San Antonio, TX (May 29, 2026)
Note From VP Racing President
Partners and customers,
Our collective success depends on strong collaboration across our partners, customers, and supply network. During previous periods of market volatility, I’ve shared insights to help partners navigate changing conditions. While no perspective is completely right and each organization must make decisions based on its own business priorities, I have extensive experience in the industry that may provide helpful context as you plan ahead.
It is clear that fuel prices and supply concerns have become a central topic across global markets. Media coverage often simplifies a highly complex situation, which can make it challenging to fully understand what’s driving these changes. In many cases, the global nature of energy markets is underestimated. Energy policy decisions across regions continue to influence global supply dynamics.
Key drivers include geopolitical tensions involving Iran, Russia, Venezuela, and China, along with refining capacity constraints in the Middle East and U.S. West Coast, and ongoing inventory depletion across the supply chain.
The Iran conflict is currently a primary driver of oil prices, with impacts that extend beyond initial market reactions. Obviously, the closing of the Strait of Hormuz is limiting the flow of crude. With the news of Iranian attacks, the price of crude jumped immediately - much of which was driven by financial market activity and speculative trading. The dominance that the US demonstrated along with continued communication of an abbreviated conflict helped contain prices.
However, shifting geopolitical dynamics between the U.S. and its allies have added further complexity to the market response. The EU has played the green card for many years and increasingly relies on external energy sources. Several countries decommissioned their nuclear power plants and offshored much of their refining capacity. Shell built a massive plant in partnership with Qatar. This plant, along with others in the Middle East, is responsible for significant amounts of refined products and roughly 90% of the jet fuel and most of the lubricants for Europe.
The Shell plant, I understand, is a two-stream system, meaning it’s effectively two refineries. One stream was hit by a drone and then the second stream experienced a fire. While it’s not broadly disclosed in public communications, current estimates suggest it may take more than a year to get this refinery operational. This by itself is causing a lubricants shortage. In Europe, distributors are being told that orders submitted today for even the most basic motor oil are at least 6 months out before being fulfilled. European airlines have cut massive numbers of flights and transportation fuels continue to increase. In the US, most lubricants companies have announced allocations.
On the crude side of the equation, there has been nearly 10 million barrels per day shut in and we are approaching 2 billion barrels (42 gallons per barrel) of lost production. While the industry is generally resilient to short disruptions, it is now hitting a critical inventory point. Typically, there is a lot of inventory in the system to help manage non-war disruptions like ship loading delays, terminal delays, storms, weather… so, just-in-time operations is not how the refining business operates. This provides a natural buffer in the system.
On average, there’s typically 30 days inventory in the production section of the value chain, 45 – 60 days in crude transportation, 30 – 45 days in the refining segment and then 20 days in downstream fuels. Using these estimates and then backing into the beginning of the Iran conflict helps illustrate how inventories have depleted significantly.
The concern here is potential of the “super spike,” a significant price escalation scenario. The elasticity curve for petroleum products is very steep, so when we hit critical inventories the likelihood of a dramatic price spike becomes likely. In the chart below you can see the inventory declines for gasoline and we are in a better position than the rest of the world. Obviously, we are already trending in dangerous territory.
Above, I’ve explained the European approach but there is another aspect to the equation and that’s China. Ongoing trade tensions between the U.S. and China remain a key variable and there is currently positioning around Taiwan’s continued independence. At risk here is that over 90% of the advanced microchips in the world come from Taiwan so they would have significant strategic and economic implications for China. These geopolitical dynamics continue to influence both supply chains and global energy demand.
At the same time, Russia’s sanctions and Ukraine’s attacks on the Russian oil infrastructure have caused further challenges to the EU, China and interestingly Cuba which is also in the Administration’s crosshairs.
The U.S. market remains relatively insulated from severe supply disruptions, but we are definitely not immune. Fortunately, the US is now the largest oil producing country in the world making us mostly energy independent. We do export some but lately those numbers have been increasing in response to global demand conditions, which will help balance our pricing with the rest of the world.
