“Although Gulf Coast low sulfur VGO cracks slightly increased in August, a $5/Bbl drop in the price of crude oil resulted in improved margins for both virgin and re-refiners in July,” said Ian Moncrieff, who manages Kline’s price forecasting activities. “As feedstock prices fell, base oil posted 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 U.S. Base Oil Price Report published weekly by Lube Report, Motiva’s 100-110N, 200-230N and 600N postings dropped by $0.10, $0.20, and $0.25 per gallon, respectively, effective August 15. These decreases, which reflect both a lengthening in the base oil market, as well as 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 our 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. During July we performed such an update, which resulted in minor adjustments to selected yield, pricing and cash operating cost data. The net impacts of these updates are minor.
For more information on the Kline Index, or to inquire about our pricing and margin analysis services to the base stocks industry, please contact Ian Moncrieff, Vice President (Ian.Moncrieff@klinegroup.com) at (973)-615-3680 in Kline’s Energy Practice.