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Base Oil Report

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Requirement levels of U.S. base oils have not called for a celebration with dazzling fireworks this summer, but suppliers are not complaining as demand has been steady, particularly for the heavy-vis cuts. This has helped support stable pricing, with no posted price initiatives noted during most of June and first weeks of July.

Still, a few of the lighter grades have shown more plentiful availability, resulting in slightly larger spot discounts for these products. Within the API Group II segment, discounting of around 40 cents per gallon off postings was seen taking place, but most suppliers agreed that there was no need to offer steep incentives as demand had been generally satisfactory.

In the naphthenic segment, there has been a small uptick in spot pricing as a number of lighter cuts remained on the tight side, but prices remained stable overall. Naphthenic suppliers continued to report consistent order patterns, with requirements from the transformer oil segment described as robust. Suppliers reiterated that there has been little pressure to change current pricing, so much so that pale oil postings have not undergone any revisions since November.

July was expected to be a different story in terms of demand, as the month typically brings about more pronounced symptoms of the summer doldrums. The first signs of the anticipated slowdown emerged in late June on the paraffinic side, while the 4th of July celebrations and the start of the summer holidays resulted in reduced product movements as well. With the arrival of August, the market is expected to become longer and supplies are likely to outpace demand for a number of cuts.

The prospect of additional Group II capacity coming on stream at Chevrons new plant in Pascagoula, Miss., in the second half of the year also sparked renewed concerns about a potential oversupply situation coupled with softening prices, although industry participants envision the additional volumes as mostly earmarked for export.

At the same time, there has been some pressure from rising feedstock costs, which could make suppliers reevaluate pricing strategies, but any decisions will mostly depend on demand levels and the need to remain competitive within each of the individual market segments.

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