According to a new study by Little Falls, NJ-based consulting firm Kline & Co., for more than 18 months, a “perfect storm” has been raging in the global market for lubricant base stocks. This has been fueled by natural disasters, manufacturing accidents, refinery downtime and inflated crude oil prices.
The burning question is whether the resulting tight supply and high prices are part of a passing trend or if such volatility will become the new status quo for the global lubricant market, said Geeta Agashe, director of the petroleum and energy practice for Kline’s research division.
“When we looked at the global market for lube base stocks in 2004, there was plenty of supply but the convergence of events last year really changed things,” she explained. “Hurricanes Katrina and Rita took out refining capacity in the U.S. Gulf Coast, while refinery fires, explosions and catalyst problems plagued facilities in Europe and Asia. Both planned and emergency turnarounds slowed [production at] major refineries, while gasoline and diesel prices hit the roof. The story today is about supply, which has become very tight for most types of base stocks.”
Meanwhile, demand has remained steady – prompting significant announcements about new refining capacity by manufacturers looking to cash in on a seller’s market, Agashe said. Still other factors are adding to uncertainty concerning both supply and demand, including changes in lubricant specifications, globalization and the recent run-up in crude oil prices.
“In short, no one was prepared for that ‘perfect storm’ of weather, outages, and pressure of feedstock values, so both finished lubricant marketers and base stock suppliers are looking to develop sound strategies for dealing with the unknowns in supply and pricing,” added Bill Downey, vp and head of Kline’s petroleum and energy consulting practice. “For lube marketers, it means reexamining supply contracts with renewed vigor. For base stock marketers, it could mean investing in new capacity.”For more information on this study, go to www.klinegroup.com/Y618.htm