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Base Oil Report


As this issue went to press early last month, paraffinic base oil suppliers in the United States were lowering prices. Buyers welcomed the development enthusiastically,though it surely looked unfamiliar. The market had not seen a general round of markdowns in more than four and a half years.

The intervening years saw plenty of increases, particularly the past three. Since the start of 2004, U.S. paraffinic base oil prices underwent a dizzying 20 rounds of hikes, not counting separate rounds that were limited to bright stocks and Group II oils. Spurred by a record-setting run-up in crude oil costs, Group I prices rose 107 percent over that time span, Group IIs 94 percent, based on the lowest-priced products in each category.

Momentum waned when Group II marketers Motiva and Flint Hills Resources refrained from around of increases in August. Twoother Group II producers – ConocoPhillips and Chevron -announced cuts in late September,and Motiva and Flint Hills followed up with their own markdowns the following week. When ExxonMobil announced cuts on light-and mid-grade solvent neutrals early last month, observers predicted other Group I producers would fall in line.

Assuming they do, it will mark the first time since early 2002 that all suppliers joined in around of decreases. (Group II suppliers lowered prices in November 2003.) Sources said several developments made the market ripe for markdowns. One was the drop in crude oil costs, which retreated approximately 25 percent from Julys record levels above $78 per barrel.

Some also pointed to the massive expansion at Motivas Port Arthur,Texas, plant, which added 15,000 barrels per day to the market after another part of the facility completed a maintenance turnaround in mid-August. Others said demand appeared to have eased, leaving looseness in availability of light-and medium-viscosity oils.

Sources stopped short of predicting that falling prices would become the new trend. They noted that Citgo and Marathon temporarily closed plants for maintenance last month and that Chevrons plant in Richmond, Calif., and one of Motivas three trains are scheduled for shutdowns early next year.

For the moment buyers seemed satisfied to have one price cut at long,long last.

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