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Base Oil Report


Compared to last year, the first quarter of 2005 is shaping up as a calmer season for maintenance turnarounds in the U.S. paraffinic base oil market. Buyers are hoping it sets the tone for the whole year, as they would like avoid the tumult that beset them in 2004.

Citgo and Motiva appear to be the only paraffinic producers with shutdowns scheduled this winter – the most popular season for maintenance work. Industry sources say Citgos Group I plant in Lake Charles, La., will close for a routine turnaround in January, while Motivas Group II plant in Port Arthur, Texas, is due for catalyst maintenance in February.

At this time a year ago some buyers were nervous, heading into a turnaround season that had three scheduled shutdowns. As it turned out, all three appeared to go smoothly, although market leader ExxonMobil did limit sales for non-contract customers after operations resumed at its plant in Baton Rouge, La.

Those volume controls were just one of the factors causing headaches last year for buyers, who had to cope with the twin problems of rising prices and tight supply. But sources say ExxonMobil has indicated it may soon end limits on at least some grades, and buyers say they also see other reasons to be optimistic about 2005.

For starters, we have fewer turnarounds scheduled, so hopefully that means less downtime, one buyer said. And maybe our planning will be better in 2005. I think what caught a lot of us off-guard in 2004 is that few people expected the economy to come back the way it did. So blenders ended up needing more [base oil] than they projected, and when they went looking, it was hard to find.

Others cautioned that supply may remain tight in the coming year. The increasingly global nature of the market means the United States will feel the effects of changes in Europe, some say, as BP ends base oil production in Coryton, U.K., and Shell does the same at a plant outside Hamburg, Germany. Thats just more barrels leaving the marketplace at a time when things were already tight, a marketer said.

As always, time will tell. As 2004 closed, however, there seemed to be consensus on at least one point: The coming year could hardly be tougher for base oil buyers.

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