During the first half of 2019, the United States base oil production purred like a contented kitten as Asian countries production roared like a hungry tiger.
While there were no black swans impeding domestic production, several factors slowed the flow of base oil between January and June.
U.S. refineries output was 29 million barrels during the first six months of 2019, down from 34 million barrels year to year, according to data from the U.S. Energy Information Administration, which released preliminary numbers for June last week.
Two months – February and March – saw the steepest decline in overall production at only 4.4 million barrels combined. Paraffinic base oil output for the first half dropped to 23.8 million barrels, an 18 percent decline compared to the same period in 2018. Mays production level was the lowest for that month in a decade – 4.1 million barrels.
The bright spot was naphthenic base oils, as January, April and May production numbers hit their highest levels in five years. Overall, production of pale oils climbed to more than 5 million barrels. An industry analyst theorized U.S. producers sent 60 SUS oils to Mexico, which experienced a fuel crunch; light-viscosity base oil can be blended into diesel fuel.
The U.S. is oversupplied, but not overly supplied, said Joe Rousmaniere with Chemlube International, a base oil marketer, adding that U.S. producers and marketers have created a relative balance of supply and demand.
Erica Snedegar, manager of base oils and intermediate products for rerefiner Vertex Energy, suggested the numbers showed a stable base oil market during the first six months of 2019.
As is typical the Gulf and West coast regions produced the largest volumes, but their outputs still declined.
The Gulf Coast produced 22.6 million barrels, down 15 percent compared to first half of 2018. California refineries dropped to 2.9 million barrels, a 24 percent decline. The East Coast witnessed a 7 percent decline to 2.3 million barrels. HollyFrontiers refinery in Tulsa, Oklahoma, produced 1 million barrels, mirroring last years production.
Exports also experienced a decline during the time period. Analysts said Asian and Western European countries are no longer huge sponges for U.S. base oils.
Total U.S. export volume was 20.3 million barrels during the first six months of 2019, down from 22 million barrels during the same time in 2018.
Chinas completion of four new base oil refineries during the first half of 2019 was a major contributor to the decline. The country now has capacity to make 145,350 b/d of API Group II and III.
Meanwhile, U.S. exports to India dropped nearly 50 percent, from 1 million barrels to 533,000 barrels during the time periods.
The data did contain one surprise: a big increase in exports to Belgium, which receives the largest portion of U.S. base oil shipments to Western Europe, despite the February opening of ExxonMobils giant Group II plant in Rotterdam, Netherlands. From January to June 2019, the U.S. shipped 2.6 million barrels to Belgium, up from 2.2 million barrels during the same period in 2018.
In the Americas, Mexicos massive consumption of U.S. base oil grew by 1.5 million barrels during the first half of 2019. In 2018, about 5 million barrels were shipped to Mexico from January to June.
Base oil coming into the U.S. also slipped. During the first half of 2019, 7.5 million barrels were shipped to the U.S., down from 8.3 million during the same period a year earlier.
South Korea, Qatar and Canada sent more than two-thirds of those barrels. Analysts said South Korean refiners are trying to increase their exports to the U.S., mainly Group III. Its unclear if they will get a larger bite of the U.S. market, as Chevron is hoping to begin making Group III at its Richmond, California plant by the end of this year.
The second half of 2019 should be as interesting as the first, analysts said. One key event will be the lowering of the International Maritime Organizations marine sulfur cap, effective Jan. 1, 2020.
For more detailed context and analysis on the EIAs production number, read more in the October issue of LubesnGreases magazine, which will be available at LubesnGreases.com on October 1.