oil market dynamics and impact on base oil trends · • weekly inventory levels o us crude stocks...

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Market Reporting

Consulting

Events

Oil Market Dynamics and Impact on Base Oil Trends

Louise BurkeILMA Management ForumApril 2016

Market Reporting

Consulting

Events

Presentation overview

1. Oil Market factors

2. Impact on Base Oils

3. Outlook: review of the coming year

• Geopolitical issues

o OPEC

o Iran

o Russia

• Fundamental issues

o Demand – US/IEA/OECD/Asia

o Supply – Inventory levels/Production

Does Crude Oil and Gasoline Demand matter?

• Weekly Inventory levels o US crude stocks increased by 9.4mn bl to 532.5mn bl last week amid a sharp rise in imports and lower production, marking a sixth

consecutive week of builds, according to the Energy Information Administration (EIA).

• Weekly Crude Production o US crude production dropped by 30,000 b/d to about 9mn b/d. Output in the lower 48 states dropped by 20,000 b/d while production in

Alaska slid by 10,000 b/d.

• Weekly Crude Imports o Imports increased by 691,000 b/d to about 8.4mn b/d. Over the last four weeks, crude imports averaged about 8.1mn b/d, or 11.6pc higher

than the same period last year, the EIA said.

• Refiner Processing rate o US refiners processed about 15.8mn b/d in the week ended 18 March, down by 176,000 b/d from the

previous week. Refineries operated at 88.4pc of capacity.

Why does Crude Oil this matter?

illuminating the markets

Between Jan 2010 and Jan 2016, oil price peaked in Q1 2012

$1

$21

$41

$61

$81

$101

$121

$141

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

LLS USD/bl Brent USD/bl Dubai USD/bl

Copyright © 2016 Argus Media Ltd. All rights reserved.


Crude forecast to fall in the short-term before stabilizing at around $33/bl in

2017

Argus Crude Outlook – March 2016


$25

$30

$35

$40

$45

$50

$55

$60

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17

Argus Brent Forecast ($/bl) Argus LLS Forecast ($/bl)


$25

$30

$35

$40

$45

$50

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17

Argus Brent Forecast ($/bl) Argus LLS Forecast ($/bl) EIA Brent/WTI Forecast ($/bl)

Argus forecasts in line with EIA expectations

EIA Short-Term Energy Outlook – March 2016

Argus Crude Outlook – March 2016

2016 Apr to Dec Average ($/bl)Argus Brent forecast - $33Argus LLS forecast - $35EIA Brent/WTI forecast - $35

2017 Jan-Mar Average ($/bl)Argus Brent forecast - $33Argus LLS forecast - $34EIA Brent/WTI forecast - $36



US outright prices projected to be lowest in at least 7 years

Annual Average

($/t)

US N100 fob US N220 fob US N600 fob

2010 $916 $939 $1102

2011 $1,246 $1,281 $1,444

2012 $1,166 $1,187 $1,384

2013 $967 $1,007 $1,226

2014 $901 $909 $1,106

2015 $558 $560 $757

2016f $407 $408 $678

Argus Base Oils Outlook – March 2016


• Demand for Gasoline has increased due to lower crude prices and

refined product prices

• Largest increase in gasoline demand in 5 years

• Increase in auto size/mileage

• Lighter crudes produce more gasoline

• Lighter crudes product more lighter base stock which impacts on

availability of heavy grades

Why does Gasoline Demand Matter?

• Gasoline cracks were the

strongest for more than five

years

• Also supporting naphtha, a

product that looks structurally

long

2015 regional gasoline cracks

0

5

10

15

20

25

30

$/bl Singapore gasoline vs. Dubai

5-year range

Singapore Gasoline 95r

— Argus

-10

-5

0

5

10

15

20

25

30

$/bl USGC gasoline vs. LLS 5-year range

USGC Gasoline Conv 87

— Argus

-5

0

5

10

15

20

25

$/bl NWE gasoline vs. North Sea Dated

5-year range

NWE 95r mogas

— Argus

Copyright © 2016 Argus Media group. All rights reserved.

Why was gasoline so strong in 2015?

• Strongest growth in gasoline demand

in over a decade

• Demand in OECD economies reacted

positively to lower prices

• Strong demand and a refining sector

that has invested heavily in

maximising distillate yields resulted

in a tight gasoline market in 2015

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Year on year demand growth

OECD Total

2014 Average

— IEA, Argus Consulting

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Global gasoline demand growth

— IEA, JODI, Argus Consulting

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Gasoline demand growth

China India

Copyright © 2016 Argus Media group. All rights reserved.

