U.S. Base Oil Price Report

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Adding to the mix of recently issued price hikes, API Group III producer SK and naphthenic supplier San Joaquin Refining are seeking 30 to 45 cents per gallon more for their base oils.

On Monday, July 7, SK added 45 cents/gal to its Group III Yubase base oils line-up. The increase was in response to rising feedstock costs and robust demand.

On July 16, San Joaquin plans to raise its naphthenic base oils by 30 cents/gal across-the-board.

Although the fast rise of crude values tempered earlier this week, producers continue to keep a close eye on stiff operating costs and low stock positions alongside healthy demand.

Participants reiterated that it is extremely difficult to find alternate supply sources. Even though base oil producers and sellers are striving to fulfill all contractual obligations, there is an increased need for some customers to obtain additional gallons.

A key aspect contributing to the shrinking of base oil availability is the allocation program that Motiva currently has in place. The companys direct customers report orders are restricted to between 85 percent and 100 percent of historical volumes, depending on the grade. This allocation plan has been underway for about five weeks, and some expect it to stay in place through October, or until the company has completed a planned 45-day turnaround. Although details of this scheduled outage remain vague, the shutdown is expected to commence in late August or early September.

In the meantime, there has been a spate of operational hiccups at a number of facilities. Also, in some instances base oil production sites have been run at reduced rates in an effort to optimize the refinery side by upping the output of transportation fuels. These factors have helped lead to an overall tighter base oil supply situation recently.

The naphthenic sector has also had its ups and downs with several operational glitches occurring during recent months. Overall availability is snug while demand has escalated to a high pitch, suppliers say. Cross Oil will have a slowdown at its crude unit located in Smackover, Ark., starting on July 26. The company expects to lose about a weeks pale oil production. The Smackover plant is scheduled to start-up again Aug. 1.

Meanwhile, most paraffinic and naphthenic producers have reportedly removed discount plans such as temporary voluntary allowances, or TVAs, and other competitive price arrangements.

This action has led to higher prices for virtually all base oils. Sources said that there remains a sizeable portion of business that is not quantified as contract but rather as regular ongoing business or simply put, spot. In these instances, prices have shot up quickly and almost in line with posting hikes that hit the market in recent months.

As an example, in the case of bright stock, prices are gauged to be near or at posted prices, within a range of $5.70 to $5.90 per gallon FOB. The likelihood of bright stock fetching a premium to posted prices is gaining momentum weekly, sources reiterated. Pale oil 2000 values are pegged in a wide range from $4.40 to $5/gal FOB, given the various applications involved. Note that sources confirmed business concluded at slightly below and above this spread, with the bulk of the volume currently being consumed in the base oil arena and not the rubber industry. However, that will likely shift within the next eight to 10 months as the tire segment moves to comply with EU regulations which go into effect in 2010, sellers said.

Pricing for other paraffinic and naphthenic grades is firming as well, suppliers said. Fresh sale offers have moved up rapidly, and with discount allowances now eliminated in most cases, price ideas are much stiffer.

Some buyers are reeling from the elevated prices. However, they understand that with global demand so strong amid scant base oil availability, suppliers have the upper hand.

At the close of the Tuesday, July 8, NYMEX session, front month light sweet crude futures price settled at $136.04 per barrel, shedding $4.93 from the week earlier close at $140.97/bbl.

Carolyn L. Green, based in Houston, can be reached directly at carolynlgreen@gmail.com.

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

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