US naphthenic base oil supply squeezed in Q4 on low inventories

13 October 2010 02:40  [Source: ICIS news]

PALM SPRINGS (ICIS)--The US naphthenic base oil market may be undersupplied for the fourth quarter due to strong demand amid low producer inventories, a naphthenic base oil seller said on Tuesday.

Buyers were unable to build inventories during the first half of the year due to outages, the seller said on the sidelines of the Independent Lubricant Manufacturers Association (ILMA) annual meeting.

Several US suppliers including Nynas, Ergon and Calumet all came across production issues in 2010.

Inventories remain limited in October following an issue at the largest naphthenic base oil seller’s refinery.

A feedstock glitch at Ergon’s 19,000 bbl/day base oil refinery in Vicksburg, Mississippi was caused by a crude-unit heater malfunction on 13 September, the company said.

As a result, the failure has caused a suspension of production from the crude unit for several weeks with an anticipated restart in mid-October to mid-November.

Naphthenic base oil supply has also been squeezed by issues at the La Isla base oil refinery on the island of Curacao earlier this year.

Nynas markets the material from this refinery, however, most of the material is sold outside the US.

The La Isla base oil refinery returned to operations in July, however, Nynas remained on allocation through August to rebuild stocks. 

Although Nynas is no longer on a strict allocation, it is operating on sales control to maintain the appropriate levels of stock to secure the supply chain, a company source said.

Contract prices for naphthenic base oils have not increased since August, but several market participants are expecting another increase if crude pushes past $84/bbl (€60/bbl) and stays there.

“The last naphthenic hike came when crude was around $77/bbl,” a base oil supplier said. “If crude continues in the low-to-mid $80s/bbl and supply stays tight, I think another increase is highly likely.”

This year’s ILMA meeting runs from 9-12 October.

($1 = €0.72)

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By: Heather McGuire Doyle
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