U.S. Base Oil Price Report

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The U.S. base oil supply/demand situation remains largely on track with customers orders meeting or surpassing suppliers expectations.

In fact, sellers are pleased to say that buying interest continues to build and that March sales are significantly improved over January/February volumes. Sellers contend that there are some downstream segments where consumption remains somewhat sluggish, but volumes are much beefier compared to a year ago.

Meanwhile, base oil suppliers continue to pay careful attention to upstream developments. Although crude values have traded in a fairly narrow range of $77 to $80 per barrel for the past two weeks, some energy experts anticipate oil may gain upward momentum and head for the $90/bbl mark in coming months. Crude did reach a high at over $83/bbl in early January before it lost steam and slid back to about $71 in early February.

Vacuum gas oil values have sustained a fairly sizeable premium, around $8 to $10 per barrel, to crude prices since the start of 2010. In many cases, VGO is an essential feed stock, and therefore it is a key factor in the pricing of base oils.

Even though producers raised base oil prices by an average of 20 cents per gallon in mid-January, they still contend that margins are inadequate. The last round of posted price hikes was largely based on similar crude values as at present, as well as on improved demand.

Before the mid-January price initiatives, paraffinic posted prices were last amended in July, at which time producers pushed up API Group I/II/II+/III/III+ base stocks anywhere from 5 cents to 45 cents per gallon.

On Monday, U.S. economic figures reflected a slow but steady recovery. In February, manufacturing output expanded for a seventh straight month, but it slowed compared with January, falling short of expectations. Personal spending rose slightly more than expected in January while construction spending fell for a third straight month.

Investors await weekly U.S. crude inventory data and February jobs numbers for a possible catalyst for crude oil prices. This information is due out later this week.

The U.S. dollar was stronger against the euro earlier this week. A stronger dollar tends to weigh on crude oil prices as it makes crude more expensive for international investors.

At the close of the Tuesday, March 2, NYMEX session, light sweet crude futures ended the day at $79.68 per barrel, a modest gain of 82 cents compared to the settlement reported one week earlier at $78.86/bbl. During intraday trade, future prices reached as high as $80.95 and a low of $78.26 before settling at $79.68.

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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