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Kline’s August index of base stock production

Hydrocarbon Engineering,

Kline & Company, a worldwide consulting and research firm serving the needs of organisations in the lubricants and base stocks industry, introduced its monthly Base Stock Margin Index in January, a characterization of recent cash margin contributions in the US base oil market over the past 24 months.

The Index estimates cash margin contributions associated with US Group II base stock production. It simulates EBITDA before the deduction of corporate selling, general and administrative (SG&A) expenses for typical vacuum gas oil-based virgin base stock plants and residual fuel oil (RFO)-based re-refineries.

Ian Moncrieff, who manages Kline’s price forecasting activities, commented: “Although Gulf Coast low sulfur VGO cracks slightly increased in August, a US$ 5/bbl drop in the price of crude oil resulted in improved margins for both virgin and re-refiners in July. As feedstock prices fell, base oil prices remained unchanged, which also contributed to the overall uplift in margins for Group II producers.

“The uplift in base oil cash margins will be short-lived because Motiva (the basis for Group II prices in the model) announced a decrease to its postings in early August. As indicated in the US Base Oil Price Report published by Lube Report, Motiva’s 100-110N and 600N postings dropped by US$ 0.10, US$ 0.20, and US$ 0.25/gal., respectively, effective on 15 August. These decreases, which reflect both a lengthening in the base oil market, as well as a weakening in crude oil prices, will act to drop cash margins of virgin and re-refined Group II production to close to their June levels”.

Periodically, Kline will review and update certain aspects of the Margin Index Model, for example to reflect the latest estimates of typical operating costs, yields on VGO or used oil feed, or recent pricing of feedstocks or finished products in relation to industry standard benchmarks.

Adapted from a press release by Emma McAleavey.

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