Costco Limits Motor Oil Purchases as Iran War Disrupts Supply Chain

The war with Iran is increasingly being felt by American motorists as disruptions to energy production and shipping tighten supplies of the high-grade base oils needed to manufacture synthetic motor oil.

The price of Group III base oil — a critical ingredient in many full-synthetic automotive lubricants — reached a record $12.45 per gallon on Sept. 18, nearly four times its level in February, the Financial Times reported, citing Argus Media price assessments. Argus has separately reported that U.S. base-oil supplies have been tightening, with Group III prices among those reaching record highs as the U.S.-Iran conflict disrupts global energy markets.

Costco restricts purchases as prices climb

The supply squeeze has now reached major U.S. retailers. Costco is selling its Kirkland Signature full-synthetic motor oil in two 5-quart containers for $57.99, compared with roughly $30 last year, according to the Associated Press. Costco’s own product listing confirms that customers are limited to a maximum of two 10-quart packages every seven days per membership.

Other parts of the auto-maintenance industry are feeling the same pressure. Jiffy Lube CEO Mauricio Quezada said his company’s roughly 2,100 locations continue to have product available, but warned that intermittent shortages are likely. “There will be some spot outages that we just have to deal with,” Quezada told the Financial Times.

Valvoline has been better insulated from shortages because of its large supplier network, but its costs are rising sharply. CEO Lori Flees told the Goldman Sachs Global Consumer and Retail Conference that the company expects finished lubricant costs to climb as much as 60 percent above pre-conflict levels. “At the end of the day, prices rise, and that is exactly what we have seen,” Flees said, according to the conference transcript.

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Valvoline estimates those higher lubricant costs have already translated into roughly $5 to $7 more per oil change at company-operated locations. Despite those increases, Valvoline CFO Kevin Willis said the company currently has adequate supplies and does not expect an immediate shortage across its network.

The situation appears less secure for smaller independent garages and lubricant blenders, which lack the purchasing power and international supplier networks of major chains. The Financial Times reported that some shops are having particular difficulty securing specialized synthetic oils required for newer vehicles.

Iran conflict hits a critical link in the supply chain

The shortage goes beyond the general rise in crude-oil prices. The more serious problem is damage to the relatively small number of facilities capable of producing the high-quality Group III base oils used in modern synthetic lubricants.

One major blow came on March 18, when an attack on Qatar’s Ras Laffan Industrial City damaged one of two production trains at Shell’s Pearl gas-to-liquids facility. Shell said the damaged unit will require “around one year for full repair of train two,” according to the company’s official update on the Middle East conflict.

Pearl is particularly important because it produces premium base oils used to manufacture advanced lubricants. Shell said the other production train was not physically damaged but exports were already constrained by disruption in the Strait of Hormuz before the March attack.

The Independent Lubricant Manufacturers Association raised alarms almost immediately. In March, it asked the U.S. Department of Energy and the American Petroleum Institute for emergency assistance as Group III supplies disappeared from the spot market. “This is an extraordinary situation that lubricant manufacturers simply cannot control,” ILMA CEO Holly Alfano said in the association’s request for emergency relief.

ILMA estimates that about 44 percent of U.S. Group III demand normally comes from the Persian Gulf, making the American lubricant industry particularly vulnerable to interruptions in the region. The association said in April that much of that supply had gone offline while damage to the Pearl facility alone removed a source capable of producing roughly 30,000 barrels per day.

The Strait of Hormuz creates a second bottleneck. Valvoline CFO Kevin Willis explained that while some Group III oil is produced in the Middle East, South Korea is also a major manufacturer — and its refiners rely heavily on crude arriving from the Gulf.

“Group III, just as a reminder, is the primary ingredient for full synthetic motor oil,” Willis said during the Goldman Sachs conference. He said disruption through Hormuz has made it harder to move crude to Asian refiners that would normally help supply the U.S. market.

That combination — damaged Middle Eastern production, restricted tanker movements and limited alternative manufacturing capacity — has turned what might otherwise be a regional energy disruption into a global lubricant shortage.

Supply could take months to recover, but experts urge against panic buying

Even if shipping through the Strait of Hormuz returned to normal immediately, industry executives say the shortage would not disappear overnight.

Valvoline’s Flees said the entire chain would have to restart, including crude shipments, refining, base-oil production, blending and distribution. Once the strait is fully reopened, “you are looking at four-six months” before Group III supply returns to more normal levels, she said during the Goldman Sachs conference.

Industry representatives have warned that some effects could last considerably longer. ILMA said in July that the market faces both a transportation problem and a production problem, with damaged facilities, depleted inventories and limited alternative supply preventing an immediate recovery even if shipping conditions improve.

For ordinary drivers, however, analysts say Costco’s purchase limits are unlikely to create a serious problem.

Unless someone operates “a fleet of thousands of cars,” there is little reason for most motorists to stockpile motor oil, GasBuddy head of petroleum analysis Patrick De Haan told Nexstar. “The normal car requires four to five quarts every 5,000 miles or so,” he said, describing Costco’s limit as more than sufficient for typical household use.

Drivers may also be able to wait longer between oil changes than they realize, depending on their vehicle manufacturer’s specifications. ILMA’s Alfano told Reuters that modern lubricants generally outperform the oils used when 3,000-mile changes were commonly recommended.

“The quality of the motor oil is much higher now, and it lasts longer,” Alfano said. She urged motorists to follow the maintenance interval specified by their vehicle manufacturer rather than unnecessarily changing oil early.

Costco itself likewise advises customers to consult their vehicle owner’s manual for the recommended drain interval. For many motorists, that means the immediate effect of the shortage is more likely to be higher prices than an inability to obtain oil at all.