ILMA Compoundings – February 2019 - 14

INDUSTRY RUNDOWN

Market Report
US Base Oils Prices Fell in 2018 on Plentiful
Supplies, Weak Demand
By Eva Molina
U.S. base oils prices trended lower throughout 2018
because of plentiful surplus supplies and weaker
demand. Prices for Group II and Group I light- and
mid-viscosity grades finished the year between 6 and
10 cents per gallon lower than in late December 2017.
Group II and Group I heavy-grade prices fell much
more steeply. Prices had dipped between 29 and 35
cents per gallon in late December from a year earlier.
Base oils prices fell in the second half of 2018 because
of lower crude prices, steadier production, plentiful supplies and weaker demand. Paraffinic base oils producers
responded to the weaker market fundamentals by cutting
their posted prices as many as two times during the last two
months of the year.
The weaker market dynamics in the second half of the
year contrasted with the stronger market fundamentals seen
in the first six months of the year. Higher feedstock prices
and balanced supplies during that period prompted paraffinic base oils producers to raise their posted prices three
times between January and May.
Even with these higher outright prices, weaker base oils
values compared to feedstocks and competing fuels prices
squeezed base oils margins throughout the year.
The Argus domestic U.S. Group II N100 premium to
four-week average low-sulphur vacuum gasoil (VGO) prices
averaged 46 cents per gallon in 2018, down from an average
premium of 64 cents per gallon in 2017. The Argus domestic U.S. Group II N100 premium to four-week average
diesel prices averaged 29 cents per gallon in 2018, down
from 42 cents per gallon in 2017.
Base oils margins were especially weak in the second half
of the year. Those weaker margins contrasted with firmer
margins seen in the second half of 2017, when base oils
values received a boost from unplanned, storm-related
outages at several refineries.
The Argus domestic U.S. Group II N100 premium to
four-week average diesel prices averaged 17 cents per gallon in
second-half 2018. That was down from an average of 35 cents

FEBRUARY 2019

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per gallon in the first half of the year and 46 cents per gallon
in the second half of 2017. The Argus domestic U.S. Group
II N100 premium to four-week average VGO prices averaged
35 cents per gallon in second-half 2018. That was down from
an average of 56 cents per gallon in the first half of the year
and 71 cents per gallon in the second half of 2017.
STRONG PRODUCTION ADDS TO OVERSUPPLY
Unusually strong base oils production throughout the year
added to the oversupply and to the downward pressure on
base oils margins. U.S. paraffinic base oils output rose by
10.8 percent in the first nine months of 2018 compared
with the same period a year earlier, according to the Energy
Information Administration (EIA). Less planned and
unplanned refinery maintenance in 2018 compared with
2017 helped to boost base oils output to record highs.
Producers sought to balance the increased production
through increased exports and run-cuts. Total U.S. exports
rose by 13 percent in the first nine months of the year compared with the same period in 2017. U.S. supplies mostly
targeted Latin America and Europe.
Several Group II and Group I base oils refiners took
steps between August and November 2018 to reduce their
production because of weak base oils margins during that
period. The Group II light-grade premium to diesel even
flipped to a discount to the motor fuel in October.
The base oil run-cuts helped to curb excess light-grade
production. Refiners diverted their feedstocks away from
their base oils plant or poured their light grades back into the
distillates pool to maximize production of the motor fuel.
Some producers then scaled back their run-cuts when base
oils margins improved in the fourth quarter. Some are likely
to continue to divert their feedstocks to the distillates pool if
base oils margins fall in early 2019.
U.S. base oils production is expected to remain steady among
existing base oils units in 2019. At the same time, the region's
capacity is set to increase in the first quarter of the year.
ExxonMobil's 560,000 barrels per day refinery at
Baytown, Texas, is set to increase its Group II heavy-grade

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ILMA Compoundings – February 2019

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