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Base Oil Report


The tough times keep coming for base oil buyers in the United States. The first two months of 2006 brought two more supply disruptions: accidents at Petro-Canadas plant in Mississauga, Ontario, and at the Excel Paralubes plant in Westlake, La. The incidents once again tightened availability, which was still recovering from the havoc wreaked by Hurricane Rita. To pile grief on misery, the market underwent its biggest price increase in memory.

A Jan. 7 fire at the Petro-Canada plant sidelined one of its two production trains, a line with capacity to make approximately 6,250 barrels per day of API Group II oils. The company said it did not expect the train to restart until early this month. Petro-Canada found enough oil on the spot market to cover half of the shortfall, but still had to impose sales allocations on some of its finished lubricants.

The accident at Excel Paralubes caused even bigger problems. A Feb. 1 explosion completely halted production at that plant – a 50-50 joint venture between ConocoPhillips and Flint Hills Resources, with capacity of 21,900 b/d of Group II. ConocoPhillips, which has rights to half of the output, immediately invoked force majeure. It promised to continue supplying customers from inventories, but imposed allocations of 32 percent to 61 percent and said it expected to exhaust those inventories by the end of last month. Flint Hills Resources declined to discuss its status.

Outside sources said ConocoPhillips, the plant operator, hoped to resume production in March. ConocoPhillips said it would try to advance a maintenance turnaround that had been scheduled for March to do that work while repairs are being made.

Paraffinic base oil prices had not undergone a general increase since mid-October, but suppliers made up for lost time with markups imposed between Jan. 25 and Feb. 6. Posted prices rose between 10 cents and 19 cents per gallon along the Gulf of Mexico, up to 20 cents on the West Coast, and an incredible 25 cents to 29 cents on the East Coast.

Sources surmised the latest hike was so large, in part, because there were no increases in Ritas wake; the tightening of supply might have warranted markups then, but producers were reluctant or too busy to raise prices during the crisis.

Apparently there is nothing now to save buyers from the double whammy of price increases and supply disruptions.

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