The tapering off from second-half 2015 was even more steep. From July through December, refiners reported making 33.8 million barrels, and they racked up 65.6 million for the whole year — the fattest year since 2006. That high-water mark is highly unlikely to be attained in 2016, sources agreed.

A number of factors accounted for the multimillion-barrel drop-off in production, Lube Report heard.

First, many suppliers began the year with full storage tanks, which put a lot of downward pressure on prices, remarked Mike Smith, general manager of specialty petroleum marketer UniSource Energy in Naperville, Illinois. Despite a pretty firm U.S. economy, bargain-hunting buyers seemed reluctant to commit to taking volumes, he said. So producers trimmed back their operating rates, worked off their inventories and waited for demand to become fizzier.

Taking advantage of the slow period, a number of refiners put their efforts into maintenance turnarounds and repairs, said base oil marketing consultant Terrence Hoffman, in San Antonio, Texas. Six plants were down for all or part of February, and that month alone accounted for almost 1.2 million barrels of the fallback in supply.

Meanwhile, we saw a lot of imports coming in, which may have discouraged operators from operating at higher rates and possibly displaced some domestic supply, Hoffman continued. Then in March, ExxonMobil began taking steps to permanently close its 10,000 b/d API Group I refinery in Beaumont, Texas. However, this loss was not too painful, Hoffman feels: Beaumont had operated far below its nameplate capacity for at least four years, and so that had little impact.

Even with the flurry of February outages and excepting a continuing tightness in 600-vis Group II, the market never got as short as youd think, agreed Smith. Yes, Beaumont closed, but there was enough added new capacity elsewhere – like Chevron in Mississippi, Ergon in Vicksburg and ExxonMobil in Baytown [Texas] – which were starting to hit their stride.

In fact, Smith continued, there are many examples over the last five years of new plants which were built on the belief that they would see export demand from Europe and the Middle East, which hasnt happened. The added Group II and naphthenic production has not as yet found the home they anticipated in the rest of the world.

Nevertheless, U.S. base oil refiners are highly competitive and shipped out volumes equal to roughly half of what they produced in the first half. Government data show exports for the period rose to 14 million barrels, versus 13.5 million in first-half 2015.

Latin American countries, led by Mexico and Brazil, were first in line for these volumes and consumed nearly half of all exports. Europe has been indulging its appetite to a greater extent, and the U.S. delivered 3 million export barrels to the continent in the first half.

Were also seeing huge exports of heavy neutrals and bright stock to China, theres a big flow of oil going there, pointed out Joe Rousmaniere, business development manager at base oil marketer Chemlube International in Harrison, New York. But one problem area was that the Nigerian government ran out of money, due to the collapse in crude oil prices. Nigeria had been an enormous buyer of base oils, but they almost completely ceased shipments in the first half.

The incoming tide of base oils was also strong in first-half 2016, as imports climbed to 7.2 million barrels versus 6.6 million in the year-earlier period. So for every barrel of base oil the U.S. imported from abroad, it continued to ship out two.

Three-quarters of the imports come from just three countries: Canada, with a 29 percent share of the imports; South Korea, close behind with 27 percent; and Qatar (20 percent).

The Energy Information Administration only gathers data on U.S. lubricating base oil production from virgin refiners; rerefiners are exempt from reporting. Rerefined base oil capacity in the U.S. is a bit more than 14,000 b/d, and is almost entirely API Group II quality.

The EIA figures also confirm that U.S. refiners were holding a lot of inventory when this year began: 13.5 million barrels. Those reserves were drawn down steadily over first half of 2016, sliding to around 11.6 million at the end of February, 11 million two months later, and settling around 10.6 million barrels at the close of June.

Likely, that was the low point for inventories, a source in the U.S. Gulf Coast region said. Everyone builds inventory during the summer because they want to have barrels in the tanks going into the hurricane season. Were still putting barrels into storage now, in a couple locations, as a hedge against any weather events, this base oil executive told Lube Report, speaking on condition of anonymity.

This seller went on to note that the market is still tight on heavy grades, and even if the other grades are not as tight, overall demand seems pretty good. Id have to say that demand was not overly robust in the first half, though, except for the heavy grades like 600 vis. We saw prices get knocked down pretty far, and margins were squeezed badly. So it may be that not everyone was totally healthy with their run rates.

Eyeing the coming months, UniSources Mike Smith senses that things are beginning to slow down now as the industry looks ahead to the first quarter of 2017.

Although there is adequate capacity that can ramp up quickly if demand warrants it, I think refiners now will want to whittle their inventories down in the fourth quarter going into the end of the year, so in my opinion we may see operating rates stay the same or go a little lower, Smith said.