U.S. Base Oil Price Report

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Activity in the U.S. base oils market was somewhat tempered this week in the wake of the annual ILMA meeting being held in Miami. Despite a slowed business atmosphere in terms of concluded trade in recent days, both sides of the market continue to note that there is a more positive outlook emerging. They now believe that this trend will only improve in coming months, squelching some players previous expectations that the market could remain sloppy through early 2010.

Meanwhile, domestic paraffinic posted prices held steady again this week, but crude oil costs continued to edge higher, causing alarm to many contract consumers. Crude futures on the New York Mercantile Exchange have risen steadily, gaining about $3-plus per barrel over the past several days. But prices have jumped about $8/bbl since late September when futures were hovering around $65.50 to $66/bbl.

Apart from a brief moment during intra-day trade on Aug. 24, when futures shot to $75/bbl, NYMEX crude prices are at their highest level in a year.

Although OPEC members as well as many analysts identify $75/bbl oil as the level needed to sustain investment in future oil production, there are concerns being raised that this level is too high a price for a still-fragile world economy.

The Organization of Petroleum Exporting Countries recently reported that world crude demand would recover by 700,000 barrels per day next year to 84.93 million barrels. The group had previously projected global oil demand would recover by just 500,000 bpd next year.

The world economy now appears to be entering into a new phase, moving from a period of containing the crisis to one of economic recovery,” OPEC said in its monthly market report.

Whether base oil producers will amend posted prices remains uncertain at this juncture. Depending on sustained good demand and if inventories maintain a balanced position, postings may be bumped up along with rising operating costs, suppliers surmised.

For now, naphthenic producers are particularly content with strong customer requirements amid tight availability. Demand began to improve in August and has gained momentum ever since, several suppliers commented.

Paraffinic producers are in similar situations as their counterpart naphthenic providers. Heavy ends are tight in supply with prices firming regularly, according to key players. The downside, however, is that light ends are more readily available than heavy ends.

Rumblings abound that some sellers are offering generous discounts to traders willing to move large parcels of 100 vis to 220 vis product. Sources indicate that in some cases, in order to obtain loads of heavy vis and/or bright stock, some sellers are pushing buyers into taking delivery of light grades too. These circumstances are not described to be market wide, but rather few and far between, suppliers added.

At the close of the Tuesday, Oct. 13, NYMEX session, light sweet crude futures ended the day at $74.15 per barrel, a sizeable gain of $3.27 compared to the settlement a week earlier at $70.88/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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