U.S. Base Oil Report


This week Ergon joined the list of naphthenic producers who recently raised prices, telling customers that it plans to raise all pale oils by 15 cents per gallon next Monday, Nov. 26.

Increased prices are the result of sustained high energy costs alongside balanced supply/demand conditions, sources said. Now that all U.S. paraffinic and naphthenic base oil producers have bolstered prices, the market became more relaxed while absorbing the news.

Although business was relatively low-key leading up to the U.S. Thanksgiving holiday, many buyers had planned ahead by beefing up orders several weeks ago. By buying base oils early, many of these consumers also beat out the recent round of price hikes.

Meanwhile, the energy complex continued to capture the attention of all downstream sectors. Higher prices were slowly but surely encroaching on most petrochemical and other affiliated segments territories as the build in oil, vacuum gas oil and natural gas values was ongoing.

Natural gas values are teetering on either side of $8 per million Btu for January futures. Vacuum gas oil was last heard at around $2.24 per gallon FOB for high sulfur, while low sulfur was pegged at circa $2.31 per gallon FOB this week.

On the petrochemical front, olefin values are climbing higher. Ethylene spot prices have risen to just over the 50 cents per pound level, driven by rising feedstock costs and squeezed margins. Cracker operators are seeking an increase of 10 cents per pound for November contract business. Propylene contract values recently settled up 7.25 cents per pound for November. Players are not convinced that producers can find support for another propylene price hike for December, as negotiations have not yet begun in earnest.

Earlier in the week, crude futures rose on concerns about whether OPEC will boost output, and on a move by Iran and Venezuela to have oil priced in a currency other than the dollar.

Analysts see a lot of uncertainty in the energy complex. Crude values have bounced up and down by several dollars during each session over the last week, but are still flirting with the $100 per barrel level. At one point during the past few days, it appeared that crude values had dodged the $100 mark, but a late afternoon rally yesterday made some believe that crude may soar to $125 per barrel within the next few weeks.

The possibility that the Organization of Petroleum Exporting Countries will agree next month to increase production appeared less likely, after a weekend gathering of OPEC heads of state in Saudi Arabia ended with no statement on output. Recent statements from Saudi Arabia’s oil minister have suggested the cartel may boost production to bring oil prices down.

The weekend meeting did spawn controversy when Iranian President Mahmoud Ahmadinejad and Venezuelan President Hugo Chavez called for oil to be listed for sale in a currency other than the dollar. The move was rebuffed by Saudi Arabia and was widely viewed as little more than America-bashing.

Other concerns impacting the energy complex are linked to the problems in the U.S. subprime mortgage industry which could widen, hurting the general economy and reducing demand for oil and gasoline.

At the close of the Tuesday NYMEX session, light sweet crude settled at $98.03 per barrel, a steep gain of $6.86 per barrel over Nov. 13s close of $91.17.

Posted paraffinic prices are unchanged this week.

Carolyn L. Green, based in Houston, can be reached directly at carolynlgreen@gmail.com.

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

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