The 2012 total included 47.2 million barrels of paraffinic base oil, and 10.4 million barrels of naphthenic base oil (versus 50.6 million barrels and 11.4 million barrels, respectively, in the prior year).

From January to June, the countrys refiners produced 29.3 million barrels, but in the second half of 2012 they only managed 28.3 million barrels of output.

That second-half downturn in output was due almost entirely to worsening paraffinic production. After reaching 24.2 million barrels in the years first six months, second-half paraffinics volumes tapered off to 22.9 million barrels.

A big contributor to this million-plus-barrel decline, and one of the years most painful events, was an Aug. 6 fire in the crude unit at Chevrons Richmond, Calif., refinery. Richmonds 20,000 barrel/day API Group II lube unit was not damaged in the fire, Chevron quickly assured customers. But it did not operate at anywhere near normal capacity for the rest of the year.

Leading up to the fire, Richmond had been averaging about 520,000 barrels of base oil a month, the EIA data indicates; afterward, it averaged barely one-fifth of that volume.

Jeremy Kriska of Tulstar Products in Tulsa, Okla., cited a number of additional factors that may have further depressed domestic base oil production. One thing may have been the slowdown in the European economy, he told Lube Report. That led European producers to become very aggressive on pricing, and we saw them exporting more base oil to North America.

Second, he observed, a large amount of rerefined base oil is now on the market, much of it API Group II quality, and we may be seeing some impact of that. Rerefiners do not report their base oil production volumes to the EIA, however, so their impact is not captured in the agencys data.

Third, new Group III base oil refiners in the Middle East – Neste-Bapco in Bahrain and Shells Pearl project in Qatar – began ramping up exports, too. So there was more competition here, and more choices for U.S. buyers, Kriska said.

Together, these factors helped to push down base oil prices significantly starting in July. And as values declined, Kriska said, U.S. refiners began to trim back their base oil units operating rates rather than endure unacceptable margins on their feedstock.

Refiners also tend to slow down as the year winds down, he added, to avoid carrying too much inventory at the year end.

A base oil marketer in the Houston area, speaking on condition of anonymity, said the market has become quite cyclical as the year progresses. U.S. producers typically see rising sales from March to May, this marketer explained, as the prelude to the driving season. Then, they may continue to operate at high rates during the summer, building a cushion of safety stocks against the hurricane season ahead.

By the end of the third quarter, this source added, now they have to work off the hurricane stocks, so they may slow down production some. And then youll see destocking until the year end, to pull down their inventories for tax reasons before the year closes.

Industry consultant and base oil expert Terry Hoffman, in San Antonio, tended to agree. We seem to be on a cycle, where the first half of the year goes well, and people produce and buy a fair amount of base oils. Then, in the second half, the market takes a step-change down, until finally in November and December we see people try to pull their inventories down, due to inventory taxes that Louisiana and Texas put on whatever refiners have in their tanks at year end. They want to avoid that tax.

U.S. base oil producers also faced stiff headwinds from imports last year. Total imports rose to 10.7 million barrels, versus 10.1 million barrels in 2011.

The largest sources of these imports continue to be South Korea, with 39 percent of the total, and Canada (21 percent), but they have now been joined by Qatar, home to the Pearl project, and Bahrain, where Neste-Bapco began operating last year. Pearl sent 1.5 million barrels to the U.S. in 2012, and Neste-Bapco brought in 603,000 barrels. Both Pearl and Neste-Bapco are Group III producers.

Hoffman said imports of Group III base oils have grown as we get into better-quality motor oils, like SAE 5W-20 and 5W-30, and 10W multigrade, heavy-duty oils. All these are needed more and more for fuel economy benefits, and they need the same base oil viscometrics. So demand for Group III keeps going up.

U.S. base oils also are part of a global trade, he emphasized. We suck in a lot of Group III now, Hoffman continued, and Shell seems to be pushing in a lot from Pearl. Meanwhile, more Group II is going out of the United States to enable the multinationals to produce their global heavy-duty engine oil formulations.

Heading now into spring, the current market is looking steady, and steadily better as each week passes, according to the Houston base oil seller. Sales look good, he indicated, especially for Group III base oils.

Demand seems fine, its not too low, not too high — just coming along nicely, said Tulstars Kriska. Were not seeing weakness on the demand side, at least not from our customers.