Base oil conference begins in volatile time

03 December 2008 16:31  [Source: ICIS news]

By Heather Doyle

NEW YORK--Lubricant market players will gather on Wednesday at the ICIS Pan American base oils conference to discuss what many are calling the most volatile, active year in history and the future of the industry.

In 2008, players saw the closure of two Group I base oil plants in the US and many suspect a third refinery will close in 2009. 

At the same time, announcements for new Group III plants in Asia were plentiful.

Meanwhile, base oil prices skyrocketed after feedstock light, sweet crude oil hit an all-time high of $147.27/bbl in July.

US base oil values had climbed to $4.80-6.06/gal FOB (free on board) US Gulf levels in July amid surging crude and vacuum gas oil (VGO) prices and tight global supply, according to global chemical market intelligence service ICIS pricing.

But when feedstock prices begin to fall in September, base oil prices in Asia and Europe began to spiral downward quickly, opening up the door for arbitrage opportunities.

US prices held steady longer due to supply tightness following Hurricanes Gustav and Ike, but eventually less expensive imports put pressure on US suppliers to begin reducing prices in November.

Base oil values were now assessed at $3.70-5.31/gal FOB US Gulf, according to ICIS pricing.

“I have been in the industry for 30 years and I’ve never seen anything like this,” a base oil seller said. “What we knew before no longer works. Things are much different. We have to learn things all over again, and quick.”

Biofuels and calls for greater fuel economy are constantly adding greater complexity and change for demand and quality requirements, the seller added.

Higher quality base oil demands are increasing the need for Group II and III oils.

Expectations are that no new Group I base oil facilities will be built, while the additions of Group II and III base oil plants will create supply pressure in the global base oil market.

The US has become totally dependent on Asian imports for its Group III needs, while increasing its Group II surplus to Europe and Asia. Most new capacity has been planned for outside of the Americas, promising an even greater interdependency with other global regions.

More than 150 delegates from the USA, Latin America, Europe and Asia are gathered in New York to discuss the challenges and opportunities the base oils market is facing.

The conference lasts through Thursday.

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ICIS Copyright © Reed Business Information 2009

Author: Heather McGuire Doyle
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