Base oil hikes multiply in US market on higher feedstock costs

16 March 2010 19:52  [Source: ICIS news]

HOUSTON (ICIS news)--US base oil price hikes continued to proliferate the market on Tuesday as the rising cost of feedstock vacuum gas oil (VGO) pressured margins and supply, sources said.

Group I major ExxonMobil is raising its paraffinic base oil prices by 10-20 cents/gal depending on grade, its buyers said.

ExxonMobil’s bright stock is moving up 20 cents to $3.47/gal ($1,024/gal or €747/tonne) free on board (FOB) US Gulf, according to data from global chemical market intelligence service ICIS pricing.

Elsewhere, Calumet is raising its Group I and II prices by 20-25 cents/gal, effective on 19 March.

Also, Holly raised its Group I prices by 15-25 cents/gal on 12 March.

Valero has not stepped out with a posted increase. The last Valero increase was on 19 January.

The Group I base oil increases follow hikes by Group II players Motiva and Flint Hills one week ago.

Since then, other Group II sellers including ConocoPhillips, Calumet and Chevron have raised posted prices.

“The reason prices are up is the cost of feedstock VGO, which is at an all-time high, and this is squeezing margins,” a base oil seller said.

VGO has recently been trading at a $9-$10/bbl premium over West Texas Intermediate (WTI) crude oil, up 50% from the $5 premium earlier this year, the seller added.

“We knew the trend was uppity when we could not secure spot without long lead times or very high offer prices,” a buyer said. “Base oils are very tight right now, especially heavy grades like 700 and bright stock.”

As long as fuels demand is weak in the US, refiners will generate less VGO feedstock, leading to reduced base oil production, sources said.

($1 = €0.73)

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By: Heather McGuire Doyle
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