Clean Harbors Safety-Kleen subsidiary will impose an increase of $80 per stop on all customers across its used oil customer base, citing continued declines in crude oil indices and base oil pricing.
These adverse energy market dynamics are decreasing the values of our rerefined products and byproducts, as well as our recycled fuel oil, Kevin Hayden, executive vice president for Safety-Kleen Environmental, said in a news release issued yesterday. This increase, which we will now be implementing on both the U.S. and Canada, is needed for Safety-Kleen to maintain the safe, reliable and quality oil collection service we provide to more than 200,000 customers.
Hayden noted that Safety-Kleens rerefining business has been under significant margin pressure for the past three years. We are committed to returning profitability in the Safety-Kleen segment to levels closer to historical norms, he said. The actions we are announcing today are necessary to avoid further deterioration in our existing spread and an important step toward achieving stabilization in this business.
Norwell, Mass.-based Clean Harbors announced in December 2014 that its Safety-Kleen rerefining business was eliminating its pay-for-oil program and replacing it with either a zero-pay or charge-for-collection rate structure, due to adverse conditions in the base oil marketplace. In August, Clean Harbors announced it would begin charging to collect used oil from all non-contract generators and would also expand its application of a service call surcharge.
Juan Fritschy, CEO of rerefiner and used oil collector UES (Avista Oil USA) in Peachtree City, Ga., expressed similar concerns about market conditions, saying, Our margins on rerefined products have been under pressure for the last two years. Fortunately, the main collectors have been disciplined and have been reducing the price paid for used oil to compensate for lower revenues.
Fritschy told Lube Report the switch to charge for oil is a natural consequence of the price decline of all products tied directly or indirectly to the price of crude oil.
As an example, he observed that crude oil traded around $100 per barrel during the period from July 2013 to July 2014. Today it is at $35 per barrel – this is a $1.54 per gallon decrease, Fritschy said. As another reference, approximately in the same period, base oil (Motiva – API Group II -110 vis) went down $1.67 per gallon, from $3.62 per gallon to $1.95 per gallon. As an educated guess I would say that the average price paid for used oil in 2013/2014 was $1 per gallon.
He pointed out that the price generators used to be paid for their used oil was tied to the final value that a rerefiner would get for the base oil and fuels they produced. When these refined products go down so much in price, the charge for oil option is the only way for a collector/rerefiner to continue operating its business in a responsible way, Fritschy added.
We are aware that it is a significant psychological change for generators who once got paid for used oil to start paying for the used oil pick-ups, but this is just a natural consequence of this steep decline in crude oil, he said. Other positive consequences are significant lower prices of gasoline, new lubricants and energy in general. Generators also need to protect their operational margins, so in my opinion, this is a cost that has to be transferred to the final user as an environmental fee.
Apart from the price decline factor, he said, we see a significant abundance of used oil, particularly in the Southeast and Gulf regions. Most of the rerefiners are fully fed with used oil; the industries that were once the main consumers of used oil as a fuel have rapidly migrated to natural gas.