“Crude oil prices rebounded in February, with Brent averaging $58 per barrel, which had a negative impact on instantaneous Group II cash margins,” noted Ian Moncrieff, Vice President of Kline’s Energy Practice. “With crude oil and VGO prices increasing from January lows, and Motiva’s base stock postings unchanged for the past two months, unlagged margins began to be squeezed. Although Brent crude oil has continued to firm somewhat through early March, to around $60/Bbl, overcapacity is still restraining industry-wide attempts to raise postings, with Chevron as the lone exception in announcing 20 cent/gallon increases effective March 11. The inherent lag between feedstock and base oil price movements has produced widely divergent estimates of cash margins between instantaneous and lagged results over the past six months, as crude oil and VGO prices fell faster than base oils. That disparity is much closer to being rectified, as noted in the figure below. However, industry fundamentals suggest a lower level of margin equilibrium once markets and pricing have reached a more stable basis of operations.”
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 Consulting Practice.