Base Oil Spreads
Although there are many factors a base oil manufacture takes into account prior to announcing a price increases, one of the most visible is the spread between the price of crude oil and base oil. When the spreads are large, there is typically little impetus to increase base oil prices. When the spread contracts, however, there is often pressure to push through price increases.
Understanding Holly was the first to move paraffinic base oil prices up in over six months, it’s interesting to see that the spread over the last few weeks has been below the average since the start of 2011. In addition, the spread is nearing levels seen when base oil suppliers announced their last round of price increases.
Again, where there are many factors that drive decisions to increase base oil prices, the crude/base spread can be very telling.