Base Oil Supply Crisis Continues, Even as Shipping Conditions Improve
Any easing of traffic through the Strait of Hormuz would be welcome news for the lubricant industry. This development alone, however, will not immediately restore normal base oil availability in the United States, particularly for Group III base oils.
The current base oil supply crisis is not simply a shipping problem. The market is now facing a production problem layered on top of a logistics problem. Even if shipping lanes normalize, the industry still must contend with physical damage to Middle East Group III production capacity, depleted inventories, constrained alternative supply and refinery economics that continue to favor fuel production over base oils.
To help ILMA members explain the ongoing crisis to their customers, ILMA has produced a follow-up resource: Why Lubricant Prices Haven’t Come Down.
Damage and disruption at Middle East production facilities is one of the most important reasons the market cannot recover overnight. According to industry reporting, Pearl GTL in Qatar — the world’s largest Group III producer — sustained damage to one of its two base oil trains. Other Group III refineries, including Bapco in Bahrain and Adnoc in the United Arab Emirates, have reported attacks, fires, shutdowns or force majeure events. Even after shipping routes reopen, damaged or offline production capacity must be repaired, restarted and brought back to reliable operating rates before meaningful volumes can return to the market.
But U.S. availability would still lag. Cargoes must be produced, loaded, shipped, discharged, allocated and moved through the supply chain before they reach lubricant manufacturers. Many lubricant manufacturers have been drawing down stocks during the disruption, and those inventories must be replenished throughout the distribution chain before the market stabilizes. That process could take weeks or longer, depending on production levels, shipping schedules and customer allocations.
South Korea also remains an important factor. Korean refiners supply a significant share of U.S. Group III imports, but they rely heavily on Middle East crude, and their production decisions turn on refinery economics as well as crude availability. If crude availability remains constrained, or if strong diesel and jet fuel margins continue to make transportation fuels more attractive than base oil production, Korean supply may not be able to fill the gap quickly.
For lubricant manufacturers and their customers, the practical takeaway is that reopening Hormuz will likely reduce the severity of the crisis but would not reset the market immediately. Even after production returns, suppliers may continue customer allocation programs until inventories normalize and contractual commitments can be met. Pricing and availability will remain tied to production recovery, refinery economics, crude and feedstock flows, shipping reliability and the pace at which inventories can be rebuilt.
Although market conditions should gradually improve as production and logistics recover, ILMA members should continue planning for volatility over the coming weeks and months, including higher costs, longer lead times, tighter allocation for some premium synthetic products and the need for formulation flexibility where OEM specifications permit.
ILMA continues to monitor global production, shipping and refinery conditions and remains in communication with members and industry stakeholders as supply developments unfold.
