ARGUS SPOT US BRIGHT STOCK VS POSTED PRICES ($/USG) 6.25 Argus spot Bright stock ExxonMobil HollyFrontier Calumet 5.75 5.25 4.75 4.25 3.75 3.25 2.75 Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014 Jan 2015 Jan 2016 The limited availability of Group II N600 is expected to curb exports of the heavy grade through May. Some Group II producers have only been willing to sell their surplus N600 in combined shipments with larger volumes of N100 and N220 since the third quarter of 2016. GROUP III PRICES TO FACE PRESSURE FROM INCREASED SUPPLY U.S. Group III prices are expected to trend upward marginally in 2017. But prices for the premium-grade base oils will continue to face pressure as more Group III supplies target the U.S. Group III prices in the U.S. are projected to remain the firmest among key regional markets, despite a wave of additional premium-grade supplies from July 2016. The new Group III supplies targeting the U.S. have limited or no OEM approvals for use to make full synthetic automotive engine oils. Without the full set of approvals, these supplies are unable to directly substitute approved Group III base oils in most formulations. This constraint will support firmer prices for existing Group III supplies with all of the necessary approvals. Even without approvals, the product specifications of these new supplies suggest they are at least of comparable quality to other Group III base oils in the market. Blenders can still use a small percentage of non-approved base oils in their semi- and full-synthetic formulations. These high-quality supplies can also be used for blending with Group I and Group II supplies to improve the overall quality of lubricants. As long as these new Group III supplies are priced competitively, they will continue to incentivize blenders to explore more ways to utilize them, in order to improve the quality of their lubricants and lower their blending costs. Chew is a senior analyst with Argus Base Oils Outlook. He can be reached at alvin.chew@argusmedia.com. Molina is the editor of Argus Americas Base Oils. She can be reached at 713-360-7560 or eva.molina@argusmedia.com. 15