U.S. Base Oil Price Report

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The U.S. base oil market received news of several additional price increases and a sales allocation program at Motiva. Players say they are seeing a startling shift in availability as product has tightened significantly industry-wide. Its been a hectic week.

Flint Hills Resources raised its postings for API Group II base oils, upping prices between 20 cents and 25 cents per gallon on Friday, May 14.The producer increased its light-end 70 HC and 75 HC by 22 cents/gal. It raised 100 HC by 20 cents/gal and 230 HC by 22 cents/gal, while boosting the 600 HC grade by 25 cents/gal. This move by FHR completes a round of paraffinic increases which commenced earlier this month.

On the naphthenic side, following a move announced by Ergon last week, Cross is increasing all its naphthenic base oils by 20 cents per gallon today, May 19.

San Joaquin Refining plans to raise certain accounts by 20 cents/gal on Tuesday, May 25, while also adjusting all non-contractual pricing to reflect increased demand.

Calumet is planning to push up its line up of naphthenic pale oils by 20 cents/gal on Thursday, May 27.

Nynas said it will follow suit and adjust pale oil prices up on June 1 by 20 cents/gal.

Market sources revealed that Motiva has placed its customers on a sales allocation plan of 50 percent for Star 6 (220 vis) and 75 percent of historical contractual volumes for all other grades. Direct buyers said that the company has not yet outlined a time frame for the allocation program and will not do so until ongoing production problems at its base oils facility in Port Arthur, Texas, have been better defined.

The overall supply picture depicts increasing tightness of most grades. In addition to the Motiva sales allocation program, a number of suppliers have removed temporary voluntary allowances (TVAs) along with other volume discount programs.

Consumers said that there are supply difficulties from the West Coast to the East Coast and in between, as well as in Canada

An array of small to large buyers lamented that additional volumes over and above contract and/or pre-scheduled monthly shipments do not exist. They added that alternative supply sources are not in positions to help out, either. Consumers who usually buy Group II mid vis have turned to both Group I and Group III suppliers for material, but with limited or no success. Sources say this situation is not restricted to the United States; European, Russian and Asian supply have taken a turn for the worse as well.

One sizeable buyer, after looking in recent weeks for additional volumes, now says this is the tightest supply situation seen in over four years, surpassing even a difficult shortage of base oils following the hurricanes in 2008.

The startup at Ergons Newell, W. Va., plant is progressing with few delays. The companys projected midweek online date is holding, but Ergon confirmed that inventories are very low coming out of the planned turnaround.

Just as the Calumet facility in Shreveport, La., resumed full production earlier this month following both a planned and unplanned outage, a disruption at a crude unit occurred at the American Refining Group plant in Bradford, Pa. The operating hitch caused ARG to lose approximately four days of production and pushed stocks below the comfort level, sources said. Although the company resumed normal production over a week ago, it expects bright stock to be sold out through June.

A fire at the LyondellBasell refinery in Houston on Monday was quickly extinguished. Two crude units were damaged, but there was no impact on or interruption to the production of base stocks, according both to Lyondelland Calumet spokesmen. (Calumet markets the facilitys base oils.) However, there will be a precautionary one-day delay in loading rail car and truck shipments.

Despite crude values sinking below $70 per barrel, sources expect recent price hikes in both paraffinic and naphthenic sectors to hold and remain successful due to current market dynamics.

Some buyers, however, believe base oils prices should move in line with upstream costs and come down. But suppliers reiterate that insufficient inventories alongside increased demand are driving prices higher. Producers add that the cost of vacuum gas oil, a key feedstock, remains steep and is a key element supporting recent price hikes.

At the close of the Tuesday, May 18, NYMEX session, front month light sweet crude oil futures ended the day at $69.41 per barrel, a loss of $6.96 from the week earlier settlement at $76.37/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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