at several base oils refineries.
A couple of U.S. Gulf Coast refineries have planned crude
unit maintenance in the second quarter of 2018. The impact
of these turnarounds on base oils production remains unclear.
There was some planned Group I and naphthenic refinery
maintenance between late January and late April. There is

22

APRIL 2018

| COMPOUNDINGS | ILMA.ORG

no Group I and naphthenic refinery maintenance planned
for the second half of the year.
GROUP III SUPPLIES RISE
In 2017, several virgin producers started to generate Group
III light grades through hydrocracking existing Group II output. A couple of re-refined Group II producers also changed
their used motor oil feedstock to produce Group III base oils.
The increased domestic Group III production comes as more
premium-grade supplies from the Mideast Gulf and Russia target
the U.S. More Group III supplies with limited approvals from
the Mideast Gulf will target the U.S. this year. Fully approved
supplies from the same refinery already move to the U.S.
The increase in Group III supplies has prompted spot prices
to ease. The Argus domestic U.S. Group III 4cst premium to
Group II N100 prices fell below a dollar per gallon in mid2017 and have held around 70 cents per gallon since.
US HEAVY-GRADE CAPACITY RISES
ExxonMobil recently announced that it will begin to produce
and distribute a Group II N600 grade from its Baytown,
Texas, facility in 2019. It remains unclear whether the new
production capacity will be a conversion of the facility's existing Group I heavy-neutral production or an expansion. The
addition of Group II heavy-grade production at the Baytown
facility follows a recent trend in which base oils producers
seek to increase or maximize their heavy-grades output.
All recent capacity expansions in the U.S. have increased
heavy-grade production. Several Group I and naphthenic
refineries increased their Group I heavy neutrals and bright
stock production in 2015 and 2016. Some other Group II
refineries have recently tweaked their production to increase
their N600 output. This has led to more surplus supplies of
heavy-grade base oils.
This activity has narrowed the heavy-grade premium to
light-grade base oils. The Argus domestic U.S. Group II
N600 premium to N100 stood at 40 cents per gallon in late
February. This is below a premium of 71 cents per gallon
during the same week in 2017 and below a premium of 95

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

LETTER FROM THE PRESIDENT
LETTER FROM THE CEO
INSIDE ILMA
WHAT’S COMING UP
INDUSTRY RUNDOWN
In the Know
International Insight
Market Report
DO DISRUPTIONS DAMAGE DURABILITY?
REAGAN’S TRADE LESSONS FOR TRUMP
MINING FOR SUCCESS
COUNSEL COMPOUND
WASHINGTON LANDSCAPE
IN NETWORK
Member Connections
Cross Connections
PORTRAIT
ILMA Compoundings April 2018 - Cover1
ILMA Compoundings April 2018 - Cover2
ILMA Compoundings April 2018 - 1
ILMA Compoundings April 2018 - 2
ILMA Compoundings April 2018 - LETTER FROM THE PRESIDENT
ILMA Compoundings April 2018 - 4
ILMA Compoundings April 2018 - LETTER FROM THE CEO
ILMA Compoundings April 2018 - INSIDE ILMA
ILMA Compoundings April 2018 - 7
ILMA Compoundings April 2018 - 8
ILMA Compoundings April 2018 - 9
ILMA Compoundings April 2018 - 10
ILMA Compoundings April 2018 - 11
ILMA Compoundings April 2018 - WHAT’S COMING UP
ILMA Compoundings April 2018 - 13
ILMA Compoundings April 2018 - INDUSTRY RUNDOWN
ILMA Compoundings April 2018 - 15
ILMA Compoundings April 2018 - In the Know
ILMA Compoundings April 2018 - 17
ILMA Compoundings April 2018 - International Insight
ILMA Compoundings April 2018 - 19
ILMA Compoundings April 2018 - Market Report
ILMA Compoundings April 2018 - 21
ILMA Compoundings April 2018 - 22
ILMA Compoundings April 2018 - 23
ILMA Compoundings April 2018 - 24
ILMA Compoundings April 2018 - 25
ILMA Compoundings April 2018 - 26
ILMA Compoundings April 2018 - 27
ILMA Compoundings April 2018 - DO DISRUPTIONS DAMAGE DURABILITY?
ILMA Compoundings April 2018 - 29
ILMA Compoundings April 2018 - 30
ILMA Compoundings April 2018 - 31
ILMA Compoundings April 2018 - 32
ILMA Compoundings April 2018 - 33
ILMA Compoundings April 2018 - REAGAN’S TRADE LESSONS FOR TRUMP
ILMA Compoundings April 2018 - 35
ILMA Compoundings April 2018 - 36
ILMA Compoundings April 2018 - 37
ILMA Compoundings April 2018 - 38
ILMA Compoundings April 2018 - 39
ILMA Compoundings April 2018 - 40
ILMA Compoundings April 2018 - 41
ILMA Compoundings April 2018 - MINING FOR SUCCESS
ILMA Compoundings April 2018 - 43
ILMA Compoundings April 2018 - 44
ILMA Compoundings April 2018 - 45
ILMA Compoundings April 2018 - 46
ILMA Compoundings April 2018 - 47
ILMA Compoundings April 2018 - COUNSEL COMPOUND
ILMA Compoundings April 2018 - 49
ILMA Compoundings April 2018 - 50
ILMA Compoundings April 2018 - 51
ILMA Compoundings April 2018 - WASHINGTON LANDSCAPE
ILMA Compoundings April 2018 - 53
ILMA Compoundings April 2018 - Member Connections
ILMA Compoundings April 2018 - 55
ILMA Compoundings April 2018 - 56
ILMA Compoundings April 2018 - 57
ILMA Compoundings April 2018 - Cross Connections
ILMA Compoundings April 2018 - 59
ILMA Compoundings April 2018 - 60
ILMA Compoundings April 2018 - 61
ILMA Compoundings April 2018 - 62
ILMA Compoundings April 2018 - 63
ILMA Compoundings April 2018 - PORTRAIT
ILMA Compoundings April 2018 - Cover3
ILMA Compoundings April 2018 - Cover4
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