NewsFlashUS Marathon said to exit base oils

22 April 2008 23:47  [Source: ICIS news]

By Heather McGuire Doyle

HOUSTON (ICIS news)--Talk that US base oils producer Marathon was about to depart from the business sent ripples of concern over supply, industry sources said on Tuesday.

Four buyers and one seller overheard that Marathon could exit the base oils business before year end, they told ICIS news. Marathon did not reply to repeated attempts for comment.

Citing informal phone calls from Marathon today, buyers speculated that the company could even stop producing base oils sooner if a significant cost was incurred before the end of the year. A formal announcement was expected from the company on Wednesday, they said.

Buyers expressed concern about securing sufficient low-viscosity base oils if the company leaves the market.

A Group I seller said that phone calls began to pour in this afternoon from buyers looking to secure supply over concern that Marathon would exit the business.

Marathon has recently had supply issues and openly discussed depleted inventories, which is unusual for the producer, one buyer said. Marathon was the only producer that offered product immediately following the 2005 hurricanes, the buyer added.

In a first quarter interim update, Marathon said that refined products sales volume dropped 5% to 1.28 m bbl/day in the first quarter of 2008, compared with 1.34 m bbl/day in the first quarter of 2007.

The company projected its first quarter 2008 refining and wholesale marketing per gallon gross margin would be slightly negative. The company has not yet reported its earnings for the quarter.

According to National Petrochemical and Refiners Association (NPRA) production statistics, Marathon produces 6,700 bbl/day of Group I base oils. Other Group I sellers include ExxonMobil, Citgo, Calumet, Sunoco and Ergon.

Sellers have cited high feedstock prices for crude and vacuum gas oil (VGO) as a key reason to divert production from base oils.

Buyers had not been concerned about securing supply as the US market has been oversupplied for well over a year.

But the possibility of Marathon's exit followed Citgo’s recent announcement that the company would reduce merchant base oils availability, raising concerns about scarcity.

Earlier this month, Citgo informed customers that it plans to reduce production at its Lake Charles, Louisiana, lubricants and wax refinery to concentrate on its finished lubricants business, sources said.

By: Heather McGuire Doyle
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