The U.S. base oil market continued to deteriorate in late February, as Chevron and Motiva implemented sales allocations. Sources said these actions further choked availability of API Group II oils. Some said the market is in such bad condition that it will not return to normal until well into the second half of this year.
Chevron imposed its allocations Feb. 14, informing customers that orders for various grades would be capped at between 65 percent and 100 percent of previously projected volumes. Although this had a direct impact on Chevron customers, it apparently did not represent a further tightening of overall supply; Chevron said its plant in Richmond, Calif., was still operating at a high level and that it imposed limits because of disruptions at other suppliers from which it buys base oils.
Motivas allocations, imposed Feb. 24, did represent a new disruption. The company attributed its action to a lengthy maintenance turnaround at its Port Arthur, Texas, refinery – involving equipment outside the facilitys base oil plant – which it said conflicted with attempts to start a new production train in the base oil plant.
ConocoPhillips and Flint Hills Resources were already in force majeure because of a fire that closed their Excel Paralubes Westlake, La., plant Feb. 1. In addition, Petro-Canadas Mississauga, Ontario, plant had been operating at half capacity since a Jan. 7 fire. Excel Paralubes hoped to resume normal operations around March 20, Petro-Canada in early March, sources said.
The parade of problems took a heavy toll on a market already weakened by Hurricane Rita. In early March, lubricant blenders acknowledged taking extreme measures to obtain oil needed to continue operating, and predicted some blenders would soon run out of some grades.
Buyers and sellers predicted the market will not return to a normal demand-supply balance until three to six months after plant operations are restored – assuming no further disruptions. Some said the period of disequilibrium will probably be prolonged by desires by producers and blenders to maintain bigger inventories going forward.
I think everyone will try to keep higher inventory levels than they had, one marketer said. Its very possible that well get hit by a hurricane again, even if it doesnt happen this year. Lessons have been learned and people dont want to get caught in a situation like this again.