Will Global Oil Disruptions Keep Auto Costs Elevated Into 2027?

Stacey Miller 0:26

Earlier on traction control, we reported on rising gas prices and a growing shortage of synthetic motor oil. Since then, the energy crisis has continued to develop, with new disruptions to oil production, unusually high diesel prices, and emergency measures to address shortages of the ingredients used to manufacture motor oil. And while gas prices have started to decline slightly, the latest government forecasts suggest the economic effects of the crisis would continue well into 2027. For the autocare industry, this story extends beyond what drivers pay at the pump. It involves the cost of transporting replacement parts, the availability of lubricants, the economics of vehicle maintenance, and the financial pressures facing businesses and consumers. So today on traction control, we're going to take a closer look at the latest developments, what's happening throughout the automotive supply chain, and what government forecasts and industry reporting tell us about the months ahead.

Stacey Miller 1:32

Let's start with the latest numbers. According to AAA's October 27th gasoline price report, the national average for regular gas is approximately $4.27 per gallon. That's down from $4.36 earlier this month, but still substantially more expensive than a year ago, when gas averaged approximately $3.05 a gallon. Diesel prices have experienced an even more dramatic increase. AAA reports that diesel is averaging approximately $6.35 per gallon nationally, compared with $3.66 one year earlier. That's an increase of more than 70%. And unlike gasoline, diesel prices have shown little recent relief. The primary driver continues to be disruptions to global energy supplies resulting from the conflict in the Middle East. In its October short-term energy outlook, the U.S. Energy Information Administration, or EIA, reported that Brent crude oil averaged $114 per barrel in September. That's $23 higher than August. The agency attributes much of that increase to a tax on oil infrastructure and tankers throughout the Middle East, which have disrupted both production and transportation. One particularly significant incident involved Saudi Arabia's East-West Pipeline, which provides an alternative route for transporting oil around the Strait of Hormuz. According to the EIA, the pipeline was temporarily shut down following attacks in September. Before the disruption, it had been transporting more than 5 million barrels of oil per day. On September 15th, Brent crude oil reached $131 per barrel before prices began easing later in the month. The pipeline partially resumed operations on September 22nd. But the incident illustrates how vulnerable global energy supplies remain, even when producers develop alternative transportation routes. And the effects aren't limited to the price of crude oil. The EIA also reports that tanker insurance costs have increased, shipping routes have become longer, and transportation rates reached record levels in September. Those additional expenses contribute to the cost of moving crude oil around the world and complicate efforts to restore normal energy supplies.

Stacey Miller 4:08

Now let's turn to motor oil. In our previous episode, we discussed how the conflict in the Middle East was disrupting supplies of Group 3 base oils, which are used to manufacture many synthetic motor oils. Since then, new reporting indicates that the shortage continues to affect lubricant manufacturers. In an October 23 report, heavy-duty trucking reported that Shell confirmed tighter availability of certain Group 3 base oils was affecting its ability to formulate premium, low viscosity synthetic engine oils. The company also reported that some driveline lubricants were being affected. But perhaps the most significant development involves the American Petroleum Institute, or API. According to Heavy Duty Trucking, API has extended its emergency provisional licensing provisions for an additional 90 days beginning October 1st. These provisions allow licensed engine oil manufacturers to temporarily modify approved formulations when extraordinarily supply disruptions prevent them from obtaining required raw materials. API says the extension was necessary because of disruptions at multiple Middle Eastern base oil refineries and severe global shortages of base oil. The emergency process still requires technical review, testing, and documentation to ensure modified formulations maintain applicable performance requirements. The October 23rd report also included comments from the Independent Lubricant Manufacturers Association, which explain that damaged production facilities, depleted inventories, and limited alternative supplies are complicating recovery. Another factor involves refinery economics. With diesel and jet fuel commanding higher prices, refiners may find those products more profitable to produce than lubricant-based oils. That can further constrain the availability of ingredients used to manufacture motor oil. In other words, lower gas prices would not necessarily mean an immediate recovery in synthetic motor oil supplies. The two markets face different production and supply constraints. And there's another development worth mentioning. According to that same industry report, API and Shell confirmed that the introduction of new heavy-duty engine oil categories remains scheduled for January 1, 2027, despite the current supply challenges. How the shortage will affect pricing for those products remains unclear.

