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Base Oil Report

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As the bright, hot summer days start to fade and the crisp fall weather sets in, a cooling down in the U.S. base oils market has also been noted, following a few weeks of heated pricing activity.

The vast majority of base oil producers initiated increases between 5 cents and 25 cents per gallon as the market was ripe for an increase: Not only had prices been unchanged for several months, but margins had eroded dramatically on the back of escalating crude oil and feedstock prices.

On the paraffinic side, Chevron, Motiva, ExxonMobil, Calumet, Paulsboro Refining, Flint Hills Resources, HollyFrontier, Phillips 66 and SK Lubricants had announced increases with effective dates spanning from July 26 to August 23. Similarly, in the naphthenic segment, Calumet, Cross Oil, San Joaquin and Ergon lifted prices by 15 to 20 cents between July 30 and August 23. Nynas also raised prices, although the amount was not made public.

Many buyers only saw the increases starting to be implemented in September, however, as some customer schedules grant price protection for a month from the announced effective dates.

Some players pointed out that orders had been fairly healthy in August because many customers wanted to beat the increase deadlines, and wondered whether September purchases would run out of juice because of the hikes. Others said that they expected demand to change little from August, which was considered a very good month overall.

Buyers were also concerned that the increases in raw material prices would be difficult to pass along to their downstream segments, although several pricing actions surfaced in the finished lubricants sector in early September, including ones pushed out by Shell Lubricants, ExxonMobil, Chevron and some independents.

Base stock producers and buyers both agreed that the summer had been much stronger than anticipated, and were slightly resigned to a more subdued fall season. One factor that was likely to continue turning up the heat on base oil values was the price of crude, which was hovering well above $100 per barrel in early September and seemed poised to stay at soaring levels, given the threat of further inflammation of the conflicts in the Middle East.

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