By Matt Egan, CNN
New York (CNN) — Wholesale motor oil prices are rising rapidly, and some industry executives are warning of imminent shortages caused by the war with Iran.
Damage to key facilities in the Middle East and the shutdown of the Strait of Hormuz have combined to create a perfect storm in this tiny but critical corner of the oil market.
The risk is that some of the most popular kinds of motor oil will be in very short supply, forcing drivers to delay getting their oil changed or rely on suboptimal lubricants.
“We’re looking at shortages — I have no doubt in my mind,” Holly Alfano, CEO of the Independent Lubricant Manufacturers Association (ILMA), an industry trade group, told CNN. “It’s a big mess — and it’s not going to be resolved quickly. It could take a year or so before we see any real relief.”
The most important motor oil
Tom Glenn, president and founder of Petroleum Trends International and publisher of industry publication JobbersWorld, has chronicled the multiple rounds of dizzying price hikes on motor oil since the war started.
“Three rounds of price increases over two and a half months is unheard of. And the magnitude is stunning,” Glenn told CNN. “I’ve been in this business since 1979, and I’ve never seen anything quite like this.”
In a normal year, motor oil producers would increase prices for distributors by 70 to 80 cents a gallon. But already this year, Glenn said, some producers have lifted prices on distributors buying in bulk by $5 or more a gallon.
These price hikes are being driven by a combination of higher prices for crude oil, base oils, additives, transportation, packaging and logistics.
Not only are prices rising, but ILMA warns of an “imminent shortage” of low viscosity grade oils, including 0W-16, 0W-8 and 0W-20 — which is the most important grade of motor oil on the market today.
It’s the go-to motor oil for newer vehicles, accounting for roughly one-third of total passenger car motor oil demand last year, according to Petroleum Trends International.
‘Safety valve is effectively closed’
The motor oil situation is another reminder of the fragile nature of global supply chains.
The problem is that almost half (44%) of the most important base oil used to make motor oil, known as Group III, comes from just three Persian Gulf producers, according to ILMA.
Those Middle East supplies have been derailed by the closure of the Strait of Hormuz after the war started in late February.
Not only that, but Pearl GTL, the world’s largest gas-to-liquids (GTL) plant located in Qatar, was attacked and seriously damaged in Iran. That means one of the leading suppliers of Group III base oils has been knocked offline indefinitely.
“The US is expected to run out of Mideast Gulf-origin Group III by June,” ILMA said in a bulletin published last week.
Normally, the United States would turn to South Korea to fill the gap, but Asian refiners rely on the Strait of Hormuz for much of their crude. And Asian refiners that do have access to crude are focused on making as much jet fuel and diesel as they can to capture historically high profit margins.
Motor oil can also be made with Group II base oils, but those are also being diverted to diesel to meet demand and historically high margins.
“The Group II safety valve is effectively closed,” ILMA said in its bulletin.
Talks with Trump administration
Alfano, the ILMA CEO, said her group is hearing anecdotal reports that certain parts of the United States are already facing shortages.
“It’s going t