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Prices at the pump have surged and global fertilizer shortages are spreading because of the war in Iran, but the most immediate supply chain crisis hitting consumers may be one that arrives every 5,000 miles: the routine engine oil change.<\/p>\n
Despite the United States\u2019 world-leading oil production and refining capacity, the country is increasingly dependent on Middle Eastern supplies for the specific base oils that comprise most modern motor oils and lubricants. Now, lubricant refiners, automakers, and oil change service stations are sounding the alarm\u2014prices are spiking, and supply shortages will hit in June.<\/p>\n
The catalyst is the ongoing closure of the Strait of Hormuz since late February. Spot prices for the affected base oils have nearly tripled to all-time highs, while many motor oil prices are up roughly 35% and still climbing, according to industry analysts.<\/p>\n
The Independent Lubricant Manufacturers Association has warned of a \u201cglobal base oil supply crisis\u201d and an \u201cimminent shortage\u201d of low-viscosity motor oils\u2014the most common grades used in newer vehicles today.<\/p>\n
\u201c[Auto shops] are being warned by their suppliers that availability will be a problem in June, and certain types of oil will become more scarce,\u201d said Michael Chung, senior director of market intelligence for the Auto Care Association. \u201cThey\u2019re actually expecting a huge [motor] oil price increase in June.\u201d<\/p>\n
Chung told Fortune that more people are expected to delay oil changes as prices rise, triggering a temporary dip in demand. Even so, the situation hasn\u2019t yet reached a point where shops cannot perform the service.<\/p>\n
\u201cPeople are doing the things that are urgent, but waiting on things that aren\u2019t so critical. I just feel like the consumer is a punching bag these days,\u201d Chung said. \u201cIt\u2019s inflation from all sides and the stress of everything that\u2019s going on in the world. Customers have basically been absorbing costs.\u201d<\/p>\n
The crux of the problem lies with so-called Group III base oils, primarily sourced from the Middle East. About 60% of those base oils go toward motor oil and other automotive applications, but they also supply critical lubricants for industrial manufacturing, agriculture, and the military\u2014all of which depend on them to keep heavy machinery running.<\/p>\n
Tom Glenn, president of Petroleum Trends International and editor of the lubricants publication JobbersWorld, explained that modern motor oils are highly engineered with demanding performance and efficiency requirements. They require specialized base oils, and the precise additive packages used often require the same base oils. While the industry is working to develop alternative formulations, viable solutions are still in progress.<\/p>\n
The American Petroleum Institute, which sets industry standards, invoked \u201cemergency provisional licensing\u201d to give manufacturers flexibility as they pivot to alternative base oil supplies\u2014typically lower quality\u2014not directly impacted by the war. But Glenn stressed this is not a blanket waiver: Each waiver application requires separate technical documentation demonstrating that performance standards won\u2019t be compromised. The U.S. shortage, in other words, is not for all lubricants\u2014it\u2019s for consistent, fully compliant lubricants.<\/p>\n
\u201cI think the pain will grow to a point where solutions will be found,\u201d Glenn told Fortune. \u201cRunning out of oil is not an option. A car rental fleet is not going to say, \u2018No, we have no cars to rent today because we no longer have oil to change in these vehicles.\u2019<\/p>\n
\u201cFor consumers. I don\u2019t think there\u2019s a need for panic yet,\u201d he added. \u201cThere is a need for awareness that prices are going to go up.\u201d<\/p>\n
Sudden wave of awareness<\/p>\n
Costa Kapothanasis, CEO of the oil change retail chain Costa Oil, jokingly posted a photo on social media showing canola oil being funneled into an engine block. The caption: \u201cHow we are responding to the motor oil shortage.\u201d<\/p>\n
He also has shared internal memos from Toyota and Nissan warning of the shortages. Toyota and Exxon Mobil offered \u201csubstitution guidelines\u201d for lubricants. Nissan cited \u201creduced production capacity for most lubricant products,\u201d saying it is allocating supplies at 55% of prior-year volumes and seeking alternatives from other suppliers.<\/p>\n
