U.S. Base Oil Price Report

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Like Chevron last week, another unlikely producer has stepped out with a price hike: Holly Refining. Buyers are holding their breath in anticipation of a full round of upward price adjustments in coming days.

API Group I producer Holly is not typically a company to jump out in front of larger U.S. base oil producers and announce plans to take price action on its postings, but it happened this week. Effective today, April 6, Holly upped its 70 vis by 22 cents/gal, added 38 cents/gal to 100 and 150 vis, bumped up 250 vis 46 cents/gal and 500 neutral by 43 cents/gal. Bright stock was adjusted higher by 40 cents/gal. The company added that inventories are low amid strong demand and that it has turned away new business opportunities.

Customers report that Chevron implemented an allocation program on its 600R cut on April 1 due to supply challenges. Sales will be limited to 100 percent of a customers actual 2010 purchases. Sources said that Motivas allocation program, put in place several weeks ago, is ongoing, with no end date announced. Chevrons sales plan is also open-ended, according to direct customers. American Refining also continues a sales control on its medium neutrals.

Most producers say that they are tight on all grades, and it is rare when they can describe supply/demand conditions as balanced. However, some cuts versus existing orders can be characterized in that manner – balanced, a few suppliers gleefully added.

Depending on the end use and supply source, light-end neutrals can be tighter than mid or heavy vis and vice versa, which is largely why participants from both the buy and sell sides can agree that overall market fundamentals are particularly difficult. There is no secret that demand has returned with a vengeance compared to the previous two spring fling seasons, sources observed. And it is no secret that many producers are running their plants full out to accommodate the uptake in customer orders this year.

There are currently some facilities that are about to enter or are already in scheduled turnaround status or are experiencing unplanned production issues. These situations have exacerbated the tightness of availability for both paraffinic and naphthenic cuts.

In the past week, crude oil futures have continued to climb, now seeing levels around $108 per barrel. Prices have been propelled higher on the ongoing unrest in the Middle East, which has raised doubts about future supplies.

According to both analysts and traders, oil futures will likely reach technical resistance at $110/bbl but have support at $105/bbl.

Meanwhile, there is pressure on base oils producers from operating costs, with vacuum gas oil differentials still around $18 to $23 per barrel over WTI futures. It is also understood that VGO is tight in supply in the Gulf Coast region, with several large refiners consuming most merchant VGO that becomes available.

At the close of the Tuesday, April 5, NYMEX session, front-month light sweet crude futures ended the day at $108.34 per barrel, a gain of $3.55 from the previous weeks settlement of $104.79/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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