One cannot overlook Venezuela in all of this. The efforts of the Trump Administration to gain influence on Venezuela has been strategically significant. First, it was a hit to China but more importantly, our presence increases their production, and the crude is directed to the US. It’s a heavy sour crude that typically trades at a significant discount due to its heavier composition and one of the refining companies positioned to take advantage of the discounted feedstock is Valero. Not everyone can run large amounts of this crude but decades ago the Valero refineries were expanded/upgraded to run this type of crude. Their advantage can be seen in their stock price, $165 at the beginning of the year and $244 today.
Another negative on the supply side is that two west coast refineries are shutting down or have shut down. The shutdown process for a refinery is lengthy, and the exact status of these facilities continues to evolve. For instance, Valero was to shut down their Benicia, CA plant in April which would have meant increasingly reduced rates over several months leading up to the shutdown. Based on announced timelines, the refinery may now be fully offline. Therefore, the draw of refined products from elsewhere must increase to meet demand. Interestingly, the West Coast lacks pipeline infrastructure so shifting product to the west from inside the US is complicated – not to mention California has a very unique products specification. The best alternative supply is actually from Asia.
Globally, refiners will maximize their production to the extent that they have feedstock. With that said, they will maximize with the products that offer the greatest financial yield. For instance, jet will likely be a high priority, gasoline, gasoline components, chemicals, diesel, plastics…. These priorities will depend on individual refinery design as well as crude type available. For instance, heavy crudes lend themselves to asphalt unless the refinery has coking capacity. If a refinery is forced to take high sulfur crude the desulfurization capacity with be the constraint and in fact could slow the entire refinery input/output. While this is a simplified overview, the actual situation is far more complex, but it demonstrates that a refinery just in operation does not mean it will be operating at optimal capacity.
Beyond the variables to feedstocks matching equipment, if a refinery has taken any units offline, the process of getting those units back online can be very lengthy and costly.
While the dynamics above are complex, the implications for day-to-day operations are becoming increasingly clear:
- Expect continued supply constraints, particularly in lubricants and select refined products
- Plan for ongoing price volatility, with the potential for sharp increases if inventories tighten further
- Order further in advance than normal, as lead times may extend unexpectedly
- Prioritize trusted supplier relationships, as allocation environments tend to favor established partnerships
- Evaluate inventory strategies, as maintaining adequate stock levels can help mitigate disruption risk and cost escalation
At VP Racing we’ve been monitoring the situation for months and while we won’t detail specific strategies, we have been proactively managing supply and inventory. Each chemical that we use is impacted differently by the situation and has different pricing models as well as supply chain constraints. These are all taken into consideration as we execute our supply strategy. Furthermore, VP Racing is in a strong position with the ability to maintain meaningful levels of physical inventory across both components and finished products, which helps reduce the risk of supply disruption. We have been approached by a number of industry competitors seeking access to our products and components as shortages emerge elsewhere. This reflects the effectiveness of our supply strategy.
The area where all suppliers are likely to face the greatest pressure is lubricants. We currently have most of the inventory needed to support our existing customers in the near term, and our focus remains on ensuring continuity of supply for our established partners. As market conditions evolve, we will manage incremental demand carefully to maintain stability across our network. This is part of the value of working with VP Racing - we take a disciplined and thoughtful approach to supporting our customers during periods of uncertainty.
So, with this information we encourage you to evaluate your supply strategy accordingly. My general recommendation is to stay well stocked. The two advantages of this approach are reducing supply disruptions/delays and securing lower prices. At this point in time, it’s difficult for me to conceive of any real reduction in petroleum pricing until 60 days after the strait is opened and operations return to normal.
VP Racing remains committed to supporting our partners with transparency, proactive planning, and consistent supply wherever possible.
- Alan Cerwick