ILMA Compoundings - May 2021 - 17

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Europe and Asia for supply, but options are limited and
prices are high.
PRICING SURGES, HITTING DOWNSTREAM HARD
Supply shortages, with some support from rising feedstock
costs, spurred increasingly frequent posted price increases.
From late November 2020 to early April 2021, postings
increased by more than a dollar per gallon. Ranges for each
round are noted in the table at left.
Base oil demand was stronger than expected, outpacing
available supplies, but passing on such frequent base oil
increases has been a challenge for lubricant producers. As
soon as they could complete one round of lubricant price
increases, another base oil increase would be announced,
setting the process into motion again, so they were continuously weighing their positions.
Aside from pricing, limited raw material availability made
operations difficult for independent blenders.
SUPPLY DROUGHT HAS GLOBAL REACH,
COMPOUNDING THE PROBLEM
It wasn't only the U.S. struggling to find base oil volumes.
Shortages had plagued the European export market since
July 2020, and players anticipated it would be June 2021
before volumes would be more readily available.
U.S. Group II outages cut supplies available to export to
Europe, shorting that market at a critical point as European
players had been increasingly opting for Group II material
because of a Group I shortage.

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In the Middle East Group III segment, which supplies
the U.S., producers were focusing their output on meeting
orders from contract customers, some of which had been
delayed due to shipment problems and the impact of the
coronavirus pandemic on refiners' production rates. In
that region, Group III and Group III+ base oils producers
include Shell's Pearl GTL project, the Abu Dhabi National
Oil Co. and the Bahrain Petroleum Co.
Asia's Group II market is also tight, and the speed of
recovery is highly dependent on how quickly shipments from
the U.S. and the Middle East to India are able to resume.
OUTLOOK
The pace of supply recovery will be key to stabilization in
the market. Demand doesn't seem to be collapsing due to
any subsequent COVID-19 surges since the first wave.
Overall refinery rates need to continue to rise to increase
the amount of vacuum gas oil feedstock, but that depends
on fuels demand. By the end of March, refinery rates had
recovered from the winter storm to 83%. Normal utilization
is about eight to 10 percentage points higher.
Gasoline demand is improving but, as of late March,
was still lower than pre-COVID -19 levels. Ongoing tepid
demand for jet fuel will keep rates down through 2021.
Hay is senior editor manager at ICIS. She may be
reached at amanda.hay@icis.com.

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ILMA Compoundings - May 2021

Table of Contents for the Digital Edition of ILMA Compoundings - May 2021