The COVID-19 pandemic wreaked havoc on the United States base oil market during 2020. It was, as industry veteran Stephen Ames called it, the “year of the perfect storm for refiners.”
For the entire year, the U.S. produced only 55.6 million barrels of base oils, lagging about 9% behind 2019’s 60.9 million barrels, according to data from the U.S Energy Information Administration. After steep declines early in the pandemic, monthly base oil output rebounded to 2019 levels by the end of 2020, but hurricanes and maintenance turnarounds also made dents in full-year output.
Ames, who is managing director of SBA Consulting LLC, pointed out that base oil production was on the decline even before the virus reared its ugly head. “Poor refining margins since late 2019, before the outbreak of the pandemic, were a big disincentive to running crude, even for base oils. Most refiners were losing money in the fourth quarter of 2019, all during 2020 and even into the first quarter of 2021. They minimized their crude runs to curb losses, even shutting a number of refineries.”
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As explained in the January issue of Lubes’n’Greases (“No Base Oil Plant is an Island”), most base oil plants are integrated into larger fuels refineries. This integration makes base oil production at least partially dependent on what is going on at the refinery as whole. When demand for fuels tanked at the beginning of the pandemic, refinery economics necessarily changed.