Shell Oil Co., the next-to-last major oil company producing naphthenic base stocks in the United States, closed its base oil plant at Martinez, Calif., the past week. The company said it expects to continue selling off inventory for the next few months and observers say prices could rise after that.
The closing of Martinez, which had capacity to produce 4,700 barrels per day of naphthenics, was the second of two steps in Shells exit from pale side of the base oil market. In March the company closed its base oil plant in Deer Park, Texas, which had capacity to produce 5,000 b/d of naphthenics plus 4,500 b/d of paraffinics.
When first announced in February, the Martinez shutdown was scheduled for Sept. 1, but the company later pushed it to the middle of this month. A spokesman said yesterday that base oil production had ceased, although she did not know the precise date. She added that remaining inventory, all of which has already been contracted, should be shipped by the end of October.
At the start of 2003, Shell was the biggest naphthenic producer in North America, and the only major in the naphthenics business, except Citgo, which owns a 41 percent stake in the Lyondell-Citgo refining venture.But even with more than 20 percent of the continent’s total capacity,Shell said the business had not made satisfactory returns for years, andit did not expect the markets over-capacity to be alleviatedin the foreseeable future.
Shells actions prompted rounds of price hikes by other naphthenic suppliers earlier this year, as well as a scramble for transformer oil – made from light grades of naphthenic, of which Shell was the dominant supplier. Several of the remaining suppliers announced expansions, although their increases do not approach the capacity taken out of the market by Shell.
Observers said the naphthenic market has calmed somewhat but that supply may tighten and prices climb further in the next few months.
Weve heard that Shell held over inventory for a number of customers and that some of its customers stocked up on their own, one marketer said. So it appears that supply is being met for the short term. But we definitely think prices will go up when Shell runs out.
U.S. postings for paraffinic base oils were unchanged again this week. The price of crude oil on the New York Mercantile Exchange closed at $27.65 per barrel yesterday, $1.55 lower than a week earlier.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.