US Base Oil Production Slips to Multi Years Low, Refiners Apprehensive After the Polar Storm

As per the latest US Energy Information Administration (EIA) data, the US paraffinic Base Oil output reached record lows in February 2021, hitting levels which were last witnessed in 1993. The production stood around 2,830 thousand barrels in February, a figure much lower than anticipated levels.

Such low levels of production have been attributed to low availability of stocks after 2020 due to a couple of market restraining factors further exacerbated by the arctic freeze that shut down nearly 40% of the total US virgin Base Oil production capacity. It has been found that nearly 4 major operators of Base Oil in the United States i.e., Motiva (Texas), ExxonMobil (Texas), HollyFrontier (Oklahoma), and Calumet (Louisiana) were struck by the polar storm, thereby affecting their production rates. While Motiva and ExxonMobil were forced to stay offline, HollyFrontier and Calumet were on turnarounds that were extended by the storm.

EIA will release the March 2021 data by June, but the market estimates suggest that the March numbers would clearly reflect a more severely impacted production, as the affected refineries were offline for most of the month. While it has also been estimated that repercussions of February fallout will be observed in the upcoming months, surging prices have already started worrying the finished lubricants, greases, additives and other downstream product manufacturers. Several finished product manufacturers have also announced increases between 3% to 14%, depending on the price increases announced by the country’s Base Oil producers for the April-May timeframe.

Although ramping up production began in April from all major producers and volume allocations for some refiners were also in place, however, spot availability was observed to be low. According to various projections, it has been calculated that the February polar storm had by far the worst impact on the US Base Oil output than previously experienced devasting hurricanes like Hurricane Harvey in 2017, Hurricane Ike in 2008 etc. Normally, producers start preparing for Atlantic-Hurricane season from late August by building inventories to last the impact of hurricanes however sudden arrival of winter storm has left refiners baffled.

While the market is struggling to return to normal operations, several Base oil consumers have also raised alarm about curtailed refinery operations during the hurricane season starting in June and stocking up ample inventories in case of further shortages. The slump in spot supply has also resulted in reduced number of cargoes delivered to the key markets such as India, Mexico and South America.

As per ChemAnalyst pricing intelligence, FOB prices of Base Oil at a major trading port in the Texas have moved up steadily in recent weeks. Prices have touched USD 1380 per MT for Group I Base Oil, for almost all grades possessing medium viscosity. As per certain weather forecasts, upcoming hurricane season is expected to be more active than normal which in turn might send the output into further gloom.