Base Oil Rebounds, Big Time


After a somewhat hesitant start to the year, U.S. base oil refiners stomped firmly on the accelerator to generate 29.2 million barrels through the end of June, according to data released last week by the Energy Information Administration.

That’s a marked improvement (17 percent) over the 25 million barrels they produced in the first half of 2009. While falling short of the muscular levels seen in 2006, 2007 and 2008 — years when first-half base oil production shot past 32 million barrels — each month from January to June was well ahead of last year, and the pace quickened as each month unfolded.

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On the paraffinics side, production from January to June 2010 hit 24.1 million barrels, almost 15 percent above the 21 million paraffinic barrels refined in the same period of 2009.

Naphthenic refiners displayed even more oomph, attaining 5.1 million barrels of production in 2010’s first half. That’s a gain of 26.6 percent from first-half 2009, when they mustered a meager 4 million barrels. From January to June 2010, naphthenic base oil production rivaled that seen in the first six months of 2007, before the recession choked off demand.

The impressive gains in pale oil production, observers say, were due to a number of factors. One was an absence of naphthenic imports from Venezuela and Curacao, after refiners there experienced operating disruptions that curtailed output. That left a void in the U.S. market which refiners were happy to fill with domestic barrels.

Naphthenic production also was buoyed by a slug of new capacity from Ergon’s Vicksburg, Miss., refinery. After completing a series of expansions in November, the company had 19,000 daily barrels of naphthenic base oil capacity which it was eager to put to work.

And they weren’t alone in wanting to open the taps. “Very early in the year, in January and February, overall refinery utilization rates were in the upper 70s [percent], maybe the low 80s,” one Houston-area base oil marketer commented. “But since then they’ve been running much harder, more like 80 to 90 percent utilization.”

Industrial buyers however, rather than lubricant blenders, seem to be absorbing much of the increased base oil output, in the form of process oils, this marketer added.

“I don’t see very much of it going into lubricants, but process oils are way up. Granted, they’re coming back from a pretty bad base year, but our customers in automotive and tire and specialty-rubber manufacturing are taking barrels like crazy now.”

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