Link with other grades: US heavy-grade prices surge in 2H 2015

Copyright © 2016 Argus Media Ltd. All

rights reserved.

$1.70

$1.90

$2.10

$2.30

$2.50

$2.70

$2.90

$3.10

$3.30

Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15

Motiva Grp II N100 ($/USG) Argus domestic N100 ($/USG) Motiva N600 ($/USG) Argus domestic N600 ($/USG)

Light-heavy spread increases to widest in

more than four years


US heavy-grade prices remain supported by ongoing structural supply-tightness



-20

80

180

280

380

480

580

Mar-14 Dec-14 Sep-15 Jun-16 Mar-17

N220 - N100 N600 - N100

Key Factors that Impact on Base Oils prices

Monthly Base Oil Price Forecast

Statistical Relationship

with Historical

Prices

Latest Market

Intelligence

Crude, Gasoil,

Diesel, VGO and relevant

Crack Spreads

Seasonal Trends

Market Trends and

Developments

Short-Term Base Oil Supply

Schedule


• Crude Oil price outlook

• Price trend analysis with reference to

seasonality patterns and

fundamentals

• Intra-grade spreads

• Intra-group spreads

• Gasoil/diesel spreads

• Maintenance and shutdown table

Base Oils Forecast – What is Important



Sliding crude prices

Clearing of stockpile built up ahead of several plant closures

Removal of Iranian sanctions

Bearish factors in 1H 2016 Supply tightness

caused by completion of the closure of base oil plants

Slight recovery in crude prices

Delayed switch to Group II supplies to support demand for Group I base oils

Bullish factors in 2H 2016

Base oil prices in 2016:

Bearish and bullish factors



Sliding crude prices

Clearing of stockpile built up ahead of several plant closures

Removal of Iranian sanctions

Bearish factors in 1H 2016 Supply tightness

caused by completion of the closure of base oil plants

Slight recovery in crude prices

Delayed switch to Group II supplies to support demand for Group I base oils

Bullish factors in 2H 2016

Base Oil prices in 2016:Bearish and bullish factors


Supply Fundamentals –European closures


Shell Pernis, 370,000 t/yr4Q 2015 & 1H 2016

KPC Europoort, 235,000 t/yrJanuary 2016

Colas, 335,000 t/yrApril 2015

Total Gonfreville, 250,000 t/yr4Q 2015

ExxonMobil, 645,000 t/yrFrom 4Q 2015

Sapref, 170,000 t/yr2Q-3Q 2015

Lukoil Nizhniy Novgorod, 290,000 t/yrApril 2015

Lukoil Perm, 460,000 t/yr1Q 2015

Rosneft Angarsk, 250,000 t/yr2Q 2015

Gazpromneft Omsk, 240,000 t/yr1Q-2Q 2015

Gazpromneft/Rosneft Yaroslavl, 350,000 t/yr2Q 2015

MOL, 150,000 t/yr3Q 2015

ENI, 645,000 t/yr1Q-2Q 2015

Permanent (partial) closures

Maintenance

Temporary shutdown

Samir, 125,000 t/yrFrom 3Q 2015


Refinery maintenance in 3Q 2015-1Q 2016 absorb surplus supplies

Global 2015 maintenance peaks in Asia in Q2-Q3


Taiwan: (FPCC) 520,000 t/yr – Q1-Q2 2015

S. Korea: (SK Lubricants) 2.45mn t/yr – Q1-Q2 2015

S. Korea: (S-Oil) 1.42mn t/yr –Q2 2015

S. Korea: (S-Oil) 660,000 t/yr –Q3 2015

Japan: (Idemitsu) 305,000 t/yr (Q2 2015)

Japan: (Cosmo) 350,000 t/yr – Q2 2015

Japan: (JX Nippon) 400,000 t/yr (Q2-Q3 2015)

Japan: (JX Nippon) 180,000 t/yr – Q3-Q4 2015

India: (HPCL) 480,000 t/yr –Q2 2015

China: (PetroChina Karamay) 400,000 t/yr – Q2-Q3 2015

China: (Hainan Handi) 300,000 t/yr –Q2-Q3 2015

China: (Sinopec Jingmen) 300,000 t/yr – Q3-Q4 2015)


US Group II prices projected to hold in a relatively narrow range over next 12 months



$200

$400

$600

$800

$1,000

$1,200

$1,400


N100 fob ($/t) N220 fob ($/t) N600 fob ($/t)


US light-grades price strength expected to be range-bound.

