ExxonMobil yesterday announced it will move posted paraffinic base oil prices upward by 10 cents per gallon on all grades at all locations, both Group I and Group II+, effective Friday, May 25. The move was reportedly attributed to margin differences between gasoline and base oils. At press time, no other producers had responded to the announcement.
The move comes in spite of a relatively balanced base oil market, and was not entirely unexpected by some observers. They had pointed to recent increases in gasoline prices as likely to create upward pressure on base oil prices. That pressure became evident yesterday in the announced pricing move by ExxonMobil to their customers.
Gasoline prices are on everyones mind these days. The fuels market only rarely has a direct impact on base oil supply, usually when there is a shortage of feed for gasoline production. However, the fuels market can certainly affect the economics of the base oil market as producers attempt to keep base oil production at least as profitable as the alternative uses for the feedstock.
Factors vary from plant to plant, but include whether there is adequate feed for fuels production, whether there is adequate capacity to run more feed, the relative values of feedstocks, supply versus demand in both markets, and the relative values of the products to the refinery. When gasoline is in short supply, one source commented that political pressure can bear on the evaluation process as well. In any case, in order to ensure base oil production is maintained, the economics that make it worthwhile must also be maintained.
This past winter was much more typical than either of the two previous winters, when supplies were suffering from the Gulf hurricanes and a number of subsequent refinery issues.The more typical build of base oil inventories this past winter along with lower crude prices resulted in some base oil price moderation.
Regarding base oil supply, the current market was said to be mostly balanced, with increasing demand strengthening the spot market.There was some tightening anticipated in mid-viscosity grades, but some length remains for lighter grades, and especially for 100N.
In other news, it was reported that Chevron has completed maintenance work on the Richmond, Calif., plant, and is running at capacity with on-specification production.
Crude closed at $64.97 per barrel yesterday on the New York Mercantile Exchange, according to Bloomberg. That was $1.80 above the price one week ago.
Publishers note: Lube Report welcomes guest Price Report editor Mark Matson, who retired last year from Marathon Ashland. Matson has spent over 27 years in the finished lubricants and base oils businesses. He can be reached at mdmatson@gte.net.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.