US base oil prices gauged at bottom in March

Source: ICIS News

2019/03/07

HOUSTON (ICIS)--US base oil prices are gauged at bottom levels at early March, after several quarters of price decreases in the posted tiers and falling prices in the wider market.

“We are not seeing much in the way of competitive spot business right now and very few TVAs (Temporary Voluntary Allowances) are still active,” one buyer said.

Group I market spreads assessed by ICIS are steady as overall demand prospects slowly continue to improve in March. As the highly competitive situations fade, overall base oil demand is now boosted by both seasonal aspects and currently attractive base oil prices.

ICIS assessments for Group II domestic market ranges are also stabilising in March on similar fundamentals as those in Group I.

The Group II supply glut that extended from the fourth quarter is narrowing, partly because of better domestic demand and partly because of significant volumes of Group II exported during February.

One producer commented, “We have noticed a significant increase in buying interest on both GI and GII grades.  It could be due to the spike in crude the past several weeks and buyers have come to the conclusion the base oil selling price has reached its bottom.”

The overall view on the US base oil market at early March is that there is scant expectation for prices to move down again. The existing low prices are driving vacuum gas oil (VGO) feedstock toward other parts of the refining process at the refineries, cutting back at least a little on base oil production.

Other regions' conditions partly underpin curtailing the Group II supply glut in the US, as in the Middle East the Lubref plant is down for several months, offering an offtake point for supply from the US and other regional production points.

India is an ongoing destination for Group II base oil barrels, as well as some Group I. Material from the US and Asia Pacific markets routinely heads that direction, assisting in balancing supply in the exporting areas.

Mexico is another location that takes up excess US barrels, with firm demand for 60, 70, 100 and 140 base oil viscosity grades.

US export prices for Group II base oils remain low but are expected to have opportunities to increase going forward into the second quarter on support from crude oil prices and expectations of higher diesel prices.

Buyers and sellers said ICIS assessments for Group II export spreads are widely representative for early March. The following graph shows price direction for these base stocks.

ICIS Editorial Chart goes here

In Group III, domestic market prices are considered to be under slight downward pressure not bearing on the other base stock groups. The reason for this is that the ranges continue to be wide because of the mix of Group III oil types, some fully certified, some partially and some not at all. The lower end of the mix is exerting an effect on the overall spreads, pressuring the spreads slightly down.

Group III base stock demand continues to grow, driven forward by OEM (Original Equipment Manufacturer) requirements aimed at meeting new regulatory and environmental stipulations.

Focus article by Judith Taylor

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