The market seems to be pretty well balanced, right now, one base oil marketer said yesterday. We dont expect things to change much, even when Martinez closes.

The naphthenics market started the year in turmoil, with Shell announcing the closure of its Deer Park and Martinez plants, which together accounted for more than 20 percent of U.S. naphthenic capacity. Supply was further roiled by a strike by employees of Petroleos de Venezuela S.A., which sidelined the Netherland Antilles Refineria Isla, a significant source of U.S. imports.

The result was several rounds of price increases by U.S. naphthenic producers during the first quarter. But reported prices have not changed since then, and some suppliers acknowledge being a bit surprised. Market sources cited several reasons for the stabilization, the biggest being lower-than-expected demand. A slowdown by electrical transformer manufacturers has slackened orders for transformer oil, the bread and butter of Shells naphthenic business.

Traditionally theres been overproduction in the [naphthenic] market that has gone for export, one marketer said. That seems to have dried up, now. Also, some customers that were using naphthenics have reformulated to paraffinics, so that has further reduced demand. You put all those things together, and the market is pretty balanced.

Some sources noted some large transformer oil accounts appear to be hanging onto Martinez as long as possible and therefore will need new suppliers after Sept. 1. But they added that there appears to be slack capacity with producers who announced expansions earlier this year but have not yet hit their output ceilings.

Crude oil prices on the New York Mercantile Exchange closed at $31.65 per barrel yesterday, $1.55 higher than a week earlier. U.S. paraffinic base oil postings were unchanged.

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