Argus Base Oil Forum 052015

London
Houston
Washington
New York
Portland
Global base oils: interpreting the past, anticipating the future Calgary
Santiago
Iain Pocock and Kevin Wright Bogota
Tokyo Rio de Janeiro
12 May 2015 Singapore
Beijing
Tokyo
Sydney
Dubai
Moscow
Astana
Kiev
Porto
Johannesburg
Riga
Market Reporting
Consulting
Events
Price-crash triggers falling demand, rising supplies
$1,200
N500 fob Asia ($/t)
$1,100
Prices fall
$1,000
$900
Liquidity drops Demand slows

$800
$700
$600 Supply rises
$500
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15
Copyright © 2015 Argus Media Ltd. All rights reserved.

Was the price-crash foreseeable?
$1,200
N500 fob Asia ($/t)
$1,100
$1,000
Prices fall
$900
$800 Liquidity drops Demand slows
$700
$600
Supply rises
$500
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14

Were there any signals before the price-crash?
• Market signals before the price-crash

• Feedstock prices
• Base oil margins
• Intra-grade spreads
• Inter-grade spreads
• Fundamentals
• Market signals today
• Short-term forecast


• Fundamentals

Crude falls below trend-range in early September
$140
$130 Brent crude ($/bl) ---
$120
$110
$100
$90
$80
$70
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14

Base oil prices begin to fall slowly from July
$1,050
Fob Asia SN 150 ($/t)
$1,030 Fob Europe SN 150 ($/t)
Fob US N100 ($/t)

$1,010
$990
$970
$950
$930
$910
$890
$870
$850
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14

European base oil prices surge vs feedstock VGO
$400
$380
$360
$340
$320
$300
$280
$260
$240
$220 Domestic Europe SN 150 vs VGO ($/t)
$200
1-Jan-13 1-Apr-13 1-Jul-13 1-Oct-13 1-Jan-14 1-Apr-14 1-Jul-14

Spore base oil surges vs gasoil to 22-month high
$300
$250
$200
$150
$100
Ex-tank Spore Grp I vs Ice gasoil ($/t)
$50
Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14

Global production capacity set to rise by 5-6mn t/yr (10%) in
2014-15, up by 10mn t/yr (20%) since 2010

New plant starts up in South Korea in July 2014

Chevron’s new Group II plant starts in July 2014

US production surges in Q3 2014 as capacity rises
6500
US base oil/lube production ('000bl)

6000
5500
5000
4500
4000
3500
Jan-2013 Mar-2013 May-2013 Jul-2013 Sep-2013 Nov-2013 Jan-2014 Mar-2014 May-2014 Jul-2014

Indian base oil imports from US rise to record-high
70
Total Indian imports from US ('000t)
60
50
40
30
20
10
-
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14

Indian buyers secure US supplies in August
$1,150
Cargoes bought at
$1,100 $1,020/t cfr in August.
$1,050
$1,000
$950
$900
cfr India N150 ($/t)

$850
$800
$750
$700
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14

But Indian prices slump between August and October
$1,150
Cargoes bought at
$1,100 $1,020/t cfr in August.
$1,050
$1,000
$950
$95/t
$900
cfr India N150 ($/t)

$850
$800
Price falls to $925/t cfr by the time cargoes
$750 arrive in mid-Oct. Activity halts.
$700
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14

South Korean exports to NE/SE Asia surge
300 120
SE Asia ('000t)
China ('000t)
250 100
Japan ('000t)
200 80
150 60
100 40
50 20
0 0
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014

Rising supplies pressure heavy-grade prices
$1,200
Fob Asia N500 ($/t)

Fob Asia N150 ($/t)
$1,150
$1,100
$105/t
$1,050
$1,000
$950
$900
$850
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14

Asia Grp II premium vs Grp I disappears as supply rises
$1,200
Fob Asia N500 ($/t)
$1,150
$1,100
$77/t
$1,050
$1,000
$950
$900
Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14

Indian base oil imports from Russia surge in 1H 2014
25
Indian imports from Russia ('000t)
20
15
10
0

Indian Group II N500 maintain steady premium to SN 500
$1,300
cfr India SN 500 cfr India Grp II N500
$1,200
$1,100
$135/t
$1,000
$900
$800
$700
Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14

Indian Group II N500 flips to discount to SN 500
$1,300 cfr India SN 500
cfr India Grp II N500
$1,200
$1,100
$1,000
$900
Grp II premium vs Grp I disappears

$800
$700

Indian base oil imports from Russia slump in 4Q 2014
25
Indian imports from Russia ('000t)
20
15
10
0
Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15


• Feedstock prices – Crude oil slumps
• Base oil margins - Surge
• Fundamentals – Supplies rise
• Intra-grade spreads – Heavy slides vs light
• Inter-grade spreads – Grp II slides vs Grp I
• Arbitrage – Group I producers struggle to find outlets

What are the signals showing now?

