Page 17 - ILMA Compoundings - September 2021

Market Report

Current base oil margins are likely to ease slightly because
of a combination of rising crude prices and improving base
oil supply availability. But they are likely to remain much
firmer than usual. ARGUS SPOT GROUP III 4CST ASIA, EUROPE & US PRICES ($/MT)
Supply is likely to rise on the back of a combination of $2,200
ebbing demand, rising production and shipments from
other regional markets at more competitive prices. These $1,950
factors are expected to outweigh margin support from a
possible downward adjustment in crude values later in the $1,700
year as OPEC+ targets a full end to oil production cuts by $1,450
September 2022.

U.S. PRICES TO FACE PRESSURE FROM INCREASED $1,200
AVAILABILITY IN EUROPE, ASIA $950
U.S. base oil values also face pressure from increasing
availability in markets like Europe and Asia-Pacific. Firm $700
and rising U.S. prices have helped to widen the arbitrage to
move supplies from those regions to the U.S. $450 Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul
Jan
Logistical issues have complicated such moves. Any 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 2020 2021 2021
improvement in these logistics would facilitate the shipment Northeast Asia Nortwest Europe US
of even more supplies to the U.S.
Prices for supplies from regions like Asia-Pacific and RECORD-HIGH GROUP III PRICES ALSO FACE
Europe have become even more competitive versus U.S. DOWNWARD PRESSURE
supplies since June. The trend has boosted interest in mov- U.S. Group III 4 cst prices are also the highest among the
ing more Group I and Group II from Europe, the Baltic major regions. The trend reflects a combination of limited
region and Asia-Pacific to the Americas. The trend reflects supply and firm demand in the U.S. and Latin America.
weaker demand and increasing supplies in those regions The U.S. is structurally short of Group III production
following the completion of plant maintenance work. capacity and relies on imported supplies to cover most of its
Argus export spot U.S. Group II N100 and N220 price requirements. More recently, a drop in Group III supplies
premiums to FOB Asia N150 prices in late July had risen to from Europe and South Korea has exacerbated the effect of
their highest in more than a decade and significantly higher that reliance on overseas shipments. Supplies fell because of
than historical levels. a heavy round of plant maintenance work in those regions.
U.S. Group II heavy-grade prices have also extended their Most of that maintenance work has now come to an
rise relative to prices for Asia-Pacific supplies. Argus export end. As availability improves, producers are likely to target
spot U.S. Group II N600 premium to Asia FOB N500 higher-priced outlets like the U.S. These moves would put
prices rose to a record high in late July. pressure on outright Group III prices in the region, though
Group III 4 cst prices are still expected to be close to their
The growing availability of overseas supplies is likely to
put more pressure on U.S. base oil prices as buyers seek to highest in a decade.
both secure supplies and maximize their procurement of Hong is senior analyst of Argus Base Oils Outlook.
supplies at more competitive prices. The premium of U.S. He may be reached at +65-6496-9811 or
Group II base oils over FOB Asia prices is forecast to narrow guoharn.hong@argusmedia.com.
over the next 12 months as supply tightness eases.

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