ILMA Compoundings – November 2019 - 22

INDUSTRY RUNDOWN

Market Report
Balanced Supplies Support Firm U.S. Base Oils Prices
By Eva Molina
The U.S. base oils market was unusually balanced
in the second and third quarters of this year. These
balanced supplies helped support steady-to-firm base
oils prices. This price stability was unique to the U.S.
market. Base oils prices mostly decreased in Europe
and Asia-Pacific during the period amid pressure from
plentiful surplus supplies.
U.S. base oils supply fell in the first half of this year
compared to the same period last year. The lower supply
reflected a drop in both domestic U.S. production
and imports.
Total U.S. base oils and lubricant output of 28.85 million
barrels (mn bl) in the first half of the year fell by 15% from
33.99 mn bl during the same time last year, according the
U.S. Energy Information Administration (EIA). The volume
was the lowest for the first half of the year since 2013,
before new Group II base oils production capacity in the
U.S. Gulf Coast came on line in 2014 and 2015.
Turnarounds, production issues and longer-than-expected
maintenance curbed output at several refineries in the first
half of the year.
Some refiners also made strategic moves to reduce
their production. Several Group II and Group I refineries
tweaked their production to manufacture more higher-value
products such as diesel, light-viscosity grades and Group III
base oils. These moves curbed overall base oils production at
several refineries.
Several Group II and Group I refineries prioritized diesel
production in the first and second quarters of the year
because of weak margins. The Argus domestic spot U.S.
Group II N100 premium to four-week-average diesel prices
held below $0.25 per gallon from January through late May.
REFINERS TWEAK PRODUCTION, FACE YIELD CUTS
Some Group II and Group I refineries also moved to reduce
their heavy-grade production after an overhang of surplus
supplies put downward pressure on prices in the fourth
quarter of last year through the second quarter of this year.
A global glut of heavy grades made it difficult for U.S.
producers to place their excess supplies in the export market.
The lack of outlets added to downward pressure on margins.
The Argus domestic spot U.S. Group II N600 premium to

22

NOVEMBER 2019

| COMPOUNDINGS | ILMA.ORG

low-sulfur vacuum gasoil (VGO) fell below $0.40 per gallon
in October 2018. It then dipped back below $0.50 per
gallon in late April through May.
Compared with light grades, heavy-grade base oils
have historically maintained much higher premiums to
feedstocks and competing fuels. Tight availability of heavy
grades in recent years had supported firmer prices and
margins. The Argus domestic spot U.S. Group II N600
premium to four-week-average low-sulfur VGO peaked at
a high of $1.75 per gallon in October 2015, when supplies
were especially tight.
These higher prices incentivized some refiners in the U.S.,
Europe and Asia-Pacific to tweak their output to produce
more heavy grades. The increased global production
capacity of heavy grades has added to the oversupply.
Recent changes in lubricant specifications that require
the use of more light-viscosity base oils have also dampened
demand for heavy grades.
Some U.S. refiners have subsequently deemed it more
profitable to produce less heavy-grade base oils this year and
more of their alternative products, such as motor fuels or
light-grade base oils.
The move by several of the key U.S. Group II refiners to
produce more premium-grade Group II+ and Group III
base oils has also reduced their overall base oils output. The
production of these higher-quality base oils comes with a
yield cut. This change in production has helped to curb a
large supply-build of Group II base oils that the producers
would then need to clear in the export spot market.
IMPORTS OF PREMIUM-GRADE BASE OILS FALL
Lower imports added to a drop in overall base oils supply.
Imports of mostly premium-grade base oils also fell in the
first half of the year. Imports of 7.69 mn bl in the first half
of the year were down by 7% from year-earlier levels.
The slowdown mostly reflected a sharp drop in shipments from South Korea, whose premium-grade base oils
have faced growing competition from supplies from the
Mideast Gulf.
Total imports from the northeast Asian country of 2.07
mn bl in the first half of the year were down 19% from 2.55
mn bl during the same period last year.


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ILMA Compoundings – November 2019

Table of Contents for the Digital Edition of ILMA Compoundings – November 2019

LETTER FROM THE CEO
INSIDE ILMA
WHAT’S COMING UP
INDUSTRY RUNDOWN
In the Know
International Insight
Market Report
STRATEGIES FOR THE FUTURE
ENGAGED AND AWARE
BEHIND THE SCENES
BUSINESS HUB
COUNSEL COMPOUND
WASHINGTON LANDSCAPE
IN NETWORK
Member Connections
PORTRAIT
ILMA Compoundings – November 2019 - Cover1
ILMA Compoundings – November 2019 - Cover2
ILMA Compoundings – November 2019 - 1
ILMA Compoundings – November 2019 - 2
ILMA Compoundings – November 2019 - LETTER FROM THE CEO
ILMA Compoundings – November 2019 - INSIDE ILMA
ILMA Compoundings – November 2019 - 5
ILMA Compoundings – November 2019 - 6
ILMA Compoundings – November 2019 - 7
ILMA Compoundings – November 2019 - 8
ILMA Compoundings – November 2019 - 9
ILMA Compoundings – November 2019 - 10
ILMA Compoundings – November 2019 - 11
ILMA Compoundings – November 2019 - WHAT’S COMING UP
ILMA Compoundings – November 2019 - 13
ILMA Compoundings – November 2019 - 14
ILMA Compoundings – November 2019 - 15
ILMA Compoundings – November 2019 - INDUSTRY RUNDOWN
ILMA Compoundings – November 2019 - 17
ILMA Compoundings – November 2019 - 18
ILMA Compoundings – November 2019 - In the Know
ILMA Compoundings – November 2019 - International Insight
ILMA Compoundings – November 2019 - 21
ILMA Compoundings – November 2019 - Market Report
ILMA Compoundings – November 2019 - 23
ILMA Compoundings – November 2019 - STRATEGIES FOR THE FUTURE
ILMA Compoundings – November 2019 - 25
ILMA Compoundings – November 2019 - 26
ILMA Compoundings – November 2019 - 27
ILMA Compoundings – November 2019 - 28
ILMA Compoundings – November 2019 - 29
ILMA Compoundings – November 2019 - 30
ILMA Compoundings – November 2019 - 31
ILMA Compoundings – November 2019 - ENGAGED AND AWARE
ILMA Compoundings – November 2019 - 33
ILMA Compoundings – November 2019 - 34
ILMA Compoundings – November 2019 - 35
ILMA Compoundings – November 2019 - BEHIND THE SCENES
ILMA Compoundings – November 2019 - 37
ILMA Compoundings – November 2019 - 38
ILMA Compoundings – November 2019 - 39
ILMA Compoundings – November 2019 - BUSINESS HUB
ILMA Compoundings – November 2019 - 41
ILMA Compoundings – November 2019 - COUNSEL COMPOUND
ILMA Compoundings – November 2019 - 43
ILMA Compoundings – November 2019 - 44
ILMA Compoundings – November 2019 - WASHINGTON LANDSCAPE
ILMA Compoundings – November 2019 - Member Connections
ILMA Compoundings – November 2019 - 47
ILMA Compoundings – November 2019 - PORTRAIT
ILMA Compoundings – November 2019 - 49
ILMA Compoundings – November 2019 - Cover4
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