US heavy-grade price strength projected to fall from record high last year but still high compared to

historical levels

Price strength ratio = base oil price / crude priceArgus Base Oils Outlook – March 2016


1.00

1.50

2.00

2.50

3.00

3.50

Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17

US N100 US N220 US N600


$600

$700

$800

$900

$1,000

$1,100

$1,200

$1,300

$1,400

$1,500


4cst dom ($/t)

US Group III prices continue to face pressure, reflecting existing inherent price strength and rise in

production capacity




$600

$700

$800

$900

$1,000

$1,100

$1,200

$1,300

$1,400

$1,500


4cst dom ($/t)

US Group III prices expected to continue to face pressure, reflecting existing inherent price strength

and rise in production capacity




Bright stock price then and now

Asia bright stock ($/t)

Europe brightstock ($/t)

US bright stock ($/t)

LLS ($/bl)

Brent ($/bl)

Dubai ($/bl)

Jan 2010 $895 $895 $904 $80 $77 $77

Jan 2016 $889 $896 $927 $33 $31 $27



Bright stock price strength expected to surge in 2016

Price strength ratio = base oil price / crude price

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2010-2014 Average 2015 Average 2016 Average

3.01

2.27

1.56

Argus Base Oils Outlook – January 2016



Base oil prices vs. Crude Oil


Base oil prices holding relatively steady since August 2015 despite falling crude prices


How sticky have base oil prices been?

Jan 2010 - Jan 2012 Jan 2012 - Jan 2016

LLS (USD/bl) +38% -70%

Brent (USD/bl) +45% -72%

Dubai (USD/bl) +43% -76%

Base oil price ($/t) ??? ???



Asia, US base oil prices outpace crude from Jan 2010 to Jan 2012

LLS +38%

US SN 150 US SN 500 US BS US N100 US N220 USN600

+50% +27% +30% +62% +60% +43%

Brent +45%

Europe SN 150

Europe SN 500

Europe BS

+36% +31% +33%

Dubai +43%

Asia SN 150 Asia SN 500 Asia BS Asia N150 Asia N500

+54% +44% +49% +50% +52%



Europe, US, Asia base oil prices lag crude-drop from Jan 2012 to Jan 2016

LLS -70%

US SN 150 US SN 500 US BS US N100 US N220 US N600US 4cst

dom

-58% -41% -21% -63% -63% -42% -51%

Brent -72%

Europe SN 150

Europe SN500

Europe BSEurope4cst fca

-49% -40% -25% -50%

Dubai -76%

Asia SN 150

Asia SN 500

Asia BS Asia N150 Asia N500Asia 4cst NEA cfr

Asia 4cst India cfr

Asia 4cst UAE ex-

tank

-62% -60% -33% -64% -58% -45% -49% -50%


• Monthly publication with monthly forecast ofkey base oil prices spanning 12 months into thefuture

• Key benefits• Facilitates short-term planning/budgeting• Provides third-party reference price to

measure against internal price targets• Reduces exposure to spot price volatility

• Content overview• Full price outlook table• Regional price forecast analysis and

commentary• Analytical framework• Price trend analysis with reference to

seasonality patterns andfundamentals

• Intra-grade spreads• Intra-group spreads• Gasoil/diesel spreads

• Maintenance and shutdown table

Argus Base Oils Outlook


Argus Base Oils: Managing spot and future price risk

Copyright © 2015 Argus Media Ltd. All

rights reserved.

• Argus Base Oils – spot market prices, news and analysis‐ www.argusmedia.com/baseoils

• Argus Base Oils Outlook – short-term price forecast

covering the next 12 months‐ http://www.argusmedia.com/Oil-Products/Argus-Base-Oils-

Outlook/

• Argus Consulting – long term forecasts, market analysis‐ http://www.argusmedia.com/Consulting/

http://www.argusmedia.com/baseoils

http://www.argusmedia.com/Oil-Products/Argus-Base-Oils-Outlook/

http://www.argusmedia.com/Consulting/

• Any questions?


Louise Burke

VP, Business Development

[email protected]

Ph. 646 376 6142


mailto:[email protected]

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