Base Oil Price Report

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Crude oil prices dropped sharply since last week – enough, said some observers, to ease the threat of further price hikes for base oils.

The 12-percent falloff for crude came after last weeks decision by the Organization of Petroleum Exporting Countries to boost production by more than 10 percent. Some analysts predicted crude costs will settle in the mid-$30s per barrel for the next few months, while others forecast a glut that could send prices below $20.

Just one week ago there seemed to be near-consensus among U.S. base oil marketers that base oil prices – which have already undergone three rounds of hikes in 2004 – would rise again soon. But that was before crude backed down from record highs. The price of crude on the New York Mercantile Exchange closed at $37.06 yesterday, down $5.32 from a week earlier.

Observers attributed the slide to Thursdays decision by OPEC to raise its production quota of 23.5 million barrels per day by 2 million barrels in July and another 500,000 barrels for August. The cartel said it was worried that crude pricesat last weeks levels would choke economic activity around the world.

Bloomberg reported yesterday that the U.S. Energy Information Agency has revised its forecast for crude prices and now projects an average price of $36.23 during the third quarter. The news company also quoted an analyst with Bear Stearns and Co. predicting that crude prices will average $32 in 2004 and drop to $20 next year.

Analysts cautioned that the industry is vulnerable to supply disruptions and warned that terrorist attacks or more problems in the Middle East could throw the market into disarray.

Some base oil marketers said it was too early to back off predictions of base oil markups, but others insisted that upward pricing pressure has already abated.

The pressure is coming off, one marketer said. Everyone knew that 40-dollar-crude was unsustainable, and now that is showing itself to be true.

Responding tolast weeks Lube Report, Valero provided a clarification and update regarding ashutdown in May of its base oil plant in Paulsboro, N.J. The lube plant was down for two weeks, the company said. This two-week shutdown was in Valeros February refinery plan. Everything is running well.

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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