• Feedstock prices – crude oil slumps
• Base oil margins – Premium to VGO surges
• Fundamentals – new production increases supply
• Inter-grade spreads – Grp II falls below Grp I

• Fundamentals
• Arbitrage

Crude falls to 6-year low in Jan, rebounds in April
$120
--- Brent crude ($/bl)

$110
$100
$90
$80
$70
$60
$50
$40
Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15

Base oil prices fall in Q1 2015 vs VGO, gasoil
$400
Domestic Europe SN 150 vs VGO ($/t)

$380
$360
$340
$320
$300
$280
$260
$240
$220
$200
1-Jan-14 1-Mar-14 1-May-14 1-Jul-14 1-Sep-14 1-Nov-14 1-Jan-15 1-Mar-15 1-May-15

Asia Grp II premium vs gasoil recovers in 1Q 2015
Fob Asia Grp II vs Ice gasoil ($/t)
$450 cfr NE Asia 4cst vs gasoil ($/t)
$350
$250
$150
$50
Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15
-$50

Asia Grp III premium vs gasoil stays strong
Fob Asia Grp II vs Ice gasoil ($/t)
$450 cfr NE Asia 4cst vs gasoil ($/t)
$350
$250
$150
$50
Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15
-$50

Heavy-grade prices rebound versus light grades
$1,200
Fob Asia N500 ($/t)
Fob Asia N150 ($/t)
$1,100 $105/t
$1,000
$900
$800
$700 $95/t
$600
$500
$400
Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15

Asia Group II prices rebound vs Group I in Q1 2015
$1,200
Fob Asia N500 ($/t)
$1,100
$1,000
$70/t
$900
$800
$85/t
$700
$600
$500
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15

Grp II plants restart in April, new production starts
• ExxonMobil completes
Group II expansion at
Singapore plant in 1Q 2015
• Adnoc’s 620,000 t/yr Group
III plant set to start in 3Q
2015

Rise in NE Asia/China prices slows, arbitrage closes
$1,250
N500 fob Asia ($/t)
N500 cfr NE Asia ($/t)
$1,150
$1,050
$950
$850
$750
$20/t
$650
$80/t
$550
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15

What are the signals showing now?

• Fundamentals

• Feedstock prices – Begin recovery after steep slide
• Base oil margins – Slide in 1Q 2015, stay under pressure
• Intra-grade spreads – Heavy-grade premium surges
• Inter-grade spreads – Grp II vs Grp I premium surges
• Fundamentals – Grp II supplies to recover gradually
• Arbitrage – Chinese demand weakens

A new tool to predict short-term future prices

A new tool to predict short-term future prices
• Why?
• What?
• How?

Volatile crude boosts importance of short-term visibility
120.00
Ice Brent crude ($/bl)
110.00
100.00
90.00
80.00
70.00
Crude falls
$68/bl in 7 months
60.00
50.00
40.00
May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15

Frequent changes cut attraction of posted prices
$1,300
Singapore N500 reference price ($/t)
Ex-tank Singapore N500 ($/t)
$1,200
$1,100
$1,000
$900
Eight posted price-cuts

$800
in four months
$700
$600
Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15

Other markets benefit from forward price visibility
$650
No price visibility beyond

$600
base oil spot market
$550
$500
$450
$400
Brent crude ($/t)
Ice gasoil ($/t)

$350
Fob Asia SN 500
$300
Jan 2015 Mar 2015 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16

Forward price visibility allows market to plan ahead
$700
$650
$600
$550
$500
$450
Brent crude ($/t)

$400
Ice gasoil ($/t)
Fob Asia SN 500
$350 ?? ($/t)
$300
Jan 2015 Mar 2015 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16

Short-term forecast covers key global prices
Europe Group I:
SN 150
SN 500
Bright stock
US Group I:
SN 150
SN 500 Asia-Pac Group I
Bright stock SN 150
SN 500
US Group II: Bright stock
N100
N600 Asia-Pac Group II
N150
N500

Forecast includes analysis of market signals
• Global overview
• Analysis/expectations on price/arbitrage/margins
combined with fundamentals.
• Regional market analysis/expectations
• Arbitrage table using forecast prices
$170 $750
Base oil vs gasoil ($/t) Heavy vs light ($/t)
$160
$700
$150
$140
$650
$130
$120 $600
$110
$550
$100 N500
SN 500
$90 $500
Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16

Analysis includes fundamentals supporting the forecast
110
South Korean base oil
exports to Japan (‘000t)
100
90
80
70
60
50
40
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014

Argus Base Oils Short-term Forecast – How?
• Short-term forecast requires:

• An appropriate, well-tested forecasting model.
• Key spot and historic feedstock and competing fuel prices.
• Spot prices that reflect market rather than posted prices.
• Fundamentals data, and the global resources to keep the

information up-to-date.
illuminating the markets Copyright © 2015 Argus Media Ltd. All rights reserved.
First-ever short-term base oil forecast - why?
• Requires: short-term crude, oil • Base oil spot prices
product and crack-spread forecasts • Constant interaction with
• Expertise to develop price models global market

Argus Base Oils Short-term Forecast – boosting
forward visibility
• Available from Summer 2015.
• Monthly price-forecast
updates once a month.
• Analysis update once every

three months.
• Companies requesting a
short-term forecast include
producers, traders,
distributors, lube blenders,
lube consumers, market
analysts.

