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Base Oil Report


On June 1, Valero raised its posted price for bright stock by 10 cents per gallon while leaving other postings unchanged. The move supported claims – which suppliers have made for months – that supply of bright stock was exceptionally tight and that it deserved a wider spread from Group I light neutrals. Citgo went along with the idea a week later, and hiked its bright stock posting by an equal amount.

These actions were muted days later, though, when ExxonMobil announced a general increase for all grades. Along with other major base oil producers, Citgo and Valero followed ExxonMobils move but without raising bright stock postings a second time. The net effect was that spread between bright stock and light neutrals increased 3 cents, not 10.

Of course, this raised the question of whether pressure remained for bright stock prices to rise even higher relative to light neutrals. Observers suggested that supply-demand fundamentals might support more increases, but that pricing activity so far this year made them impractical. Suppliers noted that bright stock postings have jumped four times since February – once by themselves and three times as part of general hikes. Prices for any particular grade can be raised only so much within a given time-frame, they said.

I dont see bright stock prices going up again any time soon, one supplier said. What I can envision is that if base oil prices start to fall later this year, bright stock prices might decrease less – or not at all.

In the long term, market sources said they see little reason to expect the tightness for bright stock to ease. They noted that BP and Shell plan to close Group I plants in Europe by the end of this year, and that analysts still predict the shutdown of a major Group I plant in the United States within the next few years, due to the continuing shift of demand toward Group II oils. Bright stock is produced by Group I plants but not by those making Group II or other more highly refined oils.

Thats going to mean even more [bright stock] supply taken out of the market, another supplier said. When you consider that, it seems like the situation will get worse, not better.

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