United States base oil producers made hay while the sun shined last year, taking advantage of a lack of disruptions to churn out 67.3 million barrels – the highest volume in two decades, according to newly released government data.
The 2018 tally from the U.S. Energy Information Administration also showed continued increase in levels of exports, as 60 percent of mineral base stocks produced within the country were sent overseas. Imports rose, too – in line with rising demand for API Group III stocks.
Released March 8, the EIAs final petroleum products production totals for 2018 showed that the nations refiners made 57.3 million barrels of paraffinic base oils last year and 9.8 million barrels of naphthenics. The combined amount was 2.2 million barrels more than in 2017 and was the most since 1998, when output was also 67.3 million barrels.
Industry sources attributed the high output to a lack of major disruptions – such as weather-related outages – in 2018, along with recent increases in U.S. capacity. In 2015, ExxonMobil completed a major expansion of its Baytown, Texas, plant. A year earlier Chevron opened the country’s fourth-largest plant in Pascagoula, Mississippi.
Base oil supply has been flush globally as plant openings and expansions around the world have created a significant surplus of capacity. Sources said it has created a buyers market, helping lubricant blenders and other types of base oil consumers by giving them greater choice for where and how to source their requirements and by suppressing prices.
Its definitely a good thing for buyers today, said Mike Burnett, vice president for sales and marketing for Renkert Oil, a Morgantown, Pennsylvania-based distributor of base oils and specialty oils.
Others said that the level of U.S. output did not seem to have a dramatic difference on the domestic market, maintaining that crude oil costs are still the biggest factor in base oil prices.
“We did not notice a big impact,” said Tom Downs, president of industrial lubricant manufacturer W.S. Dodge Oil, of Maywood, California. Crude spiked in the first half of the year, and base oil prices increased several times and then stayed up and even rose again after crude prices retreated.
Refiners certainly complained during 2018 about margins being squeezed, and there was talk of refiners diverting feedstock from base oils to production of distillates such as diesel, where margins had been squeezed less. Sources interviewed for this article speculated that refiners did not do much of this.
“Honestly, I don’t believe it happened to a huge extent,” Burnett said. He added, though, that it may yet become a factor in base oil output in 2019. “You may see more of that happening this year.”
The impact of increased output on the domestic market may have been muted by the amount of volume being sent to other countries. Exports climbed to 39.8 million barrels in 2018, up from 36.2 million barrels the previous year. Mexico received by far the largest portion of that volume – a bit more than a quarter. Belgium, Brazil and Canada were next in line with between 8 percent and 9 percent each. Exports have risen five consecutive years and are up from approximately 25 million barrels in 2014.
Mexico has significantly increased the level of exports from the U.S., reflecting the poor performance of the Pemex Group I refinery [in Salamanca] and the continued demand for Group II and Group III, said Ernie Henderson, president of K&E Petroleum Consulting.
Imports increased by a smaller amount – from 15 million barrels in 2017 to 15.6 million barrels last year. The biggest sources were South Korea, Canada and Qatar, all home to significant sources of Group III base stocks. The U.S. produces only small volumes of Group III, which is increasingly needed to make lubricants such as passenger car engine oils.
More detail on EIAs 2018 base oil production data will appear in the April issue of LubesnGreases magazine.