The next part of this story involves diesel fuel. While gasoline prices tend to receive the most public attention, diesel is especially important to commercial transportation. It powers much of the trucking infrastructure that's responsible for moving goods throughout the United States. And for the automotive aftermarket, that includes the transportation of things like replacement parts, tires, lubricants, and other products between manufacturers, distribution centers, warehouses, retailers, and repair facilities. According to the EIA's October Short-Term Energy Outlook, diesel prices averaged $6.29 per gallon in September. The agency attributes those prices to higher crude oil costs and increased refining margins. In addition to high prices, the United States is dealing with unusually low inventories of diesel and other distillate fuels. The EIA reported that East Coast distillate inventories were 32% below their five-year seasonal average in September. And while inventories are expected to improve, the agency forecasts that they will remain approximately 20% below normal during the upcoming winter. That shortage is significant because diesel is used not only in transportation but in construction, agriculture, and other commercial operations. So for the autocare industry, higher diesel costs increase the expense associated with moving products through the supply chain. The impact will ultimately depend on transportation contracts, fuel surcharges, distribution networks, and how individuals, individual businesses rather, account for those expenses. Some transportation companies use fuel surcharges to offset higher diesel prices. Others absorb part of the increase in operating costs. The result can be additional financial pressure throughout industries that depend on freight transportation. And the lubricant shortage is adding another layer of expense for commercial fleets. In its October 23rd reporting, heavy-duty trucking found that some fleets were experiencing higher costs for both diesel fuel and the engine oils used to maintain their vehicles. That means trucking companies are facing increases in both the fuel required to operate their vehicles and the lubricants required to maintain them. So for distribution, those costs are occurring simultaneously. Beyond the immediate supply disruptions, the energy crisis faces broader questions about consumer spending and automotive maintenance.

Stacey Miller 9:55

When gas prices rise, households spend more of their budgets on transportation. And when the cost of vehicle maintenance rises at the same time, the overall expense of vehicle ownership also increases. In an October 26th report, the Associated Press examined how dramatically gas and diesel prices have increased since the conflict with Iran began in February. According to AP, the national average for gasoline was approximately $2.98 per gallon before the conflict. And doesn't that seem so long ago? By October 26, it had reached $4.29. Diesel prices increased from $3.76 to $6.35 over the same period. So for the autocare industry, one important distinction is the difference between the amount consumers spend and the number of products or services they purchase. Higher prices can increase total sales revenue even when the actual volume of products sold remains unchanged or declines. For example, if the price of an oil change increases because motor oil has become more expensive, a repair shop may generate more revenue from that transaction without performing any additional service. Similarly, higher replacement part prices can increase dollar sales without an equivalent increase in unit demand. That distinction matters when interpreting the economic performance of the industry. However, the current fuel price data alone does not establish whether consumers are delaying maintenance or whether repair volumes are declining nationally. I'd like to remind you that you can access fuel prices in the Autocare TrendLens platform at trendlens.autocare.org, and delayed maintenance figures are included in the Autocare FactBook, which can be found at autocare.org/slash factbook. Those outcomes would require additional repair, transaction, sales volume, and consumer behavior data. What the available reporting does establish is that consumers are paying more for gas, and that lubricant manufacturers and some service providers are experiencing higher costs. How those pressures ultimately affect vehicle maintenance demand remains an important unanswered question and one that AutoCare will continue to track across our platforms. So how long could these conditions continue? The EIA's October short-term energy outlook provides one of the clearest official forecasts.