Argus Base Oils Short-term Forecast – key points
• Improves price-forecasting
reliability by boosting price visibility
beyond the spot market
• Better price-visibility reduces

risk/exposure to price-volatility
• Enhances planning accuracy
• Enhances profitability
• Analyses fundamental changes that

affect the market
• Analyses price-change signals
• Brings more sophistication and

understanding to the market

Thank you very much. Any questions?
London
Houston
Washington
New York
Portland
Calgary
Santiago
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Singapore
Beijing
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Dubai
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Astana
Kiev
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Riga
Iain Pocock
Editor, Argus Base Oils
Iain.pocock@argusmedia.com
Kevin Wright
VP Asia – Petroleum Products
Kevin.wright@argusmedia.com
Copyright notice
Copyright © 2015 Argus Media Ltd. All rights reserved. All intellectual property rights in this presentation and the information herein are the exclusive property of
Argus and and/or its licensors and may only be used under licence from Argus. Without limiting the foregoing, by reading this presentation you agree that you will
not copy or reproduce any part of its contents (including, but not limited to, single prices or any other individual items of data) in any form or for any purpose
whatsoever without the prior written consent of Argus.
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timeliness, or completeness of the Data or fitness for any particular purpose. Argus shall not be liable for any loss or damage arising from any party’s reliance on the
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London

Liquidity drops Demand slows

$600 Supply rises

Copyright © 2015 Argus Media Ltd. All rights reserved.

N500 fob Asia ($/t)

$800 Liquidity drops Demand slows

Copyright © 2015 Argus Media Ltd. All rights reserved.

• Market signals before the price-crash

• Market signals today

Copyright © 2015 Argus Media Ltd. All rights reserved.

• Market signals before the price-crash

• Market signals today

Copyright © 2015 Argus Media Ltd. All rights reserved.

$130 Brent crude ($/bl) ---

Copyright © 2015 Argus Media Ltd. All rights reserved.

$1,030 Fob Europe SN 150 ($/t)

Fob US N100 ($/t)

Copyright © 2015 Argus Media Ltd. All rights reserved.

$220 Domestic Europe SN 150 vs VGO ($/t)

Copyright © 2015 Argus Media Ltd. All rights reserved.

Ex-tank Spore Grp I vs Ice gasoil ($/t)

Copyright © 2015 Argus Media Ltd. All rights reserved.

Copyright © 2015 Argus Media Ltd. All rights reserved.

Copyright © 2015 Argus Media Ltd. All rights reserved.

Copyright © 2015 Argus Media Ltd. All rights reserved.

US base oil/lube production ('000bl)

Copyright © 2015 Argus Media Ltd. All rights reserved.

Copyright © 2015 Argus Media Ltd. All rights reserved.

cfr India N150 ($/t)

Copyright © 2015 Argus Media Ltd. All rights reserved.

cfr India N150 ($/t)

Copyright © 2015 Argus Media Ltd. All rights reserved.

Copyright © 2015 Argus Media Ltd. All rights reserved.

Fob Asia N500 ($/t)

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Copyright © 2015 Argus Media Ltd. All rights reserved.

Indian imports from Russia ('000t)

Copyright © 2015 Argus Media Ltd. All rights reserved.

Copyright © 2015 Argus Media Ltd. All rights reserved.

Grp II premium vs Grp I disappears

Copyright © 2015 Argus Media Ltd. All rights reserved.

Indian imports from Russia ('000t)

Copyright © 2015 Argus Media Ltd. All rights reserved.

• Market signals before the price-crash

• Market signals today

Copyright © 2015 Argus Media Ltd. All rights reserved.

• Market signals before the price-crash

• Market signals today

Copyright © 2015 Argus Media Ltd. All rights reserved.

--- Brent crude ($/bl)

Copyright © 2015 Argus Media Ltd. All rights reserved.

Domestic Europe SN 150 vs VGO ($/t)

Copyright © 2015 Argus Media Ltd. All rights reserved.

$450 cfr NE Asia 4cst vs gasoil ($/t)

Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15

Copyright © 2015 Argus Media Ltd. All rights reserved.

$450 cfr NE Asia 4cst vs gasoil ($/t)

Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15

Copyright © 2015 Argus Media Ltd. All rights reserved.