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Base Oil Report


When things are normal, they usually do not attract much attention. People focus more on things that are changing. We read or watch the news, not the same old thing.

As a new year begins, however, it is worth noting that the U.S. base oil market has apparently returned to normal. After suffering a disastrous year from mid-2005 to mid-2006, normal is welcome news indeed.

At last years start, the market was still recovering from the aftereffects of Hurricane Rita. The Category 3storm barreled over the Texas and Louisiana coasts the previous September,temporarily closing four base oil plants that accounted for 42 percent of the nations paraffinic capacity. Three of those plants reopened in four to six weeks, but one remained shuttered until the second half of January.

Conditions for buyers were tough, but they were about to get a lot worse. A Jan. 7fire at Petro-Canadas Mississauga, Ontario, plant knocked out a production train that accounted for half (6,250 barrels per day) of the plants capacity. It would not restart until mid-March. Then another fire struck the Excel Paralubes plant at Westlake, La., completely closing that 21,900-b/d facility from Feb. 1toearly April.

The combination of those events drained base oil inventories for suppliers and lubricant blenders to precariously low levels, disrupting operations across the industry and, in cases, temporarily halting production of some products. Tight base oil availability provided cover for a continued steep run-up in prices, which underwent five rounds of hikes by August.

As many predicted, the recovery wasnt complete until the end of the year. By mid-December, there seemed consensus that the markets supply-demand balance had finally returned to normal. Sellers and buyers agreed that light stocks were long, while heavy grades remained tight.

Some trepidation remained, as first-quarter maintenance turnarounds are scheduled on one of three trains at Motivas Port Arthur,Texas, plant and at Chevrons plant in Richmond, Calif. After a series of mishaps the past few years, the industry is gun-shy about maintenance events. Still, buyers expressed great relief at the prospect of 2007 beginning on a much better note than 2006.

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