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Base Oil Report


Availability of bright stock in the United States has been exceptionally tight for more than a year now, so few were surprised early last month when the markets pricing structure cracked.

Posted prices for paraffinic oils had gone unchanged for four months, but suppliers made up for lost time, raising bright stock postings a whopping 10 cents per gallon. Group I suppliers did not make changes on any other cuts. Group II suppliers had begun announcing hikes as this issue went to press, but those increases were several cents smaller than the markups on bright.

Observers have cited a number of factors for the snugness on bright stock. The markets capacity shrank in recent years due to closures of Group I plants. With the exception of Calumet Lubricants, Group II suppliers do not produce bright stock. Production dipped further the past year as unusually attractive fuels margins encouraged refiners to shift feedstock from base oils to fuels. At the same time, demand for exports has been uncommonly strong.

Finally, the U.S. market has for upwards of a year had to do without a key source of bright stock imports. Brazils national oil company, Petrobras, normally sends significant volumes of bright to the United States, but that flow has been mostly shut off by a series of operational issues at the companys main base oil plant, at the Duque de Caxias Refinery in Rio de Janeiro. Technical problems curtailed production during the first half of 2004. Then, in June, one of two lube trains shut down for maintenance.

Sources said the company appeared to encounter more difficulties coming out of the shutdown, and those problems constrained output for much of the second half of the year. Petrobras said recently that the plant had resumed normal operations, but the facility shut down again March 7 for another turn-around that was scheduled to last 25 days.

U.S. buyers are looking forward to the resumption of Brazilian imports, saying shipments from Petrobras could help relieve the tightness in their market. But Petrobras remains noncommittal. Asked if it intends to start exporting to the United States again, the company indicated it will sell where returns are best. Clearly, buyers are not the only ones to notice prices are up.

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