Supply is King at This Moment in Time
Window of Opportunity Stymied by Short Supply
While most in the lubricants business are well aware of the unprecedented number of base oil, additive and lubricant price increases seen in the first six months of 2021, in the views of many distributors, we are also in a period of an unparalleled shortage in finished lubricant supply. Where many distributors feel they now have a unique window of opportunity to significantly grow their business, there is a high level of frustration since their ability to do so is stymied by supply shortages.

Although the word “allocation” is not necessarily used by their supplier, for all intents and purposes, lubricant distributors say that is exactly what they are currently experiencing. When orders are placed for lubricants, distributors are told that supply is based on availability; sales controls are in effect and supply is limited; or they hear other reasons why product may not be available when needed. What’s more, some say they found out the hard way that when an order is “postponed” it often means it will be cancelled.
In the words of several large lubricant distributors, they have not seen a situation like this for as long as they have been in the business. Supply is so tight that some distributors cannot get enough to meet the needs of their existing customers, let alone to take on new business. Adding to this, some of the larger distributors now have smaller distributors calling them to buy product because they can’t get it from the majors they do business with. Although sympathetic, even the larger distributors who are strongly aligned say they often can’t help even those they have relationships with since they too are concerned that they themselves will not have enough supply to serve demand from their existing customers.
Distributors are not the only ones feeling the pinch. New car dealers are reportedly struggling with limited supply of genuine oils, and retailers are increasingly out of stock on certain types and grades of motor oils, particularly HDEO.
So, what’s going on, why is supply of lubricant tighter than many have seen since they have been in business?
It short, the answer is seen by looking at a cascade of events that started with the pandemic. Demand for lubricants dropped precipitously during the first half of 2020 and base oil and additive producers pulled back on production accordingly. In addition to base oil and additive manufacturers cutting back on production, suppliers of the chemical intermediates used to make lubricant additives also cut back on production in 2020. And with lower demand for fuels during the pandemic, refineries cut back on fuel production and this in turn reduced the supply of the vacuum gas oil used as feed for base oil manufacturing. This was compounded by extended turnarounds for maintenance with less pressure on extended downtime.
Where the spigots of base oil and the chemical intermediates started to open up as we climb out of the pandemic in the beginning of 2021, the base oil and additive supply chain took another hit when the Texas Gulf Coast experienced a once in a century ice storm with record low temperatures in February. The storm severely damaged many facilities and sidelined most of the region’s fuel and petrochemical processing capacity. This too had a significant negative impact on the components required to manufacturer additives and blend lubricants. In addition, it cut deep into the supply of the resins used for bottles, pails, totes, drums, caps and other lubricant packages.
While the supply of base oils and lubricant additives in particular were compromised, the next event in the cascade of supply challenges occurred when US economic activity rapidly bounced back from the sharp decline during the pandemic. The rise in economic activity quickly outpaced any hope that the supply of lubricants would keep pace with demand as the US economy improved in what looks like will be a V-shaped recovery.

Adding to these challenges, John A. Garguiolo, President/Chief Managing Officer, Reliance Fluid Technologies LLC, one of the country’s leading independent lubricant blenders, notes that transportation issues are also disrupting supply lines. Not only are additives in short supply, Garguiolo says, “Even when you are fortunate enough to source additives, there are typically lengthy delays in receiving product due to the truck driver shortage.” In addition, Garguiolo notes, “The industry is experiencing major delays and nearly a doubling of cost to bring raw materials in from other countries by container vessels.”
When taken together, these series of events resulted in extraordinary tight supply of additives. This is particularly the case for PCMO, HDEO, and driveline lubricants, including THF. In addition, base oil supply is tight and bright stock and Group III are particularly challenging to source.
In addition to hobbling supply of lubricants from the majors, distributors say they are also challenged to source lubricants from independent lubricant manufacturers. This is particularly worrisome for many with private label brands manufactured by independent blenders.
Adding to the private label challenge, where at least one major JobbersWorld is aware of requires its distributors to source the distributor’s private label from that major, with supply as tight as it currently is, these distributors are unable to get private label brands from the major until after the major meets demand commitments for their branded lubricants.
With six lubricant price increases in six months, additive supply extremely tight, base oils in short supply, limits on transportation and packaging, and what many lubricant distributors say are deep allocations placed on finished lubricant supply, there is little doubt that the industry is moving through extraordinarily challenging times. At the same time, however, in the views of those that have been working hard over the years to position themselves for growth, these times also afford tremendous opportunities as the economy recovers.
If additive and base oil supply loosens up in July, and the pipeline of finished lubricant starts filling shortly after, distributors say they are now looking at what might be a four-to-six-week window of opportunity to capture significantly more business before the competition regains its footing. At the same time, however, many believe supply issues of certain products may last for some time and that easing of supply in July is doubtful. Although base oil supply may loosen up; chemical building blocks, packaging materials, transportation are also having supply chain issues that may be less visible to distributors and marketers and take more time to resolve.
So, the message JobbersWorld is hearing from many distributors and blenders is that there are currently tremendous opportunities to grow business, but it can’t happen without supply. Further, there will be some notable shifts in market share among brands, marketers, and other suppliers that will benefit the first to get product. But when this might occur remains a big question, particularly when one factors in the potential for more supply line interruptions as we enter hurricane season with no inventory to buffer outages. This is a time of the year when most are building inventory not struggling to get product.
In summary, although it appears there are significant opportunities for distributors to grow their business, the window of opportunity is expected to be short lived as supply and demand move towards balance. And as is moves, the gains in business will likely go to those that have already worked hard to optimize their supply lines and build strong relationships with their supply partners. Their gains, however, will come at the expense of others in what is arguably close to a zero-sum game in the US lubricants market.
What ever happened to the “J-I-T” concept pushed by the “Big Three” auto companies years ago???
Is it now “whenever I can get it” ?
And Joe wants to shut down the Keystone XL pipeline that carries cheap Canadian Crude! It’s safer and more cost efficient then rail. Is he OK in buying oil from questionable countries with human rights issues. Who is he listening too. The minority or the majority?
It isn’t an issue of the availability of crude. The supply constriction is a result of limited output of the refineries, availability of additives, as well as packaging materials (steel for drums, resins to make poly totes, bottles, jugs, etc.). In addition, since we operate in a global economy, if US producers (or Canadian) can sell crude or base oils for more profit overseas that is where they will sell. That is supply/demand economics and capitalism at work.