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Base Oil Report


Julys stare-down – which had base oil sellers and buyers glaring at each other over a picket fence of price hikes – quietly wilted under the August sun. Neither side blinked, but maybe it was just too hot to argue. By the middle of last month buyers had to admit that those earlier price hikes were holding firm. They found little wriggle room to negotiate prices lower for any grade, apart from the usual volume discounts.

On their side, base oil sellers said they noticed a slight swell in orders right as the month began. That uptick in demand possibly was prompted by customers who kept a worried eye on the price of crude oil. When crude bounced above the $70 per barrel mark, some may have hurried in to place orders before base oil prices could move as well.

By mid-month, crude prices had subsided a bit, and the fears of price increases abated somewhat, at least on the paraffinic side. Naphthenic producers, however, tend to be more sensitive and reactive to crude exigencies, and by the time crude prices eased back to the $69 range, all naphthenic producers had already trotted out price increases of up to 25 cents per gallon. This was the first time pale oil sellers had sought an increase since early to mid-June, and it was not clear yet how much sticking power the new prices had.

After that, the typical end-of-summer slow-down kicked in. Europe went on vacation, an already lackluster driving season began to peter out despite gasoline prices that resembled those of four years ago, and a mixed set of U.S. economic indicators failed to give confidence. (Construction of single-family homes was up – but so were applications for unemployment.)

Faced with thin volumes for August, base oil marketers began scanning the horizon for signals, and found two strong ones staring back. First was a spike in the price for finished lubricants, announced by numerous major oil brands including ExxonMobil, Chevron, Citgo, ConocoPhillips and Shell, and mostly taking effect during September.

Second was a tropical storm in the Atlantic Ocean named Bill. By the time this issue went to press, Bill was labeled a Category 3, and reminded all that its time to stop the summers dawdling and get serious about contingency planning and stockpiles for the hurricane season.

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