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10th Annual Pie in the Sky Review


The U.S. Lubricant industry is still waiting to see what effect the latest passenger car motor oil upgrade has on the base oil market. Everyone still expects GF-4 will shift demand further away from Group I towards premium grades of Group II and above. Before the standards adoption in early 2004, though, analysts were divided about whether Group II supply would meet GF-4s appetite.

Commercial licensing of the standard began July 31, but the brunt of its impact wont be felt until early this year, as many motor oil marketers put off upgrading their motor oil formulas from GF-3, the earlier specification, until required to do so. All GF-3 licenses expire April 30.

One industry insider has chipped in with another prediction of Group II shortfalls – this one tied to future upgrades in motor oil standards. Valeros Terry Hoffman said the next heavy-duty and passenger car engine oil upgrades – due in 2006 and 2009, respectively – will leave the United States with a 10,000-barrel-per-day shortage of Group IIs in the crucial viscosity range of 100 to 300 SUS by the year 2010. At the same time, he added, domestic demand for Group I oils will fall enough to create a surplus in those stocks of more than 32,000 b/d.

Hoffman called his forecast conservative, saying the Group II shortage and Group I surplus could turn out bigger.

Things are going to be pretty tight until GTL comes on line, he said, referring to plans by major oil companies to build large gas-to-liquids base oil plants within the next seven years. GTL plants are expected to produce significant quantities of oils that perform nearly as well as polyalphaolefins, with a cost basis closer to that of Group IIs. Analysts say this will ease demand pressures on all grades of premium base oils, including Group IIs.

Hoffmans forecast was particularly interesting coming from a Group I producer such as Valero, but he said such conclusions are easy to arrive at. He laid out his predictions as part of a November presentation at the National Petrochemical and Refiners Associations Lubricants and Waxes Meeting in Houston, showing that they were based on publicly available market data and a few simple assumptions about which base oil cuts are suitable for engine oil formulations.

A longtime member of NPRAs Lubricants Statistics Committee, Hoffman said he presented his forecast primarily to illustrate the usefulness of the associations reports, which contained the market data he used.

Still, it was the predictions themselves that will most likely stick with Group II buyers and Group I sellers.

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