HOUSTON (ICIS)--US paraffinic base oil production reached a record low in February, according to the latest US Energy Information Administration (EIA) data, which date back to 1993.
Low stocks after 2020 paired with polar storm impacts put US refiners in a vulnerable position ahead of a potentially active US Atlantic hurricane season.
The data confirm projections that February’s polar storm could be worse than a hurricane in terms of effects on refinery output.
February 2021 production was lower than September 2008 (Hurricane Ike), September 2005 (Hurricane Rita) and September 2017 (Hurricane Harvey).
The polar storm shut down 42% of total US virgin production capacity, according to ICIS data, by affecting four major refineries: Motiva (Port Arthur, Texas), ExxonMobil (Baytown, Texas), HollyFrontier (Tulsa, Oklahoma) and Calumet (Shreveport, Louisiana).
Motiva and ExxonMobil were unplanned shutdowns, while HollyFrontier and Calumet were on turnarounds that the storm prolonged.
Broken down by API group, the impacts to those respective groups are larger.
February’s record may not hold for long.
March data, which the EIA will release in early June, are likely to show even lower volumes of base oil produced because the affected refineries were offline for the majority of March.
Most refineries had resumed base oil production by April, although production ramp-up is slow and sales allocations remain in place for some refiners.
The impact of February’s storm on US base oil supplies will be felt for months to come.
Recovery will not be as quick as hurricanes because US refiners typically plan for hurricanes and build stocks in the months leading up to the most active period of the Atlantic hurricane season - typically late August through October.
US refiners could not have planned for the polar storm.
Both the freezing weather and widespread power outages were unforeseen and highly unusual for the US Gulf Coast.
Even if US refiners could have predicted the storm’s potential impact to operations, it would have been very difficult to plan for a shutdown.
US inventories were already lower than normal after 2020, when full-year base oil production was at its lowest level since 2012 (previous low points shown in coral).
US refinery rates are slowly recovering from pandemic depths, but February’s polar storm sent US utilisation to a record low, according to EIA data.
US refiners have not yet reached pre-pandemic utilisation rates amid ongoing lower-than-normal fuels demand. Typically, rates are in the low-90s.
With fuels demand unlikely to return to pre-pandemic levels because of ongoing air travel restrictions, refinery utilisation is expected to remain lower than normal.
This will have a knock-on effect on base oil production with a limited amount of feedstock vacuum gasoil (VGO) available to produce base oil.
While reduced refinery utilisation is a global problem , the US is in an even worse position as it tries to recover from the polar storm.
This year's hurricane season is expected to be more active than normal, but US refiners do not have the inventories they usually do at this time of year. Building stocks will be a challenge.
There is an expectation that it will take until after hurricane season to begin to rebalance supplies in the US.
Base oils are used to produce finished lubes and greases for automobiles and other machinery.
Focus article by Amanda Hay