Market Topics

Base Oil Report


The U.S. base oil market was buffeted by more price hikes in August, the fifth round of markups in less than six months. The latest increases left Group I prices 41 cents to 59 cents per gallon higher than they were in mid-February, while Group II prices were up between 37 cents and 58 cents.

A sobering trend, no doubt, and base oil buyers are quick to note that it reflects only part of the cost inflation they have endured since the beginning of 2004. Although base oil prices were unchanged for four months ahead of the runup that began this February, the 10 months before then were nearly as brutal. From January through October 2004, the market underwent eight rounds of hikes totaling increases of 30 cents to 50 cents for Group Is and 22 cents to 34 cents for Group IIs, depending on viscosity grade and region.

Taken together, paraffinic prices rose between 66 cents and $1.09 per gallon in the past 20 months – or as much as 67 percent.

Of course, thats not surprising given what has happened to the cost of crude oil. Crude prices on the New York Mercantile Exchange climbed from $33 per barrel in early January 2004 to a record of more than $67 per barrel by the middle of last month. On a per-gallon basis, that equals an increase of 76 cents.

However obvious the reason, finished lubricant blenders say the rise in base oils has battered their businesses. Its true that blenders have tried to pass the costs on to customers, but doing so seems simpler in practice than theory. The problem is that customers – particularly original equipment manufacturers and private-label customers – typically require documentation before accepting price increases. Blenders say the amount of documentation wanted is often substantial.

Personally, I think there is an amount of stalling that goes on, said one independent blender. Whatever the reason, it often takes weeks or even months for our own price increase to take effect. On the other hand, when the base oil suppliers give us notice that they are raising prices, those increases take effect immediately.

Consequently, blenders may fall further behind as base oil costs continue their run-away rise.

Related Topics

Market Topics