Chevrons announcement of a posted price increase last week took many U.S. base oil market participants by surprise. The producer raised its West Coast API Group II postings by 25 to 30 cents per gallon, effective March 5.
The move was not completely unexpected because producers have been struggling with high feedstock costs and squeezed margins for some time, and there had been talk about potential increase initiatives.
Furthermore, base oil demand typically flourishes in March at the start of the busy spring production season for lubricants, allowing suppliers to implement price hikes.
What was slightly baffling was that Chevron took the lead in lifting prices only weeks ahead of bringing additional capacity on stream, precisely when most participants expected the added product to exert downward pressure on pricing.
Chevrons new 25,000 barrels per day API Group II Pascagoula Base Oil Plant in Mississippi is in the start-up process, according to a company statement, and market players expected commercial product to be available in April.
Despite expectations that Chevrons initiative would spur additional price changes, there have been no further communications about revisions on paraffinic oils this week, and producers have been rather reticent about their next move.
Some sources conjectured that manufacturers would be waiting for demand to show sustained improvement before stepping out with price hikes. A number of suppliers said that they had noticed a slight improvement in requirement levels over the last few days, and hoped demand would pick up in earnest soon.
Others said that producers may be hesitant to follow Chevron because of ample supply amid concerns about losing market share.
Upward price movements had been observed just days earlier on the naphthenic side, where producers are more directly impacted by feedstock price fluctuations.
Supply of pale oils has also tightened on planned and unplanned production outages since the start of the year, offering further support to the increase initiatives.
As a result, a majority of naphthenic suppliers implemented across-the-board hikes in the vicinity of 15 cents per gallon in the first half of March.
Calumet, Ergon and Cross Oil all announced that they would be raising naphthenic base oil prices by 15 cents per gallon, effective March 14.
San Joaquin lifted prices to select customers by 15-25 cents/gal, effective March 3 and March 17, and removed temporary voluntary allowances (TVAs) and special discounts.
Nynas is also planning to introduce a similar increase on a case-by-case basis this week.
Upstream, West Texas Intermediate crude futures were trading near the lowest level in three weeks on speculation that U.S. stockpiles were mounting.
WTI settled on the CME/Nymex at $100.03 per barrel on March 11, down $3.30 from a settlement at $103.33/bbl on March 4.
Brent crude was trading around $108.55 per barrel on the CME, down 75 cents from $109.30/bbl a week ago.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.