Transcending Frontiers
Never has the significance of globalization been more evident than at the current time, when a deadly and highly infectious virus has managed to wreak havoc in a vast majority of nations, regardless of the political stance, religious beliefs, ethnic background and economic standing of their population.
The actions of a few may shape the fate of many others. Within the base oil industry, the measures taken by producers and rerefiners in one region as they dealt with the effects of the pandemic at home affected other regions significantly.
A majority of refiners dialed back refinery runs in the second quarter of 2020 in response to the dramatic drop in fuel demand caused by lockdowns and stay-at-home orders. Many refineries that house base oil plants saw base stock production plummet.
Once lockdowns were lifted in late May and fuel and lubricant demand began to recover, base oil suppliers raced to fill orders, but it was difficult to catch up with requirements because facilities were still running at reduced rates, and the market tightened. Production setbacks along the United States Gulf Coast on the back of several hurricanes exacerbated the tight conditions.
The U.S. typically exports large quantities of base oils at the end of the year, particularly to India and Mexico, as producers attempt to lower domestic inventories. While export demand was strong during the last quarter, only a limited number of cargoes were available for shipments.
Perhaps it came as no surprise when buyers were informed that ExxonMobil would raise U.S. posted prices by 40 cents per gallon across the board in late January. This move opened up the floodgates, with a majority of paraffinic and some naphthenic suppliers nominating similar increases in rapid succession.
Meanwhile, availability in Europe, Asia and the Middle East remained scarce on curtailed production rates and increased demand. What may have worked in the past, when shipments from one region covered temporary production gaps in another, did not appear to be an option this time. Many buyers were vying for the same barrels of base oils, leading to limited spot supply and a steady increase in export pricing. The supply shortage was expected to persist largely unabated into the first quarter of the new year.
Gabriela Wheeler is base oil editor for Lubes’n’Greases. Contact her at Gabriela@LubesnGreases.com.