The U.S. base oil market has launched the new year with a series of price markdowns, with two major producers getting the ball rolling. Observers consider it a response to a perceived softness in demand in a market where supply is strong. It represents the first price movements since mid-October.
ExxonMobil recently informed buyers in a letter of price cuts, effective Jan. 1, of 5 cents per gallon on all Group I paraffinic base stocks from 150 neutral through bright stock, and a 7-cent markdown on 100 neutral. Sources said ExxonMobil also announced 5-cent reductions on Group II-plus oils.
Sunoco has begun informing buyers of a similar price drop that will become effective Friday. Sunocos markdowns will be 5 cents per gallon in the 150 neutral through bright stock range as well, and 7 cents on its 70 neutral.
One source pointed to the recent National Petrochemical and Refiners Associations Index of Lubricant Sales, which found that U.S. lubricant sales volumes in the third quarter of 2006 fell 5.1 percent compared to the same period of 2005. Youve got good supply and soft demand. When you get those things coming together, prices ought to come down. Its basic economics 101, he said.
I do believe everyone will respond downward accordingly as the lighter grades are still soft, a buyer said. The buyer expected other Group I suppliers to move the same as ExxonMobil. If Motiva responds on the Group II side, then all others will react for sure, the buyer said, noting that some Group II suppliers have offered some low year end pricing.
One base oil marketer described the price decrease by ExxonMobil as somewhat under the radar screen. It caught a lot of people by surprise as most people are still away on vacation.
The marketer said not many people have had a chance to react to it. We want to wait and see what happens.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.