Base oil prices in the United States are feeling pressure from two forces pushing in opposing directions – unusually high margins that are pressuring downward and generally tight supply weighing in the opposite direction. Observers say it is anyones guess which one will win out.
Refining margins for base oils fattened in recent weeks, with producers raising prices while crude costs fell. Although it is true that vacuum gas oil costs have been stickier than crude, VGO feedstock has retreated from its peak earlier this year.
Base oil margins are higher than they have been in quite a long while, one marketer observed. Prices have to come down at some point.
Others contended that such an outcome is not inevitable, especially while the market remains tipped toward tightness.
It appears to us that the market is still tight-to-balanced, depending on the grade you need, one buyer said. As long as thats the case, I would think it creates some pressure for prices to at least stay where they are.
The question is, how far would crude have to come down before ExxonMobil has to react? another buyer summarized, referring to the markets biggest supplier. I would think they must be under a lot of pressure from big end-users – companies like Wal-Mart certainly track crude – who must be saying, Crude has come down, why havent you lowered your prices for base oil?
On the other hand, maybe [suppliers] dont feel like they have to come down so long as the market is snug?
Posted prices for paraffinic base oils were unchanged again this week. The price of crude on the New York Mercantile Exchange closed yesterday at $49.67 per barrel, 67 cents higher than a week ago.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.