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Base Oil Report

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After a fairly turbulent two months when a number of price increase initiatives required the full attention of suppliers and buyers alike, the base oil market welcomed a few weeks of calm conditions in late March and early April.

Even though suppliers enjoyed the relative stability, they lamented that buying activity leading to the spring production peak lacked impetus. Due to several factors such as cooler-than-expected temperatures in many areas of the United States, vacillating crude oil numbers and sharp fluctuations in the stock market, demand remained lukewarm against plentiful inventories.

This did not apply to all segments of the market, as some tiers entered the second quarter sporting a snug supply-demand ratio.

The API Group I segment in particular showed a lack of readily available spot cargoes and upward price pressure, indications that supply remained strained against a healthy stream of requirements.

A turnaround at the HollyFrontier Group I plant contributed to the tightening conditions. The facility in Tulsa, Oklahoma, was shut down in late February and was expected to be restarted in the first half of April, following a slightly extended maintenance program. The unit can produce 9,500 barrels of Group I oils per day, and the producer had built inventories to meet contractual requirements during the outage.

Spot cargoes from other Group I producers were limited, with one supplier heard to have ceased offering the same competitive export prices to Mexico that it had been proposing through its distributor at the end of the year.

A tidal flow of orders was also noted in the Group II segment-with the sporadic appearance of spot offers for export seemingly pointing to swelling availability of a number of cuts. Meanwhile, Group III requirements ran in a steady stream.

Despite a somewhat slow start to the spring season, suppliers remained optimistic that demand was likely to improve as most participants addressed product needs for the next few months, and lubricant manufacturers prepared stocks for the busy summer driving season.

Some buyers also rushed to place orders ahead of upcoming increases for finished lubricants and additives, many of which were due to be implemented in late April in response to climbing raw material prices during the first quarter.

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