The base oil market was quiet this week with no pricing movements, and relatively balanced regarding supply. Plants were generally reported to be running well.
Nynas reports intermittent operations atits refinery at Curacao, Netherlands Antilles, which produces one naphthenic grade imported into the United States. A company spokesman said they expect operations to continue on that basis for the near term until repairs can be made. Nynas also reported coming back up from a planned outage at Three Rivers, Texas. The maintenance work took place elsewhere in the refinery with a resulting impact on lube plant production, but was not due to work in the lube plant itself.
The recent round of increases has spurred questions from some buyers regarding base oil margins, especially noting the recent drop in gasoline prices. Examining the situation involves looking at crude costs as well as both gasoline and base oil prices in order to determine the gross margins on them. Crude prices saw a short term slump in mid-January, but have risen steadily since then, remaining relatively stable the last couple of months. Base stock prices fell back early this year followed by the recent increase in late May to early June.
A check of data on the Energy Information Agency website showed that wholesale gasoline gross margins increased nearly $1 per gallon since the first of the year, dropping back slightly the past couple of weeks. The gasoline price increase is reported to result from low refinery utilization rates due to outages coupled with lower inventories and higher demand so far this year versus last year.
By comparison, early this year base oil gross margins increased momentarily due to lower crude prices, but then dropped back due to the second round of decreases, and remained essentially flat thereafter. The continued increase in gasoline margins slowly built upward pressure on base oils. By late May gasoline margins had risen to the point that the difference between margins on the two products was only about 20 percent of the difference in early January, triggering a move to put some cushion between them.
Time will tell whether the market will respond to the lower gasoline prices while crude continues to hold. Base oil demand remains relatively strong except for the lightest grades, and that is certain to be factor. A response to near-term lower gasoline prices alone is likely not in the works, however. As was almost certainly the case with the recent increase, any future decision will be based on longer term trends and expectations.
Posted prices are unchanged this week. Crude closed at $65.35 per barrel yesterday on the New York Mercantile Exchange, according to Bloomberg. That was26 centsbelow the price one week ago.
Publishers note: Mark Matsonretired last year from Marathon Petroleum after spendingover 27 years in the finished lubricants and base oils businesses. He and wife Deblive on a farm in Ohio, where they breed, train and show Tennessee Walking Horses. When not making hay, he can be reached at mdmatson@gte.net.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.