New Orleans – The lubricants industry is reeling from fallout from the war between the United States, Iran and Israel – a record run-up in base oil prices and base oil shortages around the world.
But the situation will probably worsen soon, according to speakers at a recent industry conference. Members of a panel discussion at the Society of Tribologists and Lubrication Engineers’ annual conference and exhibition agreed that the full impact of the crisis has been masked by drawdowns on inventories, which in many cases should run out this month.
Once that happens, finished lube blenders will be forced to reduce output, and shortages of some finished products will develop.
“Once inventories [are] drawn down, then we’re going to really see the problem,” Jim Carroll, president of the Independent Lubricant Manufacturers Association predicted at the May 20 session. He added that reduction in lubricant production, along with spikes in finished lube demand, could cause declines in lube demand. “I think we’re going to probably see a lot of destruction of demand.”
“I think we expect [the lack of base oil availability] to get worse,” said Neil Canter, of consulting firm Chemical Solutions.
The war with Iran has disrupted the global oil industry by causing the closing of the Strait of Hormuz, a narrow conduit through which 20% of the world’s crude oil supply normally travels. The closing has likewise cut off three Middle East Gulf refineries that supply a similar portion of API Group III base oils.
The reduction in crude availability has slowed refinery output worldwide and also led many refineries to shift feedstock from base oil production to fuels, shortening availability of Group I and II base oils, too.
As a result, base oils prices have roughly doubled since the war began, and many blenders – especially those relying on spot purchases – are having difficulty obtaining base oils needed for normal production levels of finished lubes. Speakers on the STLE panel agreed, though, that the full impact has yet to be felt because base oil suppliers and lubricant manufacturers have been drawing down on base oil inventories.
In many cases, they said, inventories will probably bottom out this month. At that point many more blenders will be unable to obtain the amount of base oils needed for normal lubricant production levels. Instead they will have to prioritize which products to continue making. Some end users may be unable to obtain certain lubes.
“This industry has been about the bottom line,” Canter said. “The bottom line doesn’t work any more. It’s about availability. In 40 years in the industry, I don’t think I’ve ever seen this.”