U.S. Base Oil Price Report


The U.S. base oils naphthenic sector saw a dramatic pickup in demand this week alongside firmer price points, following news that Ergon is planning a short downtime at its plant in Vicksburg, Miss.

Ergon said that the Vicksburg facility will be taken offline for a four-to-five day shutdown in October. As a result, Ergon has pulled away from the spot market to concentrate on beefing up inventories to ensure adequate availability for its core business during this time.

In addition to Ergon, several other producers said that they too had recently backed away from the spot market due to tightened availability.

Meanwhile, Ergon quickly dispelled rumors that the aforementioned site had experienced operating issues last week. A company source said even though there had been some minor problems in the crude unit, the naphthenic facility continued to operate at full rates.

Following a mid-August round of 20 to 25 cents per gallon increases issued by all producers on all naphthenic grades, with a much tighter supply situation at hand, prices for pale oils have again moved higher.

Sources said the lowest level recently offered for pale 750 in the spot arena was around $2.25 to $2.30 FOB per gallon. But not all suppliers agreed with price ideas that low; some suggested that a level of $2.35/gal to $2.40/gal was more indicative as the bottom of the barrel for an array of pale oils.

Contract or regular ongoing business was assessed at even steeper levels of $2.50/gal to $2.70/gal, up to $2.75/gal to $3.00/gal, depending on grade and application, sellers added.

There was limited activity and little recent price information heard on the paraffinic side. Sources believe that there has been no change on either front, but demand is expected to perk up once the summer holiday season comes to an end after Labor Day.

In upstream news, crude futures touched the $75 per barrel mark on both Monday and Tuesday during intra-day trade sessions, but that level could not be sustained. It was the first time in 10 months that prices have been at or over the $75/bbl level. Energy analysts attributed firmer oil prices to optimism that the world’s economies are on the mend.

The stock markets also experienced a significant run-up starting last week, apparently due to a more positive outlook, according to experts. The upward momentum in most indexes continued into this week following an announcement on Friday from Federal Reserve Chairman Ben Bernanke that the economy is reviving.

Adding even more support to the mix, home prices posted their first quarterly increase in three years, signaling to some that the housing market has turned a corner.

The Standard & Poor’s/Case-Shiller’s U.S. National Home Price Index released Tuesday rose nearly three percent from the first quarter to 133, though that reading is still down almost 15 percent from the second quarter last year.

(The Case-Shiller index is a composite of home price indexes for the nine U.S. census divisions. The 20-city index measures home price increases and decreases relative to prices in January 2000. The base reading is 100; so a reading of 150 would mean that home prices increased 50 percent since January 2000.)

Home prices are at levels not seen since early 2003. Prices have fallen 30 percent from the peak in the second quarter of 2006.

Despite an optimistic prognosis for general global economic recovery, many analysts feel energy demand will remain depressed. Gasoline consumption will diminish with the end of the summer driving season, only to be met with a further reduction during the upcoming autumn and winter months, which are historically slack demand months. This diminishing demand for gasoline combined with an even greater reduction in demand for both diesel and jet fuel should weigh heavily on petroleum fundamentals, one market expert added.

At the close of the Tuesday, Aug. 25, NYMEX session, light sweet crude futures ended at $72.05 per barrel, a gain of $2.86 compared to the Aug. 18 settlement at $69.19/bbl.

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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