US base oil producers benefit from crude dynamics - consultant

29 November 2012 21:20  [Source: ICIS news]

NEW YORK (ICIS)--US base oil producers are benefiting from changing crude dynamics including supply increases and associated feedstock pricing, a consultant said on Thursday.

Lower crude oil and energy costs have created a cost advantage for US base oil producers, and the spread between US and Europe base oil production costs has been widening since 2009, Kurt Barrow of Purvin & Gertz Consulting said while speaking at the 8th annual ICIS Pan American Base Oils and Lubricants Conference.

North America crude markets are shifting rapidly, largely a result of increased supply from shale formations.

Increased output from shale and tight oil and gas deposits is expected to radically alter the energy balance, according to data released by the International Energy Agency (IEA) this month.

The US net reliance on imported oil will decline, but independence is still unlikely, Barrow said. Growth in Canadian production means Canada will be larger source of US supply as well.

Tight oil development has resulted in large production increases in a short period of time, and analysts expect the trend to continue in North America.  Texas has seen a 50% increase in oil production in the last two years, while North Dakota has seen a 120% increase in the last two years, Barrow said.

Non-opec oil output will be dominated by the North America production surge. Over the next five years, output from North America, Brazil, Kazakhstan and Colombia is expected to average 675,000 bbl/day annually, equating to 70% of total crude oil demand growth over the same period. Strong non-opec production plus weaker demand will leave less room for OPEC production.

Increased oil supplies from tight oil coupled with weak demand is expected to reduce crude prices and narrow spreads among various types of crude oil, Barrow said.

“US refined product demand outlook is expected to be flat for the next 5-10 years,” Barrow said. “Gasoline demand will continue to fall. Diesel and jet fuel demand will grow and offset gasoline’s decline in next five years before overall demand begins to decline.”

Base oil refiners will crack feedstocks for fuels instead of base oils if fuels are more profitable, which can have a huge impact on base oil supply as capacity utilization rates decrease.

The conference ends on Friday.

By: Heather McGuire Doyle
+1 713 525 2653

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