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Base Oil Report


The box score is in on the damage Hurricane Rita did to the U.S. base oil market, and the numbers are sobering if not surprising.

Paraffinic production in October was down almost a quarter, according to data posted in late December by the U.S. Energy Information Administration, due to temporary shutdowns of four plants in Texas and Louisiana.

The impact was somewhat lessened thanks to ramped-up output in other parts of the country. Still, industry observers say it will be months before the market fully recovers.

The plants that Rita sidelined account for 42 percent of U.S. paraffinic capacity, so the storms impact on the base oil market was unprecedented. All four closed ahead of Ritas Sept. 24 landfall. Three did not resume production until the second half of October, and the other plant remained shut in early January.

According to the EIA, the nations paraffinic output this past September was 15 percent below the average for that month over the previous five years. October took a bigger hit, as its 3.3 million barrels were 24 percent below the five-year average. Of course, the drop-off occured in the Gulf region, which produced about 1.8 million compared to an average of 3 million barrels each October from 2000 to 2004.

Plants in other regions increased production significantly, generating 183,000 barrels more than normal October levels.

People throughout the industry have said it withstood the crisis surprisingly well – that remarkably few lube blenders ran out of base oil or were unable to make finished products. But there is also broad consensus that supply is still tight and will remain so for several months. Suppliers and buyers are still working to replenish drained inventories. The recovery may have been aided by the fact that base oil demand usually slows during winter, but it will likely be challenged in spring, when demand normally peaks.

A 15,000 b/d expansion at Motivas plant in Port Arthur, Texas, would seem to offer relief, but that plant and Excel Paralubes Westlake La., plant are both scheduled for maintenance shutdowns in the spring.

I dont expect the market to get back to normal until the second half of 2006, one buyer said. The market is going to be very fragile until then. Any new disruptions and we could really be in trouble.

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