North America

Base Oil Report


Oxford University Press, publisher of the Oxford dictionaries, declared the word selfie – a self-portrait taken with a smartphone – word of the year for 2013. If the U.S. base oil industry were to take a selfie now, what would it look like?

Would the image portrayed there be staring back with a worried countenance? Probably. Although 2013 was a fairly uneventful year in terms of base stock posted price fluctuations – with only about three rounds of adjustments completed on the paraffinic side through mid- December – most participants would agree that the industry is getting jittery about its prospects in 2014, when additional product from the new Chevron plant in Pascagoula, Miss., is expected to make its big entrance into the global supply system.

Chevron has assured that most of Pascagoulas 25,000 barrels of daily API Group II output has been placed, and that a large portion will be exported. What might have a more significant impact is that Chevron currently purchases base stock from other producers, and these suppliers will have to look for alternative outlets for their products, market players explained.

But it is not only the added capacity that is weighing heavily on producers minds. It is the uncertainties about the global economic environment and whether volatile feedstock prices will impact the industrys chances to improve already-squeezed margins in 2014.

Some suppliers granted discounts ranging from 5 cents up to 20 cents per gallon off contract prices on spot transactions in the fourth quarter of 2013 as a means of reducing inventories, and also as a safeguard against the potential loss of market share as players realign themselves in the face of changing business conditions.

While spot sales constitute only a small portion of the domestic business, it is understood that a number of suppliers acquiesced to spot discounts on condition that buyers commit to a certain volume of product in the new year.

This safeguard may have yielded good short-term results, but it does not seem to work well as a long-term action plan, some players contended.

With so many uncertainties looming on the horizon, it would be interesting to see whether a selfie of the base oil segment taken one year from now would reveal a few more worry lines, or a gratified, relieved face.

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