Rising base oil prices in Europe have some suppliers in the United States speculating that markups in their own market may be around the corner.
Unusually excessive supply in Europe had driven down export prices there, causing downward pressure on prices in the United States. But sources say that surpluses east of the Atlantic have begun returning to normal levels, practically eliminating an alternative base oil source for American blenders.
For a while, there was a pretty steady stream of arbitrage, one marketer said. But thats been essentially shut off by this quick run-up of prices in Europe.
He and other marketers speculated that ExxonMobil, the dominant base oil supplier in the United States, may soon take the opportunity to raise prices, an event that usually leads other suppliers to do likewise. Principal suppliers have already raised prices at least three times since April.
Margins are still low, a marketer said late last week, when crude costs were hovering near $28 per barrel. If crude stays in this neighborhood, I wouldnt be at all surprised if theres another increase after Aug. 1. By yesterday, the price of crude on the New York Mercantile Exchange had dropped to $26.31 per barrel.
Some base oil suppliers, however, expressed skepticism about the markets ability to support further markups.
Once you reach decent margins – which is what we have now – then prices are definitely driven by supply and demand, one said. The economy is still somewhat weak so I dont think the demand is there to support [a base oil price increase]. If it happens, it wont be sustainable in the long term.
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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