US base oil demand outpacing supply - buyers

26 April 2011 21:11  [Source: ICIS news]

HOUSTON (ICIS)--US base oil domestic demand is outpacing supply, fostering extremely tight conditions, buyers confirmed on Tuesday.

While volatility in feedstock crude oil markets has firmly contributed to the rise in base oil prices, buyers said surprising demand strength from automotives coupled with the first-quarter maintenance and weather outages to form unusually tight supply/demand fundamentals going into the second quarter. 

“Suppliers can sell every gallon they have because of the increase in demand,” one large buyer said.

“There was an unexpectedly strong recovery in automotive demand,” another buyer said.

Other buyers added that factory-fill engine oils were pushing up demand for the higher quality base oils in Group II, II+ and Group III because of emerging changes in requirements for the new model vehicles.

Some large buyers said they could get “just enough” of the Group III base stock needed, with no extra volumes available even for long-term contract buyers.

“We are paying the prices because we need the material,” one buyer said.

Traders said exports from the US were stymied because of the high domestic demand coupled with short supply.

 “There is nothing available for export from the US for May – nothing,” one trader said.

Despite the domestic scramble to secure base oil requirements, there was scant opportunity to import from either Europe or Asia, traders added.

“Prices in Europe are too high to make it work, and Asia doesn’t have the material,” a trader said. 

US base oil producers raised posted prices in late February, followed by hefty price hikes in April and a few scheduled for early May.

Within the four producers of Group I paraffinic base stock, ExxonMobil raised posted prices on its light viscosity SN 100 base stock by 35 cents/gal, from $3.84/gal following the late February increase to $4.19/gal in the April hike.

ExxonMobil raised the posted price on its brightstock grade by 40 cents/gal, going from $4.87/gal to $5.27/gal.

Other Group I suppliers were at varying increase levels, ranging upwards from 22 cents/gal.

In Group II, ConocoPhillips raised posted prices on all its light and mid-viscosity base oils by 35 cents/gal, while other suppliers’ increases varied from this level.

Group II+ supplier, SK Lubricants, posted a 50 cents/gal April increase on its light viscosity grade, bringing the price to $5.41/gal. Other Group II+ supplier increases were at 40 cents/gal.

Group III producers raised all grades by 50 cents/gal, with April prices ranging $5.38-5.69/gal, depending on the supplier and the product grade.

By: Judith Taylor
+1 713 525 2653

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