FocusUS base oil buyers deluged with hikes

21 May 2008 20:51  [Source: ICIS news]

By Heather McGuire Doyle

HOUSTON (ICIS news)--US base oil players are entering into uncharted territory with this week’s flurry of price hikes and new highs for crude oil, a distributor said on Wednesday.

Moments after crude hit a record at $129.07/bbl on Tuesday, at least four major base oil sellers stepped out with a round of upward adjustments.

Effective on Thursday, ExxonMobil said it will increase its posted price for its 100 and 150 viscosity paraffinic base oils by 30 cents/gal, its mid-viscosity oils by 15 cents/gal and its bright stock oil by 20 cents/gal. ExxonMobil’s Gulf coast posted price for bright stock oil was $4.57/gal free on board (FOB) prior to the hike, according to data from global chemical market intelligence service ICIS pricing.

The hike is ExxonMobil’s fifth this year and the second this month, a buyer added.

Calumet would also increas its posted prices for all paraffinic grades by 30 cents/gal, effective on 28 May.

Valero would move its 100 and 165 base oils by 30 cents/gal, and all other grades by 20 cents/gal, effective on 28 May.

In Group II paraffinic base oils, Motiva said it would increase posted prices for all grades by 30 cents/gal effective on Friday, except for Star 4 (100/120grade), which would move up by 35 cents/gal.

On Wednesday, Citgo announced a hike similar to ExxonMobil’s.

“It was just last week that we were thinking that we may have a breather on base oil price moves,” a buyer said. “Many buyers are becoming numb to the rapid fire of price announcements.”

The surge in crude prices sparked the base oil hikes, a seller said.

Crude was trading at twice the price it was at this time last year, a distributor said.

“Crude, energy costs, labour, fuel and transportation costs are all up from last year, the distributor said. “Add the high costs to a weak dollar, tight supply, refinery turnarounds...and of course pricing will go up.”

Production changes announced by Citgo and Marathon in recent weeks has caused the base oil supply to become extremely tight, a trader said. Several other sellers have said they were diverting feedstock to fuels rather than base oil production, further tightening US supply.

“Economics continue to favour fuel and diesel markets, especially for lighter grades, resulting in further pressure to divert low viscosity base oils to these alternative markets,” a naphthenic base oil seller said.

Although naphthenic prices typically move no more than once a month, extreme market circumstances are changing this pattern, a buyer said.

For a second time this month, naphthenic producers followed paraffinic producers and announced increase initiatives due to high crude costs.

Naphthenic producer Ergon said will boost its light viscosity pale 60/transformer oil by 6-30 cents/gal, depending on customers’ starting price points. All other grades will jump /by 25 cents/gal. The company confirmed that all increases will be effective on 23 May.

Calumet will increase its pale oil prices by 30 cents/gal across-the-board on 24 May.

Cross Oil plans to hike its light viscosity oils, up to and including 750 pale, by 25 cents/gal, while oils heavier than 750 through 2000 viscosity will go up by 30 cents/gal on 26 May.

The company also said that it has removed temporary voluntary allowances (TVAs) at certain accounts, and by doing so, the total increases could be as much as 40 to 45 cents/gal, depending on grade and customer.

San Joaquin Refining has proposed a round of hikes for 28 May. The company plans to push up light ends, including 40 through 100 pale oils, by 40 cents/gal, while 200 viscosity and heavier grades will increase by 30 cents/gal.

Nynas said it plans to initiate a round of increases from 25-50 cents/gal, depending on grade and consumer starting point, effective on 1 June.

Pale 60 was trading for $3.75-$4.01/gal FOB (free on board) prior to the announced hikes, according to ICIS pricing.

The spate of posted and spot price hikes seems endless, a buyer said.

Many US participants concurred that what is happening is unprecedented.

“It used to be that consumers encountered a price hike or decrease only a few times in a year. But this trend has changed, and now price movements [to the upside] have become a regular occurrence, with more hikes being pushed through every few weeks,” a buyer said.

To discuss issues facing the chemical industry go to ICIS connect

By: Heather McGuire Doyle
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