AFPM ‘18: US base oil prices strong going into Q2 amid shifting structure

HOUSTON (ICIS)–US base oil prices rose steadily in January and February, continuing the prevailing trend from the fourth quarter of 2017, driven by short supply fostered by the severe weather conditions that prevailed.

Prices rose steadily across the fourth quarter, driven by short supply fostered by the severe weather conditions that prevailed.

Many participants expected reductions to enter in the first quarter, but this did not happen. Crude oil prices shifted higher, going up and down in some weeks but mostly maintaining in the $60s/bbl.

Instead base oil producers raised posted prices in January and again in February. Posted prices moved up by about 10-20 cents/gal in both months, depending upon the viscosity grade and the producer. Increases of 22 cents/gal and above entered in the Group II+ and Group III tiers.

Group I held posted prices at the 2017 level at mid-January, but Group II producers Chevron, Phillips 66, Flint Hills Resources (FHR) and Motiva raised prices by 10-16 cents/gal, depending upon the producer and viscosity grade.

By the end of January, all producers in Group I, II, II+ and III had raised individual posted prices

Group II producer Chevron came out with 31 January posted increases on all its grades and set the pace for February.

By the end of February, all producers had separately announced posted price increases on all viscosity grades.

The $60/bbl crude oil prices and rising costs in vacuum gas oil (VGO) challenged base oil margins to underpin the posted increases along with snug supply in several grades.

Naphthenic base oil prices also rose on the boosted costs and pockets of snug supply, with 20 cents/gal increases entering in January and implementing readily into domestic market and export prices for these base oils.

Structural shifts in the Americas base oil market are also a factor in 2018.

Phillips 66 Lubricants notified customers in October 2017 that effective 1 January 2018, FHR would become a non-operational partner in the 50-50 joint venture. Phillips 66 is now the sole agent for the 22,200 bbl/day Group II Excel Paralubes base oil plant located at Westlake, Louisiana.

Group III base oils are becoming a prevalent factor in meeting the needs of new engine designs and performance characteristics required for evolving standards.

Group II producer Motiva confirmed it is producing commercial Group III base oils and entered the market early January with posted prices on these oils.

PetroCanada entered posted prices in October 2017 for Group II, II+ and Group III base oils, increasing its presence in the North American market.

Hosted by the American Fuel & Petrochemical Manufacturers (AFPM), the International Petrochemical Conference (IPC) takes place on 25-27 March in San Antonio, Texas.

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