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Base Oil Report

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Just as everyone in the U.S. base oil market expected to wrap up the summer season on a quiet note, things started to heat up on the feedstocks front, prompting several producers to hike prices in late July/early August.

Steep crude oil and vacuum gas oil prices, coupled with balanced-to-tight supply conditions, created the push that producers needed to pursue an improvement in margins after months of fairly stable pricing.

Naphthenic prices had seen no fluctuations since last November, despite generally robust off-take, as producers preferred to maintain price stability in order to preserve demand levels. However, suppliers contended it was time to adjust prices because margins were suffering considerably, following the sharp increases in production costs.

Chevron, from the paraffinic base oil camp, and Calumet and Cross Oil from the naphthenic side, led off the price initiatives. Their 15-to-25-cents-per-gallon increases, which varied by producer and product, took effect between July 26 and Aug. 1.

These forerunners were soon joined by Motiva, which on Aug. 8 lifted its API Group II prices by 10 cents to 15 cents/gal., depending on viscosity.

While buyers were reluctant to accept higher prices, given that transferring the increases down the supply chain always entails an uphill battle, the announcements had the side effect of sparking sales, as many customers rushed to place orders ahead of further increases. Hesitators were left to wince as Calumet and ExxonMobil hiked Group IIs, and Paulsboro Group I.

Despite the pickup in appetite, the light-vis grades were still slightly oversupplied, while the heavy-vis cuts enjoyed a more balanced scenario. Activity in the Group III segment was surprisingly steady, considering that summer is usually when requirements wane.

Light pale oils were also in high demand, with some suppliers reporting sold-out positions for pale 60 and transformer oils.

Players continued to keep a watchful eye on feedstocks as crude oil prices remained highly volatile. Base oil suppliers conceded that it is counterproductive to implement a price increase, only to have a decrease six weeks later, particularly if the upward crude price trend proved to be short-lived. Many worried that rising prices would lead to demand destruction, but said they would need to take the risk if margins continued to be squeezed.

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