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Kline’s September Index of base stock production

Hydrocarbon Engineering,

Kline’s September Index of base stock production and re-refining cash margins shows gains for VGO refiners and lower returns for re-refiners.

September analysis

“Despite the recent round of Gulf Coast Group II posted price decreases for base oils announced in early and mid-August (ranging from US$ 3.00 - US$ 8.00 per barrel, depending on viscosity), virgin base oil producers experienced the highest instantaneous (unlagged) cash margins they have seen in 10 months,” explained Ian Moncrieff, who manages Kline’s price forecasting activities.

“Not only did spot Brent crude drop by over US$ 5.00 per barrel during August, but VGO cracks vs. Brent also fell by a similar amount. As a result, feedstock costs fell by more than the announced reductions in postings, improving base oil gross margins by US$2 .00 - US$ 7.00/Bbl. Coinciding with a nominal drop in natural gas prices, total COGS fell by nearly nine percent in August. Meanwhile, UMO feedstock costs for re-refiners experienced a lesser reduction, which did not exceed the reductions in base oil postings, resulting in slightly lower profitability for the month of August.

“Looking to the near future, recent weakness in crude oil and VGO pricing has not yet been fully reflected in postings of base oils, though these effects have begun to be felt in spot prices. Base oil fundamentals remain weak, and Kline expects that a further round of posted pricing adjustments is probable within the next two months.”

Base Stock Margin Index

In January, Kline & Company introduced its monthly Base Stock Margin Index, a characterisation of recent cash margin contributions in the US base oil market over the past 24 months.

Adapted from press release by Katie Woodward

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