ILMA Compoundings – January 2019 - 14

INDUSTRY RUNDOWN

Market Report
The Late-2018
Americas Base Oils
Balancing Act
By Judith Taylor
The second half of 2018 has become a balancing act between posted price increases/decreases, up/down crude
oil prices and an approximate $10 per barrel spread
between West Texas Intermediate (WTI) crude and Louisiana Light Sweet (LLS) crude where prices closely track
Europe (Brent) crude oil.
The balancing act toggled into place during late September/October, encouraged and supported by crude oil prices
topping $70 per barrel. Producers increased posted prices
by a fairly common factor of 20 cents per gallon in October, supported by a rise in crude oil prices that seemed a
harbinger of more to come. According to buyers and sellers,
ExxonMobil increased all its posted prices in Groups I, II
and II+, effective Oct. 9. (ExxonMobil does not discuss
its prices because of company protocols.) Most other base
oil producers in Groups I, II and II+ raised posted prices
between early October and the end of the month, with most
viscosity grades affected.
The exception was Motiva; the company did not make
any changes to its posted prices in Group II. Motiva's last
changes in either Group II or Group III were downward
adjustments effective Aug. 6.
Group III posted prices have remained unchanged
throughout the second-half 2018 balancing act, except for
the August reduction by Motiva. Then a dive hit crude oil
prices and pitched fourth-quarter base oils into a precarious
balancing chore between quickly sinking crude oil prices,
growing base oil inventories, challenging export dynamics,
seasonally slowing demand and strong diesel oil prices.
The slide in crude oil prices began about the second half
of October, defining the fourth quarter and fostering the
onset of posted price reductions in November. Crude moved
under $60 per barrel in November. Then, over about a fiveweek period, it regained to the $60s per barrel.

JANUARY 2019

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Graph 1 on the next page shows these two key crude oil
price trends, the dipping point that touched in August and
the peak to $75 per barrel in October, followed by the dive
in late October and into November.
According to ICIS oil reports, Saudi Arabia triggered
a change in oil market sentiment in mid-November amid
reports that the OPEC member would slash crude supply
by 500,000 barrels per day in December.
Fears of a supply glut provided a headwind to futures
prices, particularly with the demand outlook darkening.
However, Khalid al-Falih, Saudi Arabia's energy minister,
reportedly said that December crude oil nominations would
fall by 500,000 barrels per day versus November because
of seasonally lower demand. He also hinted at an OPEC
production cut, saying the oil cartel agreed that production
needed to be 1 million barrels per day lower than October
levels to avoid oversupply.
Saudi Arabia's output has increased by 650,000 barrels per
day since May. This, along with increases from the United
States and Russia, contributed to Brent losing over $15 per
barrel in just over five weeks. The possibility of less supply
in the coming months has since fed support into the curve,
with both benchmarks edging up on this outlook.
The U.S. Energy Information Administration (EIA)
analysis on crack spreads at mid-November showed that
low distillate inventories are supporting stronger diesel
prices and trending gasoline prices lower. But the crude oil
prognosis at mid-November remains less than clear.
Graph 2 from the EIA on the next page shows crude
oil stocks out to December 2018, with the upward curve
evidence of ample supply.
Crude oil futures from the EIA demonstrate the downward trend on oil price direction expected toward December
alongside a comparison with 2016-17, shown in Graph 3
on the following page.
At mid-November, rumbles filtered into the market
about temporary voluntary allowances (TVAs) of 10
cents per gallon under discussion by one producer. Buyers
confirmed these discussions, and some expected posted price
reductions to emerge at 10 cents per gallon down.
This did not happen as Chevron announced posted reductions, moving all of its Group II posted grade prices down
by 25 cents per gallon effective Nov. 13. Going into the

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ILMA Compoundings – January 2019

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