With the ink barely dry on the latest round of price hikes, Motiva dropped a bomb on the U.S. base oil market yesterday, announcing additional markups of 14 cents per gallon on all grades to take effect tomorrow.
The action raised the prospect of the general market advancing a quarter per gallon in little more than a week. Buyers and sellers expressed amazement at the pace of the runup, but also resignation that such increases are warranted by ever-rising costs for feedstocks.
As far as I can tell, this is unprecedented, one buyer said. Even if you look back to the first Gulf War, I dont think the market has seen such large increases so close together. But as much as I hate to say it, it looks like it is necessary.
Led by ExxonMobil, four paraffinic producers announced double-digit price hikes last week. Motiva raised its posted prices by 10 cents to 12 cents, while ExxonMobil, Citgo and ConocoPhillips all added 10 cents across the board.
As expected, other suppliers followed in step. SK, Sunoco, Valero and Calumet imposed dime-sized across-the-board increases, with the moves by SK and Sunoco taking effect last Friday and those by Valero and CalumeteffectiveMonday and today, respectively. Chevron and Flint Hills Resources raised their postings by 10 cents to 11 cents on Friday.
Then word came yesterday that Motiva will impose its 14-cent increase, to take effect seven days after its previous markups. The company cited the same cause blamed for other recent hikes – rising costs for vacuum gas oil feedstock. Other sources concurred that VGO costs have jumped approximately 25 cents per gallon in the past week and are now some 40 cents higher than the average price in July. VGO has climbed even faster than crude oil costs, due to rapid increases in prices for gasoline and diesel fuel, which also use VGO for feed.
This [increase by Motiva] is surprising in terms of timing, one marketer said. On the other hand, base oil margins have certainly deteriorated by that much and more. I guess the question is whether this is a temporary spike in VGO prices or something that is going to last awhile.
Although some market observers questioned whether other suppliers will follow Motivas lead, a greater number expressed confidence that they will.
Its really unheard of, a marketer said, but these are unusual times.
According to Bloomberg, the price of crude on the New York Mercantile Exchange closed yesterday at $66.30 per barrel, $3.16 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.