U.S. naphthenic suppliers have initiated their second round of price increases in a month, citing a scramble among purchasers since Shell Oil Products US announced plans to close its Deer Park, Texas, base oil refinery.
Suppliers maintained, though, that the full brunt of the closing will not hit the market until Deer Park shuts off its tap, and that furtherpressure on prices should be expected.
In a development that may somewhat relieve that pressure, Ergon Inc. said it is increasing capacity at its Vicksburg, Miss., refinery.
Ergon led the latest round of naphthenic markups, announcing last week that it would add a dime per gallon to the price of 60 pale and 6 cents to cuts between 100 and 500. The increase for 60 pale was effective Friday, the others Feb. 10. Cross Oil Refining & Marketing Inc. said it will impose identical increases, and Calumet Lubricants Co. said it will do likewise Feb. 14.
Valero has not joined the latest round of increases. San Joaquin Refining Co. automatically adjusts prices for its large-volume, long-term customers every month based on crude oil costs.San Joaquinconfirmed that its prices have risen the past two months.
Other suppliers agreed that rising crude costs have squeezed margins, but said the Deer Park announcement has been the biggest factor in the last two naphthenic price hikes. Shell said in December that it will close the base oil plant March 31. The plant has capacity to produce 5,000 barrels per day of naphthenic – 11 percent of U.S. capacity – as well as 4,600 b/d of paraffinic base oils.
Naphthenics have been extremely undervalued simply because theres been too much supply, one marketer said. Since Shells announcement, theres been a real scramble by purchasers to lock up supply.
While receiving credit for recent price hikes,Deer Park hasnt stopped producing yet, suppliers noted. Indeed, Shell has indicated it plans to run the plant at full capacity until the closure date and will continue selling inventories after that. Sources predicted naphthenic prices could rise higher once the market loses that supply.
Im sure Deer Park hasnt even affected the market yet, a marketer said. We probably wont know just how big of an impact it has for several months.
Ergon has begun de-bottlenecking its Vicksburg plant, the largest naphthenic refinery in the United States with capacity of 8,300 b/d. Officials said the project should raise capacity to between 9,000 b/d and 10,000 b/d by the end of the year.
U.S. postedparaffinic prices are unchanged this week.
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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