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Base Oil Report


Two months after hurricanes Harvey, Irma and Maria shattered lives and property along the United States Gulf Coast and the Caribbean, communities are still reeling from the devastation of these natural disasters.

The U.S. base oil industry was also hard-hit in terms of production, as multiple plants were located in the areas wrecked by two of the storms.

Producers Motiva, ExxonMobil, Valero, LyondellBasell and Calumet were forced to either shut down or reduce operating rates due to damage caused by floods as well as feedstock shortages.

Base oil suppliers and consumers both have had to deal with raw material supply hindrances, transportation and logistics disruptions and serious financial losses in the aftermath of the disasters. But through it all, most participants never lost faith that conditions would gradually improve, and worked together to achieve a common goal.

The base oil output disruptions resulted in Motiva and ExxonMobil declaring force majeure in early September and implementing allocation programs in an attempt to continue supplying their customers as effectively as possible.

As a result of the supply tightness on both the paraffinic and naphthenic sides, in combination with steeper crude oil numbers-West Texas Intermediate futures climbed from around 48 dollars per barrel in mid-August to over 50 dollars at the beginning of October-base oil prices underwent upward price adjustments between late September and early October.

On the paraffinic side, Flint Hills Resources, Chevron, Phillips 66 and Kleen Performance Products announced increases on API Group II in the realm of 10 to 14 cents per gallon, depending on the producer and the grade.

Likewise, naphthenic base oil manufacturers Ergon, Cross Oil, Calumet and San Joaquin Refining imposed increases of 15 to 20 cents per gallon for their pale oils, with varying implementation dates.

Market conditions are not likely to return to normal any time soon, and uncertainties may continue to plague the system for a long time. But participants commented that fundamentals were improving faster than originally expected, and they kept a fairly positive attitude during some of the most trying times in recent industry history. This outlook, together with a willingness to cooperate and a spirit of perseverance, are probably some of the most important attributes necessary for achieving a full recovery.

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