US base oils sellers seek 10% hike on firm VGO costs

22 February 2011 15:41  [Source: ICIS news]

LONDON (ICIS)--Firm feedstock vacuum gas oil (VGO) costs are pushing US base oils price hike announcements of around 10% just ahead of a major industry conference, industry sources said on Tuesday.

Group II seller Flint Hills Resources (FHR) announced posted price increases, the first price changes since December, a buyer said before the 15th ICIS World Base Oils Conference in London.

The FHR increases targeted a 45 cents/gal ($137/tonne) price lift on its 230 mid-viscosity base oils, with increases ranging from 35-43 cents/gal sought on light viscosity to heavy grade products effective from 22 February.

The announcement follows a similar move by Motiva late last week.

Motiva issued increases of up to 47 cents/gal effective from 18 February on its Group II and II+ product slate, buyers said.

It was unclear if other Group II sellers Chevron and Calumet would also increase prices.

The increases arrive just in time for the busy spring stocking season. Demand for base oils often increases in mid-to-late March as buyers prepare finished goods ahead of the US driving season, which begins with the 31 May Memorial Day holiday.

Market participants also attribute the February base oils increases to an unusually large gap between Brent crude and West Texas Intermediate (WTI) benchmark oil prices.

In order to compensate for the weakness in WTI, product premiums have increased.

Base oils' key feedstock, VGO, trades at a premium to WTI. Price premiums have increased to $20-25/bbl over crude oil. VGO prices were half that in December.

The US is the largest Group II supplier to the rest of the world, with about 65% of market share.

The conference is being held on 24-25 February.

Additional reporting by Judith Taylor

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Author: Heather Doyle



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