ILMA Compoundings - May 2021 - 16
INDUSTRY RUNDOWN
Market Report
Scrambling for Barrels
By Amanda Hay
When February's deep freeze delivered a hurricane-like
blow to U.S. refining capabilities, it also turned global
base oil markets critically tight and accelerated upward
price momentum in all regions.
Buyers scrambled for increasingly scarce barrels at everhigher spot pricing, calling heavy grades and brightstock
" liquid gold. " The global market became intensely pressured,
and prices responded to shortages in all regions, especially of
heavy grades and brightstock.
U.S. OUTAGES DRAIN BASE OIL AVAILABILITY
U.S. suppliers carried low inventories, particularly of heavy
grades of Groups I and II and brightstock, prior to the
mid-February freeze. Almost a year of lower-than-normal
refinery utilization - both in the U.S. and other regions -
left base oil undersupplied globally as demand began to recover.
The severe winter weather dropped U.S. refinery utilization to an all-time low of 56%, with the Gulf Coast region
reporting 41% utilization, according to the U.S. Energy
Information Administration. The freeze was widely characterized as worse than a hurricane, and data supports that
theory. Refinery utilization dropped to 77.7% after Hurricane
U.S. Posted Price Increases (cents/gal)
Nov 2020
Dec
20-30
Group I
20-30
Group II
20-25
20-25
Group II+
25-30
20-25
Group III
16
MAY 2021
| COMPOUNDINGS | ILMA.ORG
Harvey (2017) and 69.8% after Hurricane Rita (2005). The
low during COVID-19 was 67.6%. Immediately prior to
the freeze, utilization was 83.1%.
About 89,200 bbl/day of U.S. base oil production capacity was knocked offline from storm impacts. This represents
42% of virgin base oil production capacity and 39% of total
base oil production capacity, including re-refined Group II,
according to the ICIS Supply and Demand Database. This
includes prolonging two turnarounds underway at the time.
It took two months for base oil production to even start
to normalize, with tight supplies expected through the first
half of the year. " It's unbelievable how much inventory
has been taken out of the market, " one market player said.
" There's no additives either. Demand is so strong, but supply
is weak. I've never seen it this bad. "
With producers sold out and some on allocation, buyers
were heard to be looking for brightstock and other grades
everywhere - even from other buyers. Suppliers held
volumes for their contract customers amid force majeures
and allocations.
Buyers in South America, which typically sources 85%
of its shortfall from the U.S., were forced to turn to
Jan 2021
Feb
Mar
Total
40
30
20-40
110-140
23-42
25-30
20-50
88-152
40
30
30-35
140-155
30-40
30
35-55
140-180
http://www.ILMA.ORG
ILMA Compoundings - May 2021
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ILMA Compoundings - May 2021 - 1
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