US base oil second half 2019 unlikely to mirror first half
ICIS Editorial
20-Jun-2019
HOUSTON (ICIS)–For base oils entering the second half of the year, in the Americas there is domestic stability and an improved supply/demand fundamentals balance, particularly in Group II and III.
How Group II demand holds up given the stalled export market is a factor going forward for that group.
There is little question that Group III demand is strong and likely to continue to gain strength forward into 2020.
The first half of the year began with sagging demand and base oil pricing that just narrowly kept margins at viable levels. However, changing factors lifted prospects and set the first half of the year into a price-increase flurry beginning late in the first quarter and stretching into the second.
In January and February, drooping base oil prices and thinned margins dominated the base oil side even as feedstock vacuum gas oil (VGO) costs moved up. Crude oil prices meandered in the low $50s/bbl until February when it bumped into the low $60s/bbl, beginning to hold potential support for higher base oil prices.
VGO prices moved up faster than crude oil, hitting mid-$60s/bbl in February and gaining at least a 10% jump over crude oil’s upward track.
The following graph shows the 2019 price trend for West Texas Intermediate (WTI), Louisiana Light Sweet (LLS) and VGO.
A key point on the graph is at late March, about 29 March, when WTI was at about $59.53/bbl and VGO was at about $74.66/bbl. The disparity between these two factors, with LLS tracking similarly, pressured refiners and base oil producers to consider raising posted prices in order to sustain margin viability.
Looking at that disparity, the following graph also reflects the upstream versus base oil price gap that set the pace for May posted price increases.
There are increasing discussions about advanced engine designs, ranging from growing interest in electric vehicles by OEMs (Original Equipment Manufacturers) to commercial viability for autonomous vehicles. The advanced engines are not frictionless. They will need lubes.
Base oil producers include ExxonMobil, Chevron, PetroCanada and a number of other refiners.
The key end-use for base oils is motor oils and other lubricants.
Focus article by Judith Taylor
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