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Base Oil Report


Hope is a renewable option: If you run out of it at the end of the day, you get to start over in the morning, wrote American novelist and poet Barbara Kingsolver. With so much emphasis being placed on green energy and sustainable resources, it is somewhat comforting to think about hope as a renewable commodity, too.

This optimistic concept would serve the base oils and lubricants markets well, as they are currently dealing with great uncertainty and confusion.

Not only are prices and economic prospects unpredictable, but with so many new policies and regulations undergoing change, there seems to be an industry-wide feeling of frustration and bewilderment.

In terms of base stock prices, November, December and the first half of January brought forth three posted price decrease initiatives on the paraffinic side, and two on the naphthenic front-most likely a record number of price revisions in such a short time.

The latest movement involved a 15 cents-per-gallon price decrease implemented between December 31 and January 9 on naphthenic base oils by Ergon, Calumet and San Joaquin Refining, while Cross Oil lowered prices by 3 to 6 percent.

In the paraffinic camp, Chevron, Calumet, Excel Paralubes and Petro-Canada stepped out with price reductions of their API Group II base oils of 23-25 cents per gallon in early January. While several paraffinic producers had dropped prices in mid-December, these suppliers had abstained from Group II changes then.

The move took some participants by surprise, as the downward spiral of crude oil pricing seemed to have stalled and values had started to inch up when the decrease surfaced.

Producers hoped that base oil prices would bottom out in January and bounce back in February, when requirements for both naphthenic and paraffinic base stocks typically pick up ahead of the spring production cycle.

Possible plant turnarounds and reduced operating rates could result in a more balanced supply and demand ratio, and this, together with potentially stronger crude oil values, would exert upward pressure on base oil prices.

Base oil buyers naturally wish for prices not to move up, but they likely share the same sentiment as their suppliers in that a stable, growing industry ultimately benefits all of its constituents.

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