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Base Oil Report


In recent weeks, the impact of volatile raw material costs in tandem with confused economic concerns couldnt be more apparent than in the U.S. base oils market. Activity remained sluggish through August, but producers were optimistic that things would turn around.

As crude oil prices remained on the north side of $70 per barrel, base oil producers were keeping a close eye on margins – and on the looming threat of an active hurricane season. Crude could easily be driven to the $80 mark if the storms infiltrate the U.S. Gulf Coast, analysts said.

In the meantime, price hikes ranging from 10 to 15 cents per gallon were implemented for paraffinic and naphthenic base stocks in mid-July and early August. Whether producers would attempt another round of increases was uncertain at this juncture.

The general economic picture also is cloudy. Dow Jones seems a rocky stretch of cliffhanging rappels, with high bounces and hard bumps as investors grapple for a foothold. With stocks in Europe and Asia also getting hit, it seems theres no firm ground in sight.

The housing market outlook remains grim as well. The National Association of Home Builders said its housing market index, which tracks builders perceptions of current market conditions and expectations for the next six months, dropped in July to the lowest reading since January 1991. It was the sixth-straight monthly decline.

Meanwhile, base oil suppliers contended that orders were at traditional levels for late summer, but in some cases, demand was below normal even for August. The naphthenic sector was deemed more dynamic and somewhat predictable when compared with the paraffinic side. Orders for pale oils have remained at lofty levels most of the year, with only a moderate slowdown noted in the last few weeks. Demand for light-vis naphthenic grades was particularly healthy, while buying interest for mid and heavy pale oils was more inconsistent, depending on end-use applications.

On a more positive note, both camps anticipated demand would crank up later in September for a wide range of base stocks and that buying interest would hold steady through October-November.

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