Conoco said yesterday afternoon that it will cut 7 cents off the prices for its 70, 110, and 225 viscosity Group II oils and reduce its 600 viscosity Group II by 5 cents, effective Jan. 18. No other major suppliers had yet announced actions but all generally follow ExxonMobil’s lead because it holds such a large share of the U.S. base oil market.

Buyers and sellers have said that another price cut was possible because refining margins remained unusually high, thanks to the steep decline in crude oil prices. Crude closed up 1 cent to $18.90 per barrel on the New York Mercantile Exchange. Crude prices averaged more than $27 per barrel in August.

Assuming that everyone else follows suit, I think this brings margins back to more normal levels, one large base oil purchaser said. It also reduces the differential between spot prices for export from Europe. Thats an important factor to U.S. suppliers who dont want to lose sales to arbitrage.

Although Conoco’s reduction of Group II prices followed the same patter as ExxonMobil’s Group I cuts, some in the market said they are watching to see if the spread between Group I and Group II stocks widens in 2002. Many have predicted this would happen, due tonew motor oil standards that increasedemand for Group II. The latest standard for passenger car motor oil, API-SL, was approved in July. The latest standard for diesel engine oil, API CI-4,was formally approvedlast month.

I would not besurprised to see this, said one base oil supplier. Especially with Group II-plus, youre getting something thats almost as good as a Group III oil for a fraction of the cost. I think people are starting to recognize the value of Group II.

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