This years first-half total included 25.8 million barrels of paraffinic base oil plus 4.9 million of naphthenic base oil, and both shared in the gain. For comparison, in first-half 2016 paraffinic base oil production was 24.7 million barrels, and pale oil output was 4.4 million barrels.

Even the fade-out of ExxonMobils 10,000 barrel per day lube unit in Beaumont, Texas, permanently closed last spring, didnt slow the tempo as others were happy to loosen the taps and make up the difference.

Most impressively, 20.9 million barrels of base oil were exported to customers beyond U.S. borders. Not only was that a record, but it means that two of every three barrels manufactured were borne away by ship, rail or truck to another country. Previously, exports were in the neighborhood of 40 to 45 percent of production.

Domestic supply was rather snug, said Mike Smith of UniSource Energy, which markets base oils and other petroleum specialties. The market was very tight on certain products and in certain locations, with either Group II+ or Group III always tight and heavy viscosities also tight, he remarked.

Even so, the market was relatively well-balanced for the first half, Smith added. It was never out of product. You might need to truck it from further away, but you could get supply.

Demand was especially strong from Latin America, he noted, and the EIA data reflects this. Nearly half of the export gusher (9.5 million barrels) went to Mexico, Brazil, Argentina and other Latin American buyers. In first-half 2016, these markets took 6.7 million barrels.

Exports have been very strong, with materials like Group II, process oils and also petroleum solvents routinely going in ISO containers to Latin America, confirmed Smith, who is based in Naperville, Illinois. Group II is particularly prized. Customers in Latin America are looking for more volumes of the high quality products which are not made in the region. Theres a whole economic sector there that is driven by European and U.S. specifications, which means they have to use Group II.

Plenty of Group I moved offshore, too, pointed out Joe Rousmaniere of base oil and lubricant supplier Chemlube International in Harrison, New York. He saw large volumes of U.S. Group I being tapped by Asian buyers that were in urgent need because of a fire at TonenGenerals 7,100 b/d Wakayama refinery in western Japan.

The Jan. 22 fire started in the heart of Wakayamas lube train, its propane dewaxing unit, and took two days to extinguish. The facility remains off line, and may not complete repairs before year end. Most of its Group I was being exported to Asian markets through ExxonMobil distributors, and customers soon were clamoring for replacements.

TonenGeneral, which since has merged into JXTG Nippon Oil & Gas, met these commitments by shipping base oil produced at other facilities and by other suppliers-including material snatched up in the U.S. Rousmaniere observed, They drained the bank, took everything and moved it to Asia. 220 [Neutral] was tight in particular, and so were the heavy grades.

Turnaround work at leading plants also kept North American supplies on a short leash. Excel Paralubess 22,200 b/d Group II refinery in Westlake, Louisiana, was out from early March to late April. It was running well by early May, following a tricky start-up, but by then its 50/50 owners, Flint Hills Resources and Phillips 66, reportedly were looking at empty storage tanks, even though theyd topped up before the work began.

Ergons Newell, West Virginia, refinery had a brief turnaround in April. The maintenance was accomplished without incident at the 4,800 b/d site, which makes both Group I and Group II.

Chevron performed a turnaround in Pascagoula, Mississippi, (25,000 b/d Group II) during April and May, then turned to its Richmond, California, facility (20,700 b/d Group II), where it installed a new-generation catalyst in June and July. Richmond had also been off line for two months last year, from October to December.

Motivas Port Arthur, Texas, plant, the hemispheres largest with 40,300 b/d of Group II capacity, was slated for a 47-day turnaround on one of its three lube trains, which observers expected to occupy March or April. But the company pushed the work into May, completed it, and then tackled a second trains maintenance.

The net effect of the work outages was to nail a lid on spot sales. Although operators said they did their utmost to build stockpiles for expected needs, customers seemed insatiable. Many suppliers came into May or June in sold-out positions, they told LubesnGreases base oil reporter Gabriela Wheeler, and with contractual obligations coming first, the chances for spot trading were slim.

Some snugness was eased by imports. Nature abhors a vacuum, and seeing a gap appear in the U.S. market, others moved fast to plug it. U.S. base oil imports from January to June were 7.6 million barrels, 400,000 more than the same months a year ago, the EIA data show.

Leading the pack was South Korea, which sent 2.4 million barrels of base oil to the U.S. from January to June this year, versus 1.9 million barrels in the first half of 2016 and 1.8 million barrels in the second half.

Sources credited South Koreas gain to the ill health of Pearl, the gas-to-liquids refinery in Ras Laffan City, Qatar, jointly owned by Shell and Qatar Petroleum. With capacity to make 22,000 b/d of Group III, Pearl has kept Shell largely self-sufficient in base oil since 2012. But its productivity began to slump last year, and in February the ailing facility was shut down for major repair work on its gasifier units.

