When it comes to monitoring base oil production costs, crude oil is usually the ingredient that people watch most. This week, however, that attention has shifted to natural gas, which underwent a price spike of 40 percent in just a few days.
Market observers say sky-high natural gas costs may not last, but for the moment at least they are eating into base oil margins.
The price of natural gas on the New York Mercantile Exchange rose 13 percent to $6.90 per thousand cubic feet Monday. According to the Houston Chronicle, that represented a jump of 40 percent in one week. Base oil producersuse natural gas to power their plants and have certainly taken notice.
Everybody had probably planned their budgets based on three-dollar and four-dollar natural gas, one supplier said, so were really getting hammered on costs.
Sources said they did not expect the higher energy costs to trigger base oil price hikes, primarily because the market is headed into its winter lull. Opinions differed on whether natural gas prices are likely to maintain their lofty elevation. Some observers said the recent spike was due to technical trading aberrations, while others argued that market fundamentals may be changing.
The NYMEX price for natural gas fell 18 cents to $6.72 yesterday.
Posted prices for base oil in the United States were unchanged this week. The NYMEX price for crude oil closed at $31.91 per barrel yesterday, $1.18 higher 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.