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Base Oil Report

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A round the world, ExxonMobil is recognized as the pace car for base oil prices. Other suppliers may think that prices are ripe to rise or fall, but they usually wait for ExxonMobil to lead the way. More often than not, the size of their price movements mirrors the oil giants.

But an industry consultant suggested recently that the companys dominance in pricing may erode during the latter half of this decade, thanks to market segmentation and construction of new capacity.

Kline & Co. shared its outlook in preview last month of its upcoming study, Global Business Opportunities in the Lubricant Basestocks Industry, 2004-2020. The Little Falls, N.J., firm observed that global supply of API Group II and Group III oils is growing at a steady pace, and companies other than ExxonMobil are responsible for much of new and planned capacity. These others could begin to exert control over pricing of the grades that they produce.

For example, Kline said, Motiva and Flint Hills Resources could become the globes largest merchant sellers of Group II oils and price their products without reference to Group I oils. If that happens, the firm said, these companies will likely price their products aggressively, forcing Group I suppliers like ExxonMobil to adjust their prices in order to maintain a discount.

Similarly, South Korean refiners SK and S-Oil could exert leadership with Group III oils, of which they are the largest producers.

Market observers offered mixed reactions to Klines analysis. Several sources contended that ExxonMobils grip has already started to loosen, noting that Motiva led several North American price movements over the past year. Others maintained that ExxonMobil still dominates and will continue to do so.

They want to be the leader and will do what it takes to stay in that position, an analyst said.

Some observers suggested it does not really matter whether one or multiple suppliers share leadership on pricing.

The supply-demand balance has controlled the pricing in the past, and it is what is going to control pricing in the future, a buyer said. It doesnt matter who is sitting on top pushing the buttons.

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