ILMA Compoundings January 2017 - 13

ing were an August Group II increase on all posted price viscosity
grades by one producer and an October decrease on the same type
grades by another Group II producer. The posted decreases by one
producer were clouded by an increase announcement by another
Group II producer on its heavy-grade viscosity only.
This up/down price change mix, plus stability in the crude oil sector, stalled other producers in following any of these moves, keeping
the overall posted price segment mostly steady at mid-fourth quarter.
Consequently, U.S. base oil producers are approaching 2017
amid a period of improved upstream price trends compared with
the same time in 2016, as can be seen in the following graph.

65
60
55
50

USD/bbl

52.5

Aug '15

Sept '15

Oct '15

Nov '15

Dec '15

Jan '16

Feb '16

47.5

42.5
40

Crude WTI FIP Cushing, OK Assessment Spot Month + 1 Closing Value (USD/bbl)
Crude LLS FIP St. James, LA Assessment Spot Month Closing Value (USD/bbl)

USD/bbl

Jul '15

37.5
35

Base oil prices fell steadily across the similar time period, as shown
in the graph below tracking one Group II producer's posted prices.

3.25
30
27.5

3.25

Nov '15

Jan '16

Mar '16

May '16

Jul '16

Sept '16

Crude WTI FIP Cushing, OK Assessment Spot Month + 1 Closing Value (USD/bbl)
Crude LLS FIP St. James, LA Assessment Spot Month Closing Value (USD/bbl)

USD/US gal

2.75
2.5
2.25
2
1.75
1.5

Jul '15

Sept '15

Nov '15

Jan '16

Mar '16

Base Oils Group II Motiva GC 100 FOB USG Posted Price Outright Posted Price 2-6 Weeks
Base Oils Group II Motiva GC 200 FOB USG Posted Price Outright Posted Price 2-6 Weeks
Base Oils Group II Motiva GC 600 FOB USG Posted Price Outright Posted Price 2-6 Weeks

The crude oil factor pressured base oil prices down from about
the second half of 2015 and into 2016. Base oil producers watched
crude prices fall into the $30s/bbl and reacted at the refinery level
with steep base oil posted-price decreases. Then crude oil prices
went under the $30/bbl point.
More base oil price decreases were announced as buyers pointed
to the low-priced feedstock and then immediately expected that
base oil prices should follow. While base oil prices are not specifically linked to crude, the slide in the feedstock prices hit alongside
other refined product losses, and base oil prices continued to fall in
the first quarter of 2016 to cope with the upstream volatility.
This can be compared with the fourth quarter of 2016, when
both crude oil prices and base oil postings are largely stabilized.
Price increases in 2016 mitigated price decreases in the base oil
posted tiers. The most recent price changes as of the date of this writ-

The graph shows a rising trend that has maintained a $40s/bbl
to low $50s/bbl spread, keeping a relative stability that has offered
base oil producers a steadier platform than what was experienced
about the same time in the previous year.
There are typically underlying uncertainties in any period of
stability for most markets, and this is the same in the U.S. base oil
market. Crude oil markets hold potential to erupt with volatility at
any time based upon unplanned outages in key production regions
and tenuous positions in geopolitical factors.
Nevertheless, the first half of 2017 looks potentially different
than what was experienced in the first half of 2016.
A slight relief from upstream volatility offers base oil sellers and
buyers opportunities to gauge base oil price positions. This is alongside possible benefits from 2017's first-quarter demand improvement
following what is generally a seasonally slower fourth quarter.
Work done during 2016 to meet 2017 regulatory mandates
is ongoing. But each quarter brings better understanding of the
manner in which the stipulations can be satisfied and how changes
are likely to affect the consumer going forward.

Taylor is senior editor for ICIS. She may be reached
at 713-525-2607 or judith.taylor@icis.com.

ILMA Compoundings January 2017

Table of Contents for the Digital Edition of ILMA Compoundings January 2017