Group II supplier Flint Hills Resources raised its posted prices by 11 cents to 16 cents per gallon on Friday. Its action followed announcements the previous two weeks by Calumet and Motiva. But the announcement that most of the market had waited on came Monday, when ExxonMobil unveiled its slate of markups: 19 cents per gallon on 600 neutral; 17 cents on 330 neutral; 16 cents on 275 neutral; 15 cents on 100 and 150 neutrals and bright stock; and 14 cents on Group II-plus oils.

Customers said the market leader also stated it will increase the East Coast premium for stocks sold from New Jersey by an additional 10 cents per gallon. All increases take effect today.

Citgo, Sunoco and ConocoPhillips quickly jumped on board with hikes of 15 cents to 19 cents on Group I and Group II oils. ConocoPhillips raised prices on its Group III oils by 14 cents. Citgos and ConocoPhillips changes take effect today, Sunocos next Monday.

There were no announcements yet from Chevron, Valero or SK, but observers predicted they will raise prices, too. This is the markets first general round of price hikes since mid-October, although Group II-plus and Group III stocks underwent a double-digit increase in December.

U.S. base oil prices underwent at least 15 rounds of markups in 2004 and 2005, but the current round is the largest yet. Some observers said they did not recall an increase to match it ever, not even during the first Gulf War.

Marketers said several factors contributed to the current increase, the most important being an extremely tight balance between supply and demand. The industry is still striving to rebuild supply chains depleted by Hurricane Rita,and those efforts have been set back by a partial shutdown of Petro-Canadas plant in Mississauga, Ontario, and an upcoming maintenance turnaround at the Excel Paralubes plant in Westlake, La.

Pressure for large increases built up because prices did not rise when shutdowns of several plants first squeezed supply last fall, sources said. Some producers did not act then because they were coping with operational disruptions. Others were deterred by a seasonal slowdown in demand.

But demand rebounded in January, marketers said.U.S. suppliers also have cover for markups due to the fact that prices in Europe and Asia rose even more last year. Exports from Europe to the United States have ground to a halt, and sources said there is even opportunity now for sales in the opposite direction.

Nevertheless, base oil buyers bemoaned getting hit with another hike of such magnitude, noting that base oil margins were already exceptionally healthy.

This is really an unprecedented move on [suppliers] part, one buyer said. Base oil margins are about double the traditional average now, so its really uncalled for.

Far from apologetic, suppliers said pressure likely remains for further increases. Sources do not expect availability to loosen for several more weeks at least, and demand typically ramps up in the spring. Moreover, crude oil prices are creeping upward again, and base oil suppliers stressed that they must keep up with rising profits on the fuel sides of their businesses.

Demand is starting to move product much more quickly now, and there is a tremendous tightness in the market, a marketer said. I think base oil prices actually have a ways to go yet.

The price of crude oil on the New York Mercantile Exchange closed yesterday at $67.77 per barrel, according to Bloomberg. That was up $1.02 compared to a week earlier.

Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.