The ongoing military conflict with Iran has put a strain on the world’s oil supply, and in the short term that’s showing up in what Americans pay for gasoline. However, the impact of shortened supply is spreading, and soon vehicle owners are going to feel the pinch even harder.
According to the Independent Lubricant Manufacturers Association (ILMA), a group of its representatives met with the U.S. Department of Energy recently to discuss rising concerns about shortages of base oil supplies.
Base oils are used as lubricants and are categorized in four groups. However, it’s Group III base oils that are preparing to put a bigger crimp on American consumers. Group III base oils are used by automakers to lubricate the insides of car engines in the form of synthetic oil, and they are most affected as the Strait of Hormuz remains closed due to the war with Iran. Sixty percent of Group III base oils are used in automotive applications, i.e. synthetic oils.
Nearly 45 percent of Group III base oils comes from the Persian Gulf, either the tankers unable to use the Strait of Hormuz or from production facilities currently offline in the region. The ILMA points out there are no simple ways to resolve the problem.
“Compounding the issue, South Korea — responsible for about 30 percent of U.S. Group III imports — relies heavily on crude oil shipments from the Persian Gulf. While Korean refiners may pivot to alternative crude sources, lower yields are expected,” the group wrote in a recent report.
Exacerbating the issue is that U.S. oil producers aren’t positioned to take up the slack. While they do produce Group III base oil, the additional capacity to make up the shortfall won’t be operational until next year when refineries by Chevron and ExxonMobil come online. These types of oils can be “re-refined” but producers have limited capacity and don’t have the materials or feedstock necessary to produce it.
Few products follow the laws of supply and demand like oil does and supplies are only getting shorter, which means U.S. consumers can not only expect to see the price at the pump rise for the foreseeable future, pulling into the bay to get your oil changed and other automotive lubricants needed to keep a car in working order is going to mean more money out of the pocket of consumers.
General Motors may be first affected as its Dexos oil products rely on Group III base oils, meaning GM product owners may find it hard or expensive — or both — get the right Dexos product for their vehicles. So concerned is the ILMA about this issue, it appealed to GM to allow for “temporary flexibility” for Dexos licensees so they can adjust the blends used to produce Dexos products.
The company offered sympathy, but no flexibility, saying in a letter to the organization, “We recognize that Group III supply constraints may continue for some time, and we encourage additive companies and oil marketers to submit technically justified alternative group III base oils for evaluation.”
[Images: AAA, U.S. Dept. of Energy, General Motors]