At the time of writing this, everyone in Japan is eagerly awaiting the blooming of the beautiful and iconic cherry blossoms. The exact date and location for best viewing the delicate flowers, an event known as hanami, is carefully calculated for months in advance, analyzing different factors such as rainfall, temperature, altitude, etc.
In that respect, hanami has parallels to the start-up of Chevrons new base oil plant in Pascagoula, Miss., this spring.
Industry participants have been trying for months to figure out when exactly the additional product might be coming on stream, and its likely impact on the U.S. market. But just as it is not always possible to forecast when the blooms will peak, company moves cannot always be predicted either. For example, when most suppliers were harboring deep concerns about the downward pressure that the added volumes would exert on base oil pricing, Chevron surprised the market by stepping out to announce a price increase in early March. The producer raised its West Coast API Group II postings by 25 to 30 cents per gallon, effective March 5.
This was not a completely unexpected move, given that suppliers had been struggling with thin margins and high feedstock costs for some time. But it was slightly baffling that Chevron would be the one to take the lead in lifting prices, and it took participants some time to react.
Upward price movements had come to fruition just days earlier on the naphthenics side, where producers are more directly impacted by feedstock price fluctuations.
Supply of pale oils had also tightened on planned and unplanned production outages, offering further support to the increase initiatives. As a result, a majority of naphthenic suppliers implemented across-the-board hikes in the vicinity of 15 cents per gallon in the first days of March.
Just as the cherry blossoms usher in a joyful mood after the long, dreary winter, base oil buyers are looking forward to the availability of additional paraffinic product once the Chevron plant starts production.
On the other hand, most producers are still jittery about the impact of the extra volumes on the market – an event that cannot be measured to its full extent until it actually happens.