Many base oil market participants probably wish they could make a profit as fast and successfully as the one clinched by the producers of the latest Star Wars, which has become the highest grossing film of all time at the domestic box office.
Unfortunately, the reality in the base oil segment is quite different from the imaginary universe portrayed in the film, although most base oil players do have to deal with dark and unpredictable forces, such as volatile crude oil and feedstock prices, changing demand patterns, and even ferocious natural disasters.
With the substantial amounts of additional product from new or expanded plants recently introduced into the domestic system, the challenge to improve margins and remain competitive has become even more daunting than before.
The most common weapon to utilize when faced with the need to gain market share is to offer better prices than the competition, and this has led to a price war of sorts, both within the paraffinic and the naphthenic markets.
Throughout the last few months of 2015, several posted price decreases saw implementation in all base oil categories, and spot pricing also underwent deep discounting as producers strove to work down inventories ahead of year-end.
Early January brought about an unexpected and subtle pickup in activity as flooding along the Mississippi River spurred fresh inquiries for material delivered by truck and railcar because barges were unable to navigate the rising waters.
Several producers, including Motiva, Calumet, San Joaquin and Ergon, were also expected to complete turnarounds during the first quarter, which market participants hoped would help balance supply and demand.
While these events were going on amid preparations for the start of the spring season, there was also talk about a few suppliers quietly offering steep discounts to potential buyers with the aim of expanding market share.
Even though these movements are nothing new, it seems that they are becoming more audacious, and with the challenging year that lies ahead, it would not be surprising to see them intensify.