ILMA Compoundings - February 2021 - 11

U.S. Lubricant Production through September (barrels)
Year

Paraffinic

Naphthenic

2016

39,032

6,421

2017

39,571

7,546

2018

43,843

7,431

2019

37,791

7,654

2020

33,897

5,941

Source: EIA

The difference is that after previous events that triggered
a massive drop in refinery utilization - most notably
hurricanes in the U.S. Gulf and economic downturns -
rates bounced back within a couple of months. During the
financial crisis, rates had normalized within a month. After
Hurricanes Rita and Harvey, when rates fell to 69.8% and
77.7%, rates had normalized within two months.
The high point for U.S. refinery utilization following the
coronavirus plunge was 82%. That was prior to outages
from Hurricane Laura. Utilization still has not topped 80%.
Compared to a normal year - one without a triggering event like hurricanes or economic downturn - the
difference in 2020 was more pronounced. The period from
March to November of the last five years, excluding 2017
because of Hurricane Harvey, had a median refinery utilization rate around 90%. In 2020, it was 75%.
The U.S. remained about 10% off of normal refinery rates
as 2021 began.
BASE OILS AT THE MERCY OF FUELS
Base oils demand has been strong since June 2020, particularly in export markets. Heavier cuts of Groups I, II and III
are in short supply. Brightstock is nearly nonexistent.
Refiners are in the fuels business, not the base oils
business. Demand is still off for gasoline and diesel, but the
largest problem is jet kerosene. Some jet fuel is going back
into the vacuum gas oil (VGO) pool, but this problem has
forced refiners to keep their rates lower to limit the fuel.
It has not yet made economic sense to increase crude
runs for many refiners, and this has translated to limited
feedstock VGO for base oil units. The impact has been clear
in lubricant production figures.
U.S. lubricant production was down by 12% year
to date through September 2020 compared with 2019,

according to the EIA. Paraffinic production was down
by 10%, and naphthenic production down 22% through
September. October marked the highest output month
of the year, but overall production was still down by 10%
compared with 2019.
Recovery in fuels demand will be slow. " In general, we
see a gradual recovery of rates over the next three years, "
said Michael Connolly, senior refining consultant for ICIS.
" While we predominantly expect gasoline and diesel markets
to recover by 2022-2023, jet will take longer, so this will
keep overall rates down a little longer. "
UNPRECEDENTED PRICE SWINGS
Dramatic supply and demand fundamentals have spurred
equally dramatic export price fluctuations.
Historically low demand pressured U.S. Group II N220
export prices to record lows in the ICIS price series' history.
It fell 30 cents per gallon lower than the previous low, which
occurred during the 2015-2016 crude downturn.
Tight supply has since pressured the price series nearly to
its highest point in ICIS price history - only 4 cents per
gallon below the record high.
There is a $1.30 per gallon difference between the 2020
low and high points. Previously, the largest difference within
a single year was 71 cents per gallon, which occurred as
crude prices rebounded in 2017.
In another anomaly, export prices have lifted to a premium to domestic prices for the first time. The discount had
recently been 20-30 cents per gallon.
Hay is senior editor manager at ICIS. She may be
reached at amanda.hay@icis.com.

ILMA Compoundings - February 2021

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