Base Oil Pricing Report

Base Oil Report

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The core of the base stocks market is pulsating at an accelerated rate, and it is therefore no surprise that unusual and rarely seen situations have started to emerge in this segment of the industry.

In late September, a sudden change in market conditions and retreating crude oil numbers may have prompted ExxonMobil to rescind a price increase that the company was reported to have announced just days earlier.

According to reports, ExxonMobil had communicated to customers that the company would be raising the price of its API Group I and II/II+ base oils by 12 cents per gallon across the board as of September 30.

However, just a couple of days before the increase was to go into effect, customers received an announcement that the company had withdrawn the increase.

A similar situation ensued a few months earlier, when Chevron announced a price increase and almost immediately implemented a decrease, effectively rescinding the hike.

In ExxonMobils case, the increase was likely triggered by a sudden spike in crude oil and feedstock prices in mid-September. Oil futures jumped by historic numbers following a drone attack on Saudi Arabian oil production facilities but then retreated as output was mostly restored by the end of the month.

This illustrates how market conditions can reverse in a heartbeat and how both consumers and suppliers need to be extremely resilient and adaptable to the changing business climate.

The third quarter is typically a difficult time to implement base oil price increases, as demand is tempered by a slowdown in output at lubricant blending plants. Historically, base stock prices decrease in the last few months of the year because suppliers like to offer incentives to capture additional orders and reduce inventory levels and tax liabilities.

However, this year may be different, sources pointed out, as those refineries that have the capability to produce low-sulfur marine fuel oil may be optimizing their feedstock streams to produce more IMO 2020-compliant fuels. Formulations for marine lubricants are also expected to experience a shakeup.

Base oil market participants therefore need to be prepared for the once familiar and typical conditions to be completely turned upside down, possibly requiring a strategy switch at the eleventh hour.

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