As they ponder whether a full-blown round of price hikes will materialize, sources observed that suppliers offers are firm and there is no wiggle room for negotiating discounts or lower prices, due to extremely tight supply/demand conditions.

Consumers continue to scour both the domestic and foreign markets in search of surplus material, but with little to no success. In some cases, there does appear to be availability in Asia, but prices are moving higher there and lessening the opportunities for buyers in the United States to execute a good deal.

A number of sales restrictions are in play. Chevron said it has experienced a temporary reduction in base oil production capacity at its Richmond, Calif., lube oil plant. The 20,000 barrel-per-day Group II/III facility is seeing shortages and higher-than-typical aromatic content in its 100R, 110RLV and 220R grades only; the 600R grade is not impacted. Effective June 1, Chevron established a 75 percent sales allocation on its 100R, 110RLV and 220R grades for its global customer base. The allocation is calculated on historical average demand from May 2009 through April 2010.

Meanwhile, due to operating issues at its Port Arthur, Texas, facility in recent months, Motiva placed direct buyers on a 50 percent to 75 percent sales allocation for its Group II base oils. A week ago, the company was relieved to report that the 40,300 b/d plant was back up and running to scheme, but inventories remained uncomfortably low and sales allocation programs would continue to be enforced until further notice.

Nynas also remains on sales control for at least the next few months, following problems at the Isla Refinery in the Netherlands Antilles, which is operated by Petroleos de Venezuela S.A. (For more information, see the June 2 issue of Lube Report.)

Many other producers are dealing with tight supply issues for both paraffinic and naphthenic cuts, and cannot accommodate pure spot transactions.

The current supply crunch developed from a number of factors, with the first being that many base oil production sites were operating at reduced rates. Production curtailments began in late 2008, after demand began to fade and fell off the peak seen earlier that year. Facilities continued to run at lower output throughout 2009 and into 2010, in efforts to keep the supply/demand fundamentals balanced. During some of this time, a string of production problems ensued which exacerbated the already-low inventory situation. Demand finally began to improve earlier this year, and before producers had time to replenish stocks.

Calumet said it experienced an operating glitch at a flare stack at its Shreveport, La., refinery late last week. This will result in an estimated 7-day shutdown. The refinery had already endured a number of production issues in April and May, which left its paraffinic base oil tanks at very low levels.

Upstream, crude oil prices appear directionless. In recent weeks, oil values drifted lower, tumbling from this years high of $87 per barrel, reached in April. During May, futures prices saw highs and lows of $86/bbl and $68/bbl. So far in June, prices have held in the low $70s, but without much fundamental support. Global economic indicators are diverse and not too supportive of crude oil values moving back to over $80/bbl any time soon, analysts speculate.

At the close of the Tuesday, June 8, NYMEX session, front-month light sweet crude futures ended the day at $71.99 per barrel, a loss of 59 cents compared to the June 1 close at $72.58/bbl.

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