Be Careful What You Wish For
A little over year ago, when an unknown virus plunged the world into a pandemic, base oil market participants started to feel its effects on business. It manifested as a sharp slump in fuels, base oils and lubricants consumption, given the population’s thwarted mobility as lockdowns and other measures were implemented. Refiners were forced to reduce run rates to prevent overproduction.
Little did anyone know that a year later the situation would turn on its head, and a dramatic global tightening of base stocks would become the main factor impacting business and pricing.
Following re-openings and increased mobility in 2020’s third quarter, supply became snug. In February 2021, the situation was exacerbated by unplanned production outages in the United States brought on by frigid weather causing power, gas and water outages in Texas and other swaths of the country. As a result, producers Motiva and ExxonMobil declared force majeure on base oil production and placed customers on allocation.
A number of plants in the U.S. and several units in Asia also underwent maintenance in the first quarter of 2021 or were scheduled for turnarounds in the following weeks.
Lubricant manufacturers faced the challenge of obtaining enough base stocks, chemicals and other raw materials to keep operations running, as many of their suppliers were located in areas where plant shutdowns had taken place.
Not only did manufacturers have to deal with raw material shortages, but also with the difficult task of offsetting the rising costs of base oils and other feedstocks.
Between February 19 and March 3, U.S. paraffinic and naphthenic base oil producers initiated a round of price increases that raised values by 25 to 45 cents per gallon, depending on the grade and the producer. This round came on the heels of two previous initiatives in less than three months. Prices also jumped in other regions, with Asia seeing record levels by early March.
While many players had worried about a lack of demand and oversupply on the eve of the pandemic, a year later many are wishing for more availability and less challenging conditions. Neither situation is ideal, but the industry has demonstrated throughout the years that it is resilient and quick to adapt to the ever-changing business environment. This time will likely be no exception.
Gabriela Wheeler is base oil editor for Lubes’n’Greases. Contact her at Gabriela@LubesnGreases.com.