ILMA Compoundings – February 2019 - 15

ARGUS DOMESTIC SPOT US GROUP II N100 VS. 4-WK AVERAGE LOW-SULFER VGO ($/USG)
$0.85
$0.75
$0.65
$0.55
$0.45
$0.35
$0.25
$0.15
$0.05
Jan '17 Mar '17 May '17 Jul '17 Sep '17 Nov '17 Jan '18 Mar '18 May '18 Jul '18 Sep '18 Nov '18

$0.70

ARGUS DOMESTIC SPOT US GROUP II N100 VS. 4-WK AVERAGE DIESEL PRICES ($/USG)

$0.60
$0.50
$0.40
$0.30
$0.20
$0.10
$$(0.10)
May '15

Sep '15

Jan '16 May '16 Sep '16

Jan '17 May '17 Sep '17 Jan '18 May '18 Sep '18

production in early 2019. The facility now produces 18,000
barrels per day of Group II/II+ light- and mid-viscosity base
oils. The amount of additional output has yet to be reported.
These additional Group II supplies would come after the
market faced a persistent oversupply of heavy grades through
most of 2018.
Some turnaround work is expected in the first half of
2019, when a couple of U.S. Gulf Coast Group II refineries are expected to undergo planned maintenance. These
turnarounds have yet to be confirmed. But turnaround work
at these facilities and any others would help to curb some of
the excess production projected for the first half of 2019.
PERSISTENT SURPLUS PRESSURES HEAVY-GRADE PRICES
A persistent surplus overhang of paraffinic heavy grades
throughout 2018 put downward pressure on heavy-grade
prices and margins. Steadier domestic production and a
lighter round of planned and unplanned refinery maintenance during the year, as well as weaker demand, added to
the heavy-grade surplus.
Group II and Group I heavy-grade prices in late December were more than 20 cents per gallon lower than prices
at the same time a year earlier. Their weakness far outpaced
lower light-grade prices.
The Argus domestic spot U.S. Group II N600 premium
to the Argus domestic spot U.S. Group II N100 price
fell to 20 cents per gallon in late December. That was its
lowest level since at least 2011, when Argus began assessing
domestic U.S. spot prices. The Argus domestic spot U.S.
Group II N600 premium to N100 averaged 29 cents per
gallon in 2018, down from an average premium of 67 cents
per gallon in 2017.
WEAKER DEMAND, MORE IMPORTS ADD TO SURPLUS
Weaker overall demand for base oils added to the persistent
surplus of mostly heavy grades throughout 2018. Domestic

demand fell by 8.9 percent in the first nine months of the year
compared with the same period a year earlier. The drop in
domestic demand, especially in the second half of the year, added
to the build up of surplus supplies from the third quarter.
An increase in imports in 2018 also added to the supply
overhang. Base oils imports rose by 7.5 percent in the first
nine months of the year compared with the same period a
year earlier. Most of the imports were Group III supplies.
Group III base oils prices subsequently weakened in 2018 as
more imports of premium-grade supplies arrived from the
Mideast Gulf.
The increased supply of Group III base oils and lower
prices resulted in a narrowing premium to Group II base
oils. The average Argus domestic spot U.S. Group III 4cst
premium to Argus domestic spot U.S. Group II N100 prices
stood at 63 cents per gallon in 2018, down from an average
premium of 83 cents per gallon in 2017 and $1.21 per
gallon in 2013.
A large volume of Group III supplies from the Mideast
Gulf is likely to continue to flow to the U.S. and Latin
America in 2019.
NAPHTHENIC BASE OILS PRICES FIRMER IN 2018
U.S. naphthenic base oils prices were mostly firmer in 2018.
Domestic prices in 2018 averaged between 27 and 40 cents
per gallon higher than in 2017. Export prices in 2018 averaged
between 38 and 48 cents per gallon higher than the previous year.
U.S. naphthenic production fell by 3.1 percent in the first
nine months of the year compared with the same period a
year earlier. Several U.S. refineries had planned maintenance
during the year, helping to curb production. Most of the
turnaround work was completed in the first half of the year.
The largest naphthenic refinery in Latin America has been
shut since December 2017. This prompted a rise in demand
for U.S. supplies in 2018 from buyers in Mexico, the
Caribbean and South America. Increased exports to Latin
America, Europe and Asia-Pacific helped to keep supplies
balanced and prices firmer for most of the year.
While naphthenic base oils prices mostly firmed last year,
margins were slightly weaker amid higher crude prices. The
average pale 60 premium to four-week average WTI crude
prices stood at $54.10 per barrel, down slightly from $54.40
in 2017. The average pale 60 premium to four-week average
LLS crude prices stood at $49.05 per barrel, down from
$51.30 in 2017. The average pale 60 premium to four-week
average Brent crude prices stood at $47.40 per barrel, down
from $50.60 last year.
Molina is the editor of Argus America Base Oils.
She can be reached at 713-360-7560 or
eva.molina@argusmedia.com.

ILMA Compoundings – February 2019

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