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Base Oil Report


Following four months of slumber, U.S. base oil prices are climbing again – and apparently making up for lost time. The market underwent a dizzying eight rounds of hikes over the first 10 months of 2004, but did not move again from November until the very end of February.

Then, the dam burst. The next six weeks saw at least two general rounds of hikes, plus a separate round of markups for bright stock. Posted prices gained between 18 cents and 27 cents per gallon, rising approximately 10 percent. The run-up certainly caused a great deal of commotion. Buyers reeled from the size and pace of hikes. Buyers and sellers and traded arguments for and against the markups.

In the midst of the hubbub, one notable development was the return of a Group II premium. From 2001 until the middle of last year, Group II base oils were priced above Group I stocks, due to performance and formulation advantages offered by Group IIs.

In the final seven months of 2004, however, Motiva eliminated the premium – which had reached 9 cents per gallon – by lowering its prices relative to Group I. The posted price for Motivas 100 solvent neutral actually ended up a penny lower than the lowest-priced Group I Solvent Neutral 100. Its posting for 600 SN was even with the corresponding Group I, while its 145 grade was just a penny more. Other Group II suppliers gradually followed in Motivas direction, although their postings generally remained 5 to 10 cents higher.

But Group II prices rose more than Group I in March and April. As this issue went to press, Motiva and other Group II suppliers had 100 and 600 solvent neutrals posted 4 cents above corresponding Group I stocks, and 150 solvent neutrals a nickel higher.

Observers speculated that Motiva may have brought back the premium because the company is no longer long on supply. (Market sources had attributed the companys 2004 actions to an increase in output at its Port Arthur, Texas, refinery.) Whatever the reason, other Group II suppliers expressed relief. There was never any question that their base oils can outperform Group I. Now they once again can get paid for it.

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