Base Oil Price Report


The more Kline and Co. analyzes demand and supply trends for Group II base oils, the less it thinks lube blenders need to worry.

The lubricant market analysts said last week that North American supply of Group II will continue to meet demand despite the fact that upgrades in automotive lube standards will raise consumption. The company projects that the market will continue to enjoy a Group II surplus of more than 13,000 barrels per day when taking into account an expansion planned for Motivas plant in Port Arthur, Texas.

Those in the lubricants industry who are concerned over a possible shortfall of API Group II base oils can rest easy, the Little Falls, N.J., firm said Wednesday in a news release announcing the upcoming release of a new study, Global Business Opportunities in the Lubricant Basestocks Industry, 2004-2020.

The question of whether North America was headed for a Group II shortage was one of the hottest debates in the lubricant market during the first half of 2004. Pessimists warned that GF-4, the passenger car motor oil upgrade that came to market in July, would cause such an increase in blender appetite for Group II that refiners would be pressed to satisfy it. The Independent Lubricant Manufacturers Association complained that some of its members stood to be locked out of the market.

All along, Kline offered more optimistic predictions, saying supply would meet demand, though the market would become tight in the short term.

The new study includes a more refined and longer term analysis that paints an even rosier picture. Officials saidtwo factorswill limit the influence of GF-4 and other engine oil upgrades. First, most marketers of passenger car and diesel engine oils switched to Group II stocks before the latest upgrades, even thoughthen-current specifications did not demand it. Secondly, the PCMO market is shifting from 10W multigrades to 5W-30 and 5W-20 oils, which must be made with Group II-plus or Group III.

Most OEMs have been using 5W-30 for factory fill and recommending it for service fill, and Ford and Honda have already moved to 5W-20, said Milind Phadke, senior consultant in Kline’s Petroleum & Energy Practice. As the current population of vehicles is retired, these grades will make even bigger gains on 10W-30 and push PCMO base oil demand from Group II to higher grades.

Kline said its study showed that North America had a Group II surplus of 13,000 b/d in 2004, with most of that volume being exported. It said demand will rise for the next six to eight years, taking up most but not all of the slack in existing capacity. It noted, however, that Motiva plans to expand its Port Arthur plant by 13,000 b/d in January 2006, meaning the market will have at least that much surplus. The company said the situation will ease further after 2015, as it projects Group II demand to begin to decline.

Phadke acknowledged that this does not mean a complete lack of supply issues for North American lube blenders. He allowed that the region could encounter a shortage of Group II-plus and Group III, but added that overseas refiners plan to build plants to help meet that need.

Despite Klines outlook, some industry observers remain concerned about prospects for Group II buyers. ILMA officials said they have heard enough opinions from other sources to conclude that Group II availability may become an issue.

Based on presentations and discussions at recent meetings, ILMA is still of the mind that demand is going to be tight, whether or not an outright shortage develops, the associations legal counsel, Jeffrey L. Leiter, told Lube Report. He said he had not read Klines report.

Posted prices for paraffinic base oils in the United States were unchanged again this week. The price of crude oil on the New York Mercantile Exchange closed at $45.44 per barrel yesterday, $4.01 lower than a week earlier.

Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.

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