During the first half of May, spot prices for West Texas Intermediate crude averaged around $70 per barrel. Based on this number, the gross refining margin for the lowest-priced Group I base oil in mid-month was $1.18 per gallon. This was nearly twice as high as the margins of 60 cents to 65 cents that were typical early this decade, and those margins were heftier than the industrys average over the previous decade.

Several factors have played a role, starting with an unprecedented string of disruptions that severely crimped supply. Also, refiners are diverting some base oil production to fuels to take advantage of even better margins.

But some base oil buyers suggest the scales may be tipping in the other direction. Most operational problems are now resolved, meaning production levels have returned to normal. In fact, capacity jumped in March, when Motiva completed a huge expansion at its Port Arthur, Texas, plant. SK completed a smaller expansion at its Ulsan, South Korea, plant – which sends much of its output to North America – and Petro-Canadas Mississauga, Ontario, plant is scheduled to do likewise by next month.

All of that new capacity has to create something of an oversupply, and that should have an impact on margins, one base oil buyer said.

Others are less optimistic. They note that many in the industry have decided to increase inventories to hedge against future disruptions, and they predict that this will keep demand elevated for months to come. Then there is the possibility of new disruptions.

The market is so fragile right now, another buyer said. If something else happens, we would really be in a mess. And here we are on the verge of another hurricane season.