ILMA Compoundings July 2017 - 12

INDUSTRY RUNDOWN

Market Report
Americas Base Oils
at Mid-Year: Tight
Supply Dominates
By Judith Taylor
Base oil price increases that peppered the first quarter
have not slowed down in the second, with tight supply
dominating the market at midyear. Tight supply is driving the Americas base oil market, with expectations
that these conditions are likely to prevail throughout
the second quarter. Supply began to tighten in late
December, when one major U.S. Gulf Coast refiner's facility began maintenance work that extended beyond
its scheduled length.
While that particular facility has restarted, another producer's facility was expected to begin a turnaround at mid-May,
and there was a third turnaround slated for June. Buyers and
sellers said the effects of U.S. Gulf Coast turnarounds, healthy
demand and a Group III supply crimp from the downtime at
Shell's Qatar plant underpin the supply crunch.
Group III base oils grabbed center stage in the global
market as an unplanned outage at Shell's Pearl gas-to-liquids
(GTL) plant in Qatar hit the supply scene in March. Early
indications were that downtime at the plant could likely
extend to six months, stretching short supply into the third
quarter of the year. Production capacity at the Pearl GTL
facility is approximately 6,000 barrels per day of Group II
base stocks and 22,000 bbl/day of Group III base oils.
According to European sources, production at Shell's Pearl
GTL facility at Ros Lafans in Qatar has begun. With confirmation effective May 4 to European regional sources, base oil
output began during the first half of April. According to Shell,
full production is expected around midyear. The site, which
produces 1.5 million tons per year, was forced to shut earlier
this year to fix 18 gasifier units, according to the sources. Pearl
is a joint venture between Shell and Qatar Petroleum.

JULY 2017

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Group III market prices in the U.S. domestic sector
jumped on the tight supply conditions, with spot business
essentially not workable because of the lack of material. Offers
for potential spot material rose above the $3.50 per gallon
mark for any viscosity, with scant business taking place until
early May, when some material eased into the market.
While Group III availability in the U.S. squeezed,
conditions in Europe were equally strained, if not more so.
According to European sources, export base oil prices soared
in the second quarter as spot supply completely dried up.
The supply situation became progressively worse as an excess
of brightstock disappeared fast because of a pull from Asia.
"There is nothing left in Europe. ... For May we're dry.
June also looks dry potentially," European sources said.
Amid such tightening supply conditions, U.S. producers
announced posted price increases. Examples are demonstrated
by HollyFrontier's April 24 effective date, raising all its Group
I grades by 20 cents per gallon, Flint Hills Resources (FHR)
in Group II raising its posted prices and Group II Chevron
announcing a 20-cent per gallon increase on all its grades.
ExxonMobil increased its Group II and II+ posted prices
by 20 cents per gallon effective May 1, according to buyers
and sellers. ExxonMobil increased its Group I viscosities
by 20 cents per gallon on the same date, excepting its
brightstock grade, which increased by 15 cents per gallon.
ExxonMobil does not confirm or comment on its prices in
accordance with its company protocols.
By early May, all key U.S. base oil producers had increased
posted prices, and domestic market prices were up 20 cents
per gallon on most grades, and more on some. Brightstock
at the Brownsville, Texas, region saw a significant price jump
over April and May as transactions were confirmed at $2.90
per gallon and higher. Buyers saw $2.87 per gallon completed
on an SN500 purchase, while brightstock offers jumped to $3
per gallon in late April/early May. Mexican buyers expected
that prices were likely to continue to move up in that region,
given the posted price increases in the U.S.
NAPHTHENIC PRICES RISE ON SUPPLY/DEMAND
In an uncharacteristic lead, Cross Oil issued price increase
announcements at 15 cents per gallon on all its pale oil
grades effective March 20. Calumet Specialty Products

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ILMA Compoundings July 2017

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