“A sudden drop in miles traveled by car triggered by social isolation measures will have immediate ramifications for gasoline demand,” Jim Burkhard, vice president at IHS Markit, noted in a press release last week. “IHS Markit analysis shows that for the United States, gasoline demand could fall by as much as 4.1 million barrels per day – or more than 50 percent – during the Covid-19 response period.” Airlines have also slashed the numbers of flights and routes they cover, causing a sharp fall in demand for jet fuel and aviation lubricants.

The sudden drop in gasoline and fuel demand is wreaking havoc on crude oil refinery operations, with downstream consumption of other petrochemicals declining as well due to economic uncertainties and factory shutdowns.

Wholesale gasoline prices are trading at or below the price of crude oil, catapulting refinery economics into negative territory and forcing refiners to reevaluate operating rates.

“Difficulties in fuel margins are causing refineries that produce both fuels and base oils to cut back operating rates,” an official at one U.S. base oil producer acknowledged.

Pipeline companies are telling crude oil producers to reduce crude pumping because “there is no place to put it,” an official with one U.S. refiner said, with some refinery runs being cut by 30 to 40 percent. “There are millions of barrels per day of crude looking for a home, and tankage and oil tankers will be full up within a month.”

Officials with several U.S. refiners, contacted for this report, admitted that their companies were running out of storage and had started to trim operating rates, which could lead to a significant reduction in base oil output.

“I know that refiners have been cutting back overall production due to a lack of gasoline offtake or demand,” said an official with a U.S. lubricant manufacturer. “This could maybe decrease base oil production indirectly.”

Some refineries may be taken off-line altogether, and in large, integrated refineries that have multiple crude units, there is always the risk of a base oil crude unit being shut in, experts explained.

Ergon’s naphthenic refinery in Vicksburg, Mississippi, which began a planned turnaround on March 5 that was originally scheduled to last 26 days, has delayed its restart by approximately one month “due to the implementation of best practices to manage the impact of the coronavirus,” the company said in a press release on Monday. Product inventories were expected to remain tight.

If most refiners that also produce base oils resort to cutting operating rates, then base oil production could experience a significant supply dent.

At the same time, numerous manufacturing plants that use lubricants made with base oils have reduced or suspended operations due to a decrease in product demand and the need to protect employees. A decrease in finished lube consumption means lower demand for base stocks.

Factory shutdowns have been particularly evident within the automotive industry. Suppliers to the auto industry acknowledged that every segment of the business had been affected, with “cascading effects” forcing not only auto makers, but also tire manufacturers and associated businesses to suspend operations. Tire and rubber manufacturers are major downstream users of process oils.

Leading tire makers serving the North American commercial vehicle market have temporarily halted operations. Bridgestone Americas Inc., Cooper Tire & Rubber Co., Michelin and Goodyear Tire & Rubber Co. announced temporary shutdowns at their respective plants, although warehouse and distribution will continue, according to media reports.

In other parts of the world, the situation is just as alarming as in the U.S., as refiners try to adapt to the rapidly changing demand levels.

In India, the second-most populous country in the world, oil refiners are slashing crude processing rates since the government imposed a lockdown to stem the spread of the coronavirus, which is expected to quash energy demand.

Indian Oil Corp., the nation’s biggest refiner, was heard to have trimmed crude processing at most of its plants by 25 to 30 percent. This might not be enough as India just embarked on a three-week lockdown, which might force refiners to reduce run rates between 40 to 50 percent below normal capacity, Bloomberg reported.

Royal Dutch Shell Plc. expects utilization in its refineries to fall below its available capacities in the first quarter of this year “as a result of significant uncertainty with macro-economic conditions with regards to prices and demand for oil, gas and related products,” the company said in a press release on March 31. The refiner expects utilization to fall between 80-84 percent in the first quarter this year, with available capacity anticipated to be between 93-96 percent. Shell operates wholly-owned and joint-venture refineries in the Americas, Europe, Africa, Asia and the Middle East.

On the other hand, several refineries continue to run at normal rates, or plan to increase operating rates to meet growing demand for certain products.

San Joaquin Refining in Bakersfield, California, hoped to avoid a reduction in run rates because of unusually high demand for asphalt. The refiner typically increases crude oil runs during the summer months as it is the busy season for several products, including base oils.

Meanwhile, refiners continue to monitor the situation to make production adjustments, although trying to set a specific goal might be a futile endeavor given the fluidity of circumstances.