US refiner economics favours fuels over base oil
03 April 2008 20:00 [Source: ICIS news]
HOUSTON (ICIS news)--US supply of paraffinic base oils will likely tighten as several sellers have admitted to diverting feedstock to make fuels rather than base oils, a buyer said on Thursday.
Buyers received on Wednesday a letter from a Group I seller stating that production of base oils and waxes would be reduced to focus on finished lubricants business.
At the 12th ICIS World Base Oils Conference, a consultant told delegates there was evidence that refiners were diverting feedstock into the fuels business in a repeat of the scenario seen in 2004 when around 10% of capacity was diverted.
“I suspect this has been going on for a while,” a buyer said. “Low-viscosity paraffinic base oil supply is long, and demand is sloppy.”
Most Group I paraffinic base oil producers have the ability to divert feedstock vacuum gas oil (VGO) into the cracker to make other refined products, which more profitable than base oils, a trader said.
Many refiners can divert the VGO into other finished products such as gasoline, jet fuel, heating oil and diesel.
On Tuesday, the May reformulated blendstock for oxygenate blending (RBOB) gasoline contract surged 13 cents to close at $2.77/gal. Same month heating oil rose 7 cents to close at $2.95/gal.
Spot prices for low-viscosity base oils have been hovering around $2.75-2.85/gal, according to global chemical market intelligence service ICIS pricing.
Major Group I paraffinic base oil sellers in the US include ExxonMobil, Sunoco, Citgo, Valero and Calumet.
By: Heather McGuire Doyle
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