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Base Oil Report

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When June ended with crude oil prices tipping the $70 a barrel mark, it stood to reason that refiners would not leave base oil margins to close up for long. Sure enough, July saw the years second full round of base oil price hikes. The first round had taken place only weeks before, after five months of near-inertia.

Flint Hills Resources was first to make the latest move, adding 5 cents to 10 cents per gallon to its API Group II postings, effective June 25. Other Group II suppliers stayed quiet and pondered their options during the July 4 holiday week, but on July 12, when Motiva tacked 5 and 10 cent increases on its Group II prices and a nickel on its Group II+, the starting flag dropped and the price increase notices began to roll out like racers following a pace car.

As usual, many Group I suppliers hung back a bit until ExxonMobil (the largest supplier of that group and the acknowledged market heavyweight) informed buyers that it was bumping up prices on all grades by 10 cents effective July 17 – then quickly jumped in to make their own announcements, beginning the next day.

Crude prices, which at this writing were stuck firmly above $73, seem to be steering this particular boat; crudes not in short supply but it is costly. Observers say the cause for this may be the expectation that spot demand is about to surge because Midwest refiners have corrected some operational problems and are ready to sop up more barrels.

Meanwhile, vacuum gas oil feedstocks, which were tight in the first half of the month, by mid-month were reported to be in good supply and even saw some slackening of buying pressure. In response, the VGO price dropped over $3 a barrel.

That might be taken as good news, except that the fuels and base oil markets are precariously balanced and have little room for maneuvering or error. Concern about weather issues – hurricane season is upon us – gasoline margins, and refinery operational issues remain, leaving the mood unsettled.

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