AFPM ’17: Tighter supply fuelling US base oils price rises

SAN ANTONIO (ICIS)–Heading into this week’s International Base Oils and Waxes Conference, US base oil buyers are finding it increasingly challenging to find base stock supply outside contracted volumes.

“I was looking for some SN150 and told there is none available,” one buyer told ICIS recently. SN150 is a common Group I light grade base stock.

Such a situation has not been the recent norm for US base oil buyers – and most buyers in other global regions – because base oil supply has been ample for over a year. Production capacity factors continue to point to oversupply as new facilities came onboard during 2015-2016, filling global supply with significant inventory increases, particularly in Group III oils.

Despite sagging crude oil prices, base oil prices are on the upswing and supply is now the driver.

The supply outlook changed on an unplanned outage at Shell’s Pearl gas-to-liquids (GTL) plant at Ras Lafans in Qatar that began in late December. The outage is currently ongoing and expected to extend several more months.

Production capacity at the Pearl plant is approximately 22,000 bbl/day of Group III base stock. Statistics on the plant show that the facility is also capable of 6,000 bbl/day of Group II base oils.

Downtime at the plant is said to be taking about 19,000-20,000 bbl/day base oils out of the market, fostering short supply in several regions.

Additionally, there are three US Gulf coast base oil facilities either in planned turnarounds or scheduled to enter turnarounds in the second quarter, offering another factor leading to short supply.

The first-quarter 2017 Americas base oil market has been marked by posted price increases that began the first week of the year, with an ExxonMobil increase effective 1 January and ahead of tightening supply.  

Other US producers in Group I followed the January increase, cascading the effects into Groups II, II+ and III as producers in each tier elected separately to raise posted prices.

A second round of separate first-quarter posted increases came in March as supply began to tighten on the effects of the Pearl GTL plant production shutdown. 

Rising domestic market prices followed in March, with export prices also up and Group II export prices in an unusual parity with domestic.

US buyers and sellers are seeing extremely tight supply in Group III because the US is a net-importer of this base oil type, with no domestic production.

The US Gulf coast turnarounds are also moving Group I and Group II base oils into tight supply. Buyers and seller say ready inventories of light, mid and heavy viscosities of Group I and Group II base stocks are not easily sourced, shutting down options to place spot orders.

Sponsored by the American Fuel & Petrochemical Manufacturers (AFPM), the base oils and waxes conference runs 27-28 March in San Antonio.

Focus article by Judith Taylor

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