As a fuel and lubricant supplier, we pay careful attention to the industry and how it changes throughout this year. We all know that even small changes in the price of oil can have a significant effect on the consumer. In the lubrication world, the availability of base oils to create lubrication products can affect the cost and availability of widely used products. In the past year, some significant movements changed the U.S. lubrication industry. These developments may affect the supply and demand for certain products in the future, so our analysts are always keeping an eye on the industry changes so we can serve our customers best.

First, an overview of what base oils are. Base oils are a significant component of nearly every lubrication product. The American Petroleum Institute (API) has outlined five categories of base oils, the first three are all refined from petroleum crude oil, while the other two are mineral or plant-based products.

  • Group I: These types of base oils are often the cheapest on the market. They are solvent-refined and have a viscosity index range of 80-120, with less than 90% saturates. This category of base oil goes through the smallest amount of refining for lubrication products, so it is most suited for only minor lubrication needs.
  • Group II: These base oils have the same viscosity range and level of saturates as group one. However, this category undergoes a process known as hydrocracking, which is a more complicated refining process. This process gives the base oil more anti-oxidation properties as well as a more transparent color, but they remain very similar in application and price to group one oils.
  • Group III: These base oils go through an even more complicated refining process with higher pressure and heat, resulting in a higher viscosity index above 120.
  • Group IV:This category is made up of synthetic base oils, often made from polyalphaolefins or PAOs. Products made from group four base oils tend to have a higher temperature range and are great for extreme heat or cold.
  • Group V: The fifth group of base oils is a mix of everything. Nearly every other type of base oil, including mineral and plant-based oils, fit into group five. This category is used to service a wide variety of needs.

Now that you have a quick overview of what the different base oil categories are, it’s time to review the production of these oils this past year. This year was a year of change and development for the U.S. base oil production industry. Overall the pace of production was slower in 2019 than in the previous year, with an output of nearly 29 million barrels in the first six months of 2019 to 34 million barrels in the first six months of 2018. It is important to remember that many refineries perform maintenance and annual shutdowns during the first half of the year, which can affect output. This past year we did see some of the lowest production output in February and March compared to the previous year, but the outlook is not as dire as it would seem.

The downward trends of the past year indicate a changing market. Some of the U.S. industry’s biggest customers are no longer buying as they once were, while newer markets are opening. One of our nation’s biggest customers, China, is now building its base oil industry. China completed four new base oil refineries during 2019, and another primary market, Western Europe, recently completed a Group II base oil refinery in Rotterdam, the Netherlands. Additionally, India, another sponge of American oil products, has slashed its orders in favor of oil products from the Middle East.

Despite the loss of some exports to significant customers, new opportunities have risen. Exports have increased to Latin America and Mexico. Mexico has only one base oil refinery, so their demand for U.S. based products remains high. During this time of change, imports have slowed down to 7.5 million barrels compared to 8.3 million barrels in 2018. More U.S. products are staying in our country to be used here. Some other good news is that more Group III base oils will begin to be produced here, as Chevron is going to increase production at their Richmond, California plant. Group III oils are not produced in large numbers in the US, so this is a good sign of diversification for the industry.

The changes in the base oil market this past year may seem disconcerting. But like every industry, the lubrication product industry is subject to supply and demand. If manufacturers cannot get access to the materials they need to produce their products, prices and demand will rise. That’s why our team keeps a close eye on changes like these in the marketplace. We follow how these changes affect the price points of our most popular products for our customers so we can offer the best prices and service. It’s an essential part of our job that we do for you, so you don’t have to worry about it!