Blenders saw signs of progress this week as Motivaappeared readyat last to launch the enormous expansion of its Port Arthur, Texas, plant, and Petro-Canada took steps to restart a damaged production trainat its plant in Mississauga, Ontario. Industry insiders warned, however, that availability problems could still worsen and that recovery will be prolonged.

Several leading lubricant marketers imposed allocations in 2005 after disruptions caused by hurricanes Katrina and Rita and other factors, but they lifted them earlier this year. Some have reinstituted caps after fires at Petro-Canadas plant and the Excel Paralubes plant in Westlake, La., along with delays in Motivas expansion.

Sopus Products, Shells marketing unit for finished lubricants in the United States, issued a statement Monday saying such problems are severely limiting the availability of Group II base oils…. [T]he impact of these incidents has been felt industry-wide, affecting additive, base oil, and finished lubes suppliers.

On March 1 the company implemented allocations on heavy-duty and passenger car motor oils, tractor hydraulic oils and natural gas engine oils. Bulk shipments of those products are currently capped at 80 percent of normal monthly volumes, while a limit of 60 percent applies to packaged products.

Chevron Products Co. imposed allocations Feb. 15, capping orders for most lubricants at 100 percent but setting ceilings of 50 percent to 80 percent for some, including railroad and marine oils, transmission fluids, and food-grade lubricating oils and greases.Market sources said ConocoPhillips imposed allocations, but the company did not respond to a request for confirmation. Valvoline said it has not imposed caps but acknowledged that it may yet.

We do not currently have any customers on allocation, but the market is very tight, spokesman Marty Kisch said Monday. We are watching the situation very closely, and we cant rule out any option.

Sources said Motivas 15,000-barrel-per-day expansion began production this week, andthe company expects to have oil to sell later this week. Other sourcessaid Petro-Canada has restored heat to a damaged unit at its plant, and plans to continue the process of restarting a production train that has been idled since a Jan. 7 fire.

Those developments come none too soon for blenders waiting anxiously for base oil supply to return to normal. Petro-Canada is running behind its initial repair schedule, which aimed to restart the idled train in early March. Likewise, Motiva had targeted a Feb. 1 unveiling for its expansion but has postponed it several times.

But the market is still coping with other disruptions. Excel Paralubes remains closed after a Feb. 1 fire. Group II supplier Chevron has allocations in place because of disruptions in supply of stocks that it obtains in trades with other companies. In fact, every large Group II producer except ExxonMobil has allocations in place.

Group I refiners and smaller base oil suppliers have also felt the press, with some imposing allocations and others unable to accommodate a surge in inquiries. The continents biggest used oil rerefiner, Safety-Kleen Systems Inc., confirmed yesterday that it imposed allocations last week because of sharply higher demand for its products and feedstock.

Everybody is coming out of the woodwork asking for [base] oil because of the problems that all of these big suppliers are having, said Michael Sommer, vice president of base and blended lube oil sales in the United States. At the same time, weve had to deal with our own disruptions in feedstock; theres so much more demand to burn used oil for fuel because of whats happened to energy prices the past couple years.

Individuals across the industry agree that base oil supply is shorter now than in the fourth quarter of last year after Rita closed 42 percent of U.S. paraffinic capacity.

I dont think the industry has ever faced a situation like this, one base oil marketer said. These are the worst conditions that I have ever seen.

Still, it doesnt appear that many – if any – blenders are running out of oil. Many insiders speculated that companies focusing on engine oils would be hardest hit, since formulas for those products lean heavily on Group II stocks. In recent weeks, sources at several companies described taking extraordinary steps to obtain base oils needed to continue making products. But some insisted Monday that their production hassuffered little impact.

The base oil market is extremely tight, but weve been doing okay, said one blender, who spoke on condition of anonymity. If these [base oil plants] come back online by the first of April, I think well come out of this thing in alright shape.

Several individuals speculated that many blenders have coped by delaying deliveries to their own customers.

I think quite a few have had to delay shipments of finished products, said Greg T. Julian, president of Advanced Lubricating Specialties, a blender based in Bensalem, Pa. If a company normally works with five-day delivery lead times, they may have gone to 14 days. That kind of thing may cut into inventories of actual end users.

Others suggested some companies may deviate from formulas, perhaps making products that do not meet specifications. In the wake of last years hurricanes, the American Petroleum Institute adopted new rules in October allowing marketers, in cases of serious supply disruptions, to license new products while formula testing is still underway. API officials said yesterday that they have received a few inquiries about the program but no submissions.

Some blenders expressed hopes that base oil shortages will level off, if not ease, once repairs are completed, but many buyers and sellers agreed it will take much of the year for supply and demand to return to balance. Part of the problem, they said, is that lubricant demand is picking up – perhaps even more than normal seasonal cycles would dictate. Some warned that base oil shortages could still worsen.

I think a lot of people have false hopes that things are going to get better as soon as the damaged plants are repaired and as soon as Motivas expansion starts up, a marketer said. But supply chains are so depleted, and its going to take so much oil to rebuild inventories. Im afraid we might yet see some people run out of oil.