According to the agency, Brent crude oil is expected to average $96 per barrel in 2026. That's up from its previous forecast of $91. For 2027, the agency increased its forecast from $74 to $84 per barrel. That's a 14% upward revision. For gasoline, the EIA expects the national retail average to be approximately $3.91 per gallon in 2026 and $3.56 per gallon in 2027. Diesel prices are expected to average approximately $5.19 per gallon this year and $4.49 next year. So the agency does expect prices to decline. But even with that improvement, diesel prices are forecast to remain elevated relative to historical levels. The EIA also expects diesel prices to remain above $4 per gallon throughout 2027. One reason is the continuing shortage of distillate inventories. The agency forecasts that inventories will gradually recover as global energy supplies improve, but that process could extend into the second half of next year. And the agency's forecasts also depend heavily on conditions in the Middle East. Its October outlook assumes that producers will continue developing alternative export routes, restoring production, and increasing oil shipments. Under those assumptions, the EIA expects the majority of disrupted oil production in the region to return to pre-conflict levels by the end of the second quarter of 2027. The agency forecasts Brent crude oil prices declining to approximately $87 per barrel by that point and reaching an average of $74 in the fourth quarter of 2027. But the EIA also warns that continued conflict could produce greater short-term price volatility than its forecast reflects. There's another important limitation. This October forecast was completed using information available through October 1st. That means developments when you're listening to this podcast and after that date were not fully incorporated into the projections and will work to keep you updated as we get more information. So while the EIA anticipates gradual improvement, the timing and the extent of the recovery remain uncertain. There are several developments that remain unresolved as we move towards the end of 2026. The first is the availability of synthetic lubricants. As heavy-duty trucking reported on October 23rd, API's extension of emergency licensing provisions indicates that raw material shortages have continued into the fourth quarter. Shell's statements also confirm that certain synthetic engine oils and driveline lubricants are being affected. However, neither API nor Shell has provided a comprehensive forecast showing when normal supplies will be restored. The second is the cost of freight transportation. According to AAA, diesel prices remain substantially higher than they were a year ago. And the EIA expects elevated prices to persist into 2027. That creates continuing cost pressure for businesses involved in transporting and distributing automotive products. The third is the potential difference between revenue growth and actual demand. If product and service prices continue to rise, aftermarket dollar sales could increase without a corresponding increase in the number of products sold or repairs performed. The extent to which that occurs will depend on future sales and transaction data. A great opportunity to find some of that sales and transaction data is in our demand index platform. You can learn more about that at autocare.org/slash demandindex. And finally, there's the question of how long it will take for lower crude oil prices to translate into lower costs for finished automotive products. The EIA's forecasts show a gradual decline in crude oil prices, but lubricant manufacturers face additional constraints involving specialized space oils, production capacity, and supply availability. That means different parts of the autocare industry may experience the recovery at different times. This energy crisis has already had a measurable effect on fuel prices, global oil transportation, and the supply of ingredients used to manufacture automotive lubricants. Gas prices remain significantly higher than they were a year ago. Diesel prices have risen even more sharply. And according to recent industry reporting, the lubricant industry has extended emergency measures to address the continuing shortages of critical raw materials. The EIA expects conditions to improve during 2027, but its forecasts also show that elevated prices and supply constraints could persist, in fact, for months. For the autocare industry, the longer-term effects on distribution costs, product availability, service pricing, and consumer maintenance demand are still developing. We'll continue following the reporting and economic data as those effects become clearer, and you can find out about it here on Traction Control.

Stacey Miller 17:53

Thanks for tuning in to another episode of Auto Care on Air. Make sure to subscribe to our podcast so that you never miss an episode. And don't forget to leave us a rating and review that helps others discover our content. Auto Care on Air is a production of the Autocare Association, dedicated to advancing the autocare industry and supporting professionals like you. To learn more about the association and its initiatives, visit autocare.org.