Patrick De Haan, head of petroleum analysis at\u00a0GasBuddy, pointed to an AutoZone memo warning that the industry is \u201cfacing the largest supply shortage of lubricating fluids in the modern history of America\u201d with supplies falling roughly 40%.<\/p>\n
\u201cThis is the collateral damage and the cascading impact of the strait being shut down,\u201d De Haan told Fortune. \u201cYour next oil change may be more of a headache. Expect to pay more. It\u2019s not that the dealer just wants to mark it up; it\u2019s a supply-and-availability issue, and that may not fix itself until well into 2027.\u201d<\/p>\n
The grades most affected are light-viscosity synthetic oils, including 0W-8, 0W-16, and 0W-20.<\/p>\n
The major lubricants manufacturers\u2014Valvoline, Exxon Mobil, Chevron, BP Castrol, and Shell\u2019s Pennzoil and Quaker State brands\u2014generally carry higher costs and stricter standards. Glenn expects smaller, private-label manufacturers to gain market share during this crisis, as they did during the COVID-19 pandemic rebound. The major companies said in statements that they are adequately supplied for now to meet contractual obligations and are working proactively on compliant alternative formulations But reformulations take time given the technical, safety, and regulatory hurdles, they said.<\/p>\n
Exxon Mobil is working to produce more Group III base oils from its Baytown, Texas refining complex, but that won\u2019t be completed until 2028. Chevron aims to churn out the specific base oils from its Pascagoula, Mississippi refinery, which would come online at the end of this year or early 2027.<\/p>\n
In the three months of the war, the industry has seen three rapid waves of major price hikes\u2014unprecedented for a sector that relies on gradual, predictable pricing movements, Glenn said.<\/p>\n
\u201cIt was eye opening to see three price increases come in so quickly,\u201d Glenn said. \u201cIt was really the significant magnitude and the frequency.\u201d<\/p>\n
How this unfolded<\/p>\n
After the U.S. and Israel initiated the war, Iran responded by striking Gulf neighbors and their refining infrastructure. Among the targets were the three primary producers of Group III base oils: Shell\u2019s Pearl GTL complex in Ras Laffan, Qatar; the BAPCO refinery in Bahrain; and the ADNOC Ruwais refinery in the United Arab Emirates. The Pearl facility was particularly hard hit, and Shell says it will take about a year to repair.<\/p>\n
Even if the strait reopens and oil flows resume, the Group III supply won\u2019t return to normal anytime soon given the damages, said Amanda Hay, deputy managing editor for global base oils at ICIS information services firm.<\/p>\n
Group I and II base oils are lower quality, so modern engine oils have come to depend on Group III supplies, which are more easily refined from certain Middle Eastern petroleum grades through sophisticated hydroprocessing techniques.<\/p>\n
\u201cThe U.S. is uniquely exposed here because we take the largest share of exports from the [Middle East],\u201d Hay said. \u201cWhat the U.S. produces is great for gasoline, but it is not ideal for base oil.\u201d<\/p>\n
About 44% of the U.S. Group III supplies come from the Middle East. Another 30% is shipped from South Korea, but Korean imports also are at risk because Korea largely refines its base oils with crude oil from the Middle East.<\/p>\n
\u201cThe automotive industry is moving towards a greater reliance on Group III, and we were moving toward greater reliance on foreign supply for Group III,\u201d Glenn said. \u201cThat\u2019s where you had somewhat of a perfect storm of problems occur where we need more and less is available. And that\u2019s where we are today.\u201d<\/p>\n
Other refineries cannot easily pivot to produce more Group III base oils either, largely because any spare capacity is devoted to diesel and jet fuel, which are more profitable and face their own supply constraints.<\/p>\n
Nearly 50% of crude oil is used to make gasoline, while 30% goes to diesel. Just over 10% is set aside for jet fuel. Lubricants account for only 1%\u2014relatively small in volume, but critical in function.<\/p>\n
\u201cThis is 1% of the barrel. It\u2019s small, but quite important because you do need motor oil to run your car,\u201d Hay said, \u201cunless you\u2019re in an EV.\u201d<\/p>\n
#imminent #oil #crisis #isnt #pumpits #hood<\/p>\n","protected":false},"excerpt":{"rendered":"
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