The pain can be read in the EIA data: In 2016s first half, Qatar shipped almost 1.5 million barrels of base oil to the U.S.; that withered to just 778,000 barrels in this years first six months.

Pearls misfortune triggered a domino effect in Group III as Shell sought out alternative sources to make up the shortfall, an official with SK Lubricants in South Korea explained to LubesnGreases. Rival buyers, finding themselves displaced, in turn had to hunt farther abroad to secure the precious molecules.

South Korea was not the only Asian source to take advantage of Pearls hiatus, which lasted into May. Indonesia, home to SK-Pertaminas 10,000 b/d Group III plant in Dumai, sent 442,000 barrels to the U.S. in the first six months of 2017. It sent zero in all of 2016.

Middle East producers also ramped up deliveries to the U.S. Bahrain sent along 500,000 barrels of Group III in the first half from its 8,200 b/d Bapco-Neste refinery in Sitra, about 20 percent more than the same period in 2016.

Adnoc, Abu Dhabis national oil company, sent substantial volumes to U.S. buyers, from its 10,300 b/d Group III refinery in Ruwais, United Arab Emirates. Shipping data from the emirate indicate that 67,000 tons (504,000 barrels) of Group III flowed to the U.S. from January to June-and about half of that went to Shell and its subsidiaries, the EIA data indicates.

Despite this avid competition, South Koreas trio of base oil refiners-GS-Caltex, S-Oil and SK Lubricants-were well positioned to slake the thirst. They have a combined 50,000 b/d of Group III capacity in the cities of Yeosu, Onsan and Ulsan, respectively; each has a well-established network of supply hubs that can serve U.S. customers; and their Group IIIs are approved for use in API-licensed automotive engine oils.

So although GS-Caltex had a 40-day turnaround from mid-March to late April and SK undertook its own maintenance work in June, product moved fairly seamlessly into the space vacated by Pearl.

Can it continue? Pearl is back online and shipping product again, so Asian refiners may not be able to sustain their U.S. market share through the second half. But as base oil expert and market consultant Terrence Hoffman reminded, the U.S. appetite for Group III is growing, not slackening.

The market has many moving parts, and about 20 percent of U.S. demand is now Group III, virtually all of it imported, said Hoffman, who is based in the Philadelphia area.

He views the inflows and outflows as a sign of a market that is rebalancing itself: Recent years saw five API Group I producers close capacity in Europe, including Colas Dunkerque, Total in Gonfreville, Shell Pernis, Nynas converting Hamburg to naphthenics, and Kuwait Petroleum in Rotterdam. Consequently that created an opportunity for Group I barrels to move from the U.S. to Europe.

At the same time, he continued, Europes new ACEA 2016 engine oil standard made it less feasible to blend Group I and Group III to make an acceptable product; you must use Group II. So base oils that dont have a market in the U.S., or have a declining share, now are going out as exports.

This rebalancing hints at a fundamental change, Hoffman added: It used to be that 95 percent of U.S. demand was satisfied by base oil made in the U.S. Now you need Group III to make transmission fluids and a lot of our passenger car motor oil. This shift in quality demand means that some products just dont have a home here today.

Excess capacity further spurred exports, Hoffman said. Take Chevrons Pascagoula plant: All the base oil that Chevron used to buy is now produced at Pascagoula, so those sellers who used to supply Chevron now go abroad for customers. And ExxonMobil added Group II in Baytown, Texas. In all, I figure about 50,000 barrels a day of U.S. paraffinic base oil has to leave the country to find a buyer. Thats production that is incidental to North America.

Operators have trimmed their sails to this reality, he said. As evidence, he noted that EIA data show that ending stocks of base oils-whats held in refinery tankage at the end of each month-have tapered back to their former levels of around 9.0 million to 9.5 million barrels. They had bloated up to 11 million to 12 million barrels (and sometimes higher) throughout 2015 and 2016.

For a period of time, U.S. refiners had to hold more inventory, but now theyve created terminals and hubs abroad and filled them, Hoffman said. Theres nothing a refinery manager hates more than seeing money tied up in inventory, and once they figured out how to load-level on a global basis, theres no reason to hold any more inventory than we did five years ago. With all the turnarounds this spring, it was the perfect opportunity to reduce inventories to their old levels.

Looking ahead, Pearl is back and most U.S. and Asian facilities were running well after their maintenance work. That seemed to foretell blue skies. But even as EIA was publishing the January-to-June data, with its sunny picture of U.S. base oil output, Hurricane Harvey was hacking away at the Gulf Coast. (See page 80.) The damage to refining is still being measured.

We may have thought availability was tight in the first half, UniSources Mike Smith said, but after Harvey we may see just how bad it can get.

On the plus side, he added, there are only a few turnarounds scheduled for later this fall and into next spring. Hopefully that will help keep things running. But it will take months for inventories to return to so-called normal levels, never mind historical ones. I expect things are going to be pretty skinny for a while.