There seems to be a trend among many companies to either become more integrated or to expand services in areas that are not necessarily related to the original product line they offered.
Take the case of Amazon, which started as an online bookstore, or of Buc-ees, the service station and convenience store emporium that became famous for offering clean bathrooms to weary Texas travelers. Buc-ees stores now sell everything from premium gas and lubricants to iconic beaver logo underwear, and are hugely successful.
In the base oils segment, the recently announced acquisition of Sonneborn by HollyFrontier heralds the union of two companies that complement each other in terms of services and products and whose operations are bound to become more integrated, as well. (See Page 48 for more details.)
In terms of pricing, the base oil market experienced rather tumultuous conditions during November and December, with a majority of paraffinic producers implementing two rounds of decreases in the span of a month. These posted price cuts were mostly prompted by lengthening supply and tumbling crude oil values.
During the first round of decreases-which went into effect between mid-November and early December-a majority of paraffinic producers implemented reductions of 20 to 25 cents per gallon.
Then, on December 4, sources reported that ExxonMobil had again reduced all of its base oil postings by 15 cents-a move that was somewhat surprising but quickly followed by a good number of producers.
Naphthenic suppliers Ergon, Calumet and San Joaquin Refining did not adjust prices in mid-November but ultimately decided to lower prices by 20 cents per gallon between November 30 and December 6, while Cross Oil marked prices down by 3 to 8 percent on December 10.
Whether the downward pressure on base oils will ease any time soon is difficult to predict, but potential cutbacks in refinery production rates over the next few weeks, together with stabilizing crude oil values, could offer support to base stock prices as the market crosses the threshold into the new year.