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Base Oil Report


Early to mid February saw the new years second round of price cuts by U.S. paraffinic base oil suppliers, with ExxonMobil again starting the ball rolling. This represented the third dip in four months, after more than four years of non-stop increases.

Whereas ExxonMobils January price decreases were partially offset by its elimination of rebate-style incentives, buyers saw last months price drops as a response to the abundant base oil supplies and very weak demand throughout the industry.

The U.S. Energy Information Administrations Feb. 2 Petroleum Supply Monthly report shows how base stock inventories have built steadily, from 8.8 million barrels in June 2006 to 10.2 million in September, and 11.5 million in November, the last month available. Last March the figure stood at only 7.8 million barrels.

Early 2006 saw key plants still grappling with the aftereffects of Hurricane Rita, and the impact of major fires at a variety of base oil plants. By comparison, the first quarter of 2007 is seeing plentiful supply, with plants now recovered from those events.

The years first two months did see a pair of turnarounds: a six-week turnaround begun in mid-January at Chevrons Richmond, Calif., refinery, which has capacity to make 15,000 barrels per day of Group II and Group III paraffinics; and an up-to-three-week turnaround begun in late February at the 15,000 b/d Group II lube train at Motivas Port Arthur, Texas, plant. The crude separating unit at Chevrons Richmond refinery did experience a fire Jan. 15, but Chevron officials expected no impact on the base oil side. Chevron and Motiva each said they had saved up an adequate inventory well in advance of their respective turnarounds.

Buyers have pointed out that gross margins for lubes are much healthier than those for fuels. Gross margin refers to the difference between the price of crude and the posted price for base oil.

When we were seeing those price increases last year, Exxon and other folks were saying price changes were necessary to compete with fuel margins at the refinery, one buyer said. Now those fuel margins are not very high, while lube margins are near record levels.

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