Paraffinic and naphthenic base oil prices continued rising this week, even as crude oil costs retreated further from record highs. Some buyers speculated that suppliers may be grabbing one last price hike before crude sinks much further, but sellers maintained that the markups are warranted by the tightness of the base oil market.
In a move expected to trigger the sixth round of paraffinic hikes in 2004, ExxonMobil said Friday that it was increasing posted prices for light and heavy oils. Market sources said the company added 6 cents per gallon to postings for Group I solvent neutral and bright stock and 5 cents to heavy neutrals. The move was unusual insofar as the company did not change prices for middle-weight Group I oils or for its Group II-plus products.
ExxonMobil raised East Coast postings for solvent neutral 100 and 150 an additional 4 cents, a move that restores part of the transportation premium the company charged for those products until early this year. Before February, ExxonMobils postings for all cuts were 11 cents higher on the East Coast than on the Gulf Coast, site of all three of its U.S. base oil plants. At that time, the company chopped 7 cents off the premium for solvent neutral 100 and 150, citing increased competition – presumably from Valero. Now, after the latest moves, the companys East Coast postings for those products are 8 cents higher than on the Gulf.
Citgo announced yesterday that it is raising posted prices today. It added 6 cents to its solvent neutral 100 and bright stock and a nickel to its solvent neutral 150 and 650, while leaving its solvent neutral 325 unchanged. Valero followed the same pattern, except that it raised its Group I 165 by 10 cents and itsGroup II 150 by 5 cents. Its announcement came yesterday, and its changes take effect Sept. 6. There was no word yet of increases by any other major paraffinic suppliers.
The pale oil side of the market is undergoing its second round of increases in a month, with some suppliers marking up as much as 12 cents. Nynas, San Joaquin Refining, Calumet, Ergon and Citgo all are following Cross Oils Aug. 13 announcement of markups ranging from 10 to 12 cents.
Crude prices, meanwhile, are headed in the opposite direction, retreating for the second week in a row. The price of crude on the New York Mercantile Exchange closed yesterday at $42.25 per barrel, according to Bloomberg, down $3.06 from the previous week. Less than two weeks ago, NYMEX crude peaked above $49.
For much of the summer, base oil suppliers cited skyrocketing crude costs as one of their reasons for raising base oil prices. That factor,buyerswere quick to point, no longer exists.
I can appreciate that solvent neutral 100 and bright stock are in tight supply, one buyer said yesterday. But I dont see anywhere near as much pressure on 150 and heavy neutrals. I think [suppliers] see crude falling and have decided to make a last-ditch bid for margins.
Suppliers maintained, however, that tightness prevails across almost all of the market.
The thing that convinces me is that buyers are coming out of the woodwork to make unsolicited calls looking for base oil, a marketer said. That tells me that the market is tight. Thats the reason prices are going up.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.