U.S. Base Oil Price Report


The U.S. base oil market received news of price increases this week. Flint Hills Resources and Motiva were the first producers to step out, raising posted prices between 10 cents and 23 cents per gallon.

Sources anticipate that other key producers will announce plans tohike postings later in the week.

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On Tuesday, March 9, Flint Hills Resources raised its API Group II postings between 15 cents per gallon and 20 cents/gal. Neutrals 70, 75, 100 and 230 went up by 20 cents/gal, while the 600 vis was lifted by 15 cents/gal.

Motiva plans to shift its Group II and II+ grades highereffective Friday, March 12. The increases will be applied as follows: Star 3 (70 vis) up 15 cents/gal, Star 4 (110 vis) up 18 cents/gal, Star 6 (220 vis) up 23 cents/gal, Star 12 (600 vis) up 20 cents/gal, and Group II+ Star 5+ up by 10 cents/gal.

Sources said that producers were compelled to raise posted prices due to steeper vacuum gas oil values, which are now pegged ata premium of around $9.50 to $10.50 per barrel to crude prices since the start of 2010 and up about $1.50 to $2 per barrel since a week ago.In many cases, VGO is an essential feed stock, and therefore it is a key factor in the pricing of base oils.

VGO prices were largely tracking higher crude prices, but VGO is also increasingly tight in supply, and the premium over crude is reflecting this situation.

Apart from the price moves this week, suppliers concur that contractual sales are on target and in some cases have surpassed expectations, noting a steady uptick in buying interest over the past several weeks.

Buyers reiterate that there is no lack of surplus material, particularly for light vis grades, while all contract requirements are being satisfied promptly and without delayed deliveries. The exception may be that some pale oil shipments are slower to be delivered from the Calumet and Cross plants due to recent facility issues. Calumets Shreveport facility experienced a mishap in February, while the Smackover Cross Oil site is in the early days of full operation following a planned outage. Timely shipments from both plants are expected to resume soon, if they have not done so already.

The sell and buy sides concur that some mid vis cuts as well as heavy vis grades along with bright stock continue in tight supply. Prompt spot deals are few and far between given the lack of ready availability of these grades, according to various sources.

Despite sales picking up over the past several weeks, it is believed that producers are still operating their facilities at reduced rates in attempts to keep supply and demand balanced.LubesnGreases magazine estimates that U.S. production sites were operating at 76 percent of capacity in 2009. Production rates were improved in the latter part of last year compared to the first half. And sources suggest that this figure is most likely indicative of operating rates in the first three months of this year as well. (For more information see “’09 Base Oil Output Plunged 12% in this issue of Lube Report.)

All eyes are on upstream developments as crude oil prices crept higher. On Monday, oil prices topped the $82 per barrel mark during intra-day trade and extended gains from last week amid signs the global economy may be improving.

Crude investors also took a lead from news on Friday that China plans to extend a stimulus package in hopes of helping the economy there grow by 8 percent this year.Crude values have risen 18 percent since Feb. 5 as investors become more convinced a growing global economy will boost crude demand.

However, there remain a few energy analysts that are of the opinion that the current rise in prices has been driven by technical factors such as investors’ positions in the market, not a real rise in oil consumption.

These experts believe that commodity markets often go through periods of ‘disconnect’ between fundamentals and the underlying technicals, and the energy markets are currently going through one of those phases.

There is a possibility that oil prices could retest the high reached in early January at $83.95 per barrel. But some analysts suspect that if futures do go to that level, a rather substantial correction could set in, sending prices back into the mid-to-high $70/bbl range.

Meanwhile energy experts also attribute the recent oil price rally to investors welcoming a government report showing that fewer jobs were lost last month than expected.

The Labor Department said 36,000 jobs were lost in February and the unemployment rate was unchanged at 9.7 percent. Previously, economists surveyed had predicted the report to reveal a loss of 63,000 jobs last month. The unemployment rate in February was forecast to rise to 9.8 percent from 9.7 percent in January.

At the close of the Tuesday, March 9, NYMEX session, light sweet crude futures ended at $81.49 per barrel, a gain of $1.81 compared to the March 2 settlement at $79.68/bbl.

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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