ILMA Compoundings October 2017 - 20

INDUSTRY RUNDOWN

Market Report
US Base Oils Market Faces Increased Supplies
By Eva Molina
The Americas base oils market will face increased supplies and weaker seasonal demand in the final quarter
of the year.
Base oils supplies typically increase from October to
December amid the year-end seasonal slowdown in demand.
The rise in surplus supplies will likely spur an increase in
spot activity in the fourth quarter. Such activity has been
lighter than usual in the second and third quarters of the
year as supplies have been unusually tight.
U.S. Group II and Group I base oils supply has been
tight for most of the year. Record-high exports in the first
five months of the year, combined with a heavy round of
refinery maintenance in the second quarter, prolonged the
tightness. A total of 17.3 million barrels of base oils were
exported in the first five months of the year, according to the
Energy Information Administration (EIA). The volume was
roughly 6.3 million barrels above the five-year average of 11
million barrels for that time period.
The revival in Group II supplies following the round of
maintenance was slower than expected. This prolonged the
supply-tightness into the third quarter. Spot availability of
domestic Group II supplies showed some signs of improving, especially for heavy grades, at a time of year when
demand typically slows.
But continuing production issues and unplanned shutdowns in the U.S. and Asia-Pacific supported the Group
I supply-tightness. The lack of surplus supplies prompted
cargoes from South America, Europe and northeast Asia to
target the U.S. market in the second and third quarters of
the year.
The tight availability of Group II and Group I supplies
contrasted with plentiful supplies of Group III base oils.
Increased domestic production and steady imports from the
Mideast Gulf and northeast Asia have added to the growing
surplus of these supplies in the U.S.
GROUP II SUPPLIES RISE IN Q3
The Group II supply-tightness began to ease in the third
quarter of the year. The heavy round of Group II refinery

OCTOBER 2017

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maintenance concluded in mid-July. This series of planned
and unplanned maintenance began in March and involved
several major Group II refineries and re-refineries.
All of the major Group II producers began to have small
spot volumes of their heavy grades available starting in June.
Group II light- and mid-viscosity supplies remained tighter
longer. Supply availability began to improve from early
August, when a major producer began offering small spot
volumes of its light- and mid-viscosity supplies. A couple of
re-refiners also began to offer their light grades on a spot basis.
The increased supplies prompted a major Group II
producer to cut its posted prices in mid-August. This price
decrease came three weeks after a couple of Group II producers raised prices for their light- and mid-viscosity grades.
The posted price decreases placed downward pressure on the
rest of the Group II market.
Most Group II producers had no additional supplies of
their light- and mid-viscosity grades in the third quarter, but
several major Group II producers and re-refiners will likely
have spot supplies available in the fourth quarter.
GROUP I SUPPLIES TO REMAIN BALANCED
While spot availability of Group II supplies increased in the
third quarter, domestic Group I supplies are likely to remain
limited through the end of the year. Only a couple of Group
I producers will likely have some spot supplies available in
the fourth quarter.
All of the major Group I producers had little-to-no spot
supplies available during the second quarter. This tightness
extended into the third quarter.
A major Group I refinery will have a planned turnaround
in October. The shutdown is expected to last for at least
30 days. The producer has had scant surplus supplies of its
heavy grades for most of the year. The refinery has experienced production issues since late last year that have curbed
its bright stock production this year. The producer is unlikely to have any spot supplies available for the rest of the year.
Regular monthly shipments of Group I heavy grades have
continued to move from the U.S. Gulf Coast to southeast Asia.

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ILMA Compoundings October 2017

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