Lubricants on Track to Close out 2023 at Lowest Point in over 40 years
According to recently released data from the U.S. Energy Information Administration (EIA), US product supplied of lubricants is on pace to close out this year at a level lower than we have seen in over 40 years. Since a high of nearly 2.6 billion gallons in 1999, lubricants product supplied in 2023 is forecast to reach only 1.4 billion gallons. This represents a loss of 1.2 billion gallons from its high in 1999.
Also striking is the drop the data shows from 2022 to 2023. Assuming there are no unexpected spikes in lubricant demand occurring in 4Q2023, demand in 2023 will post a loss of close to 300 million gallons, as compared to 2022.
The drop in demand seen in 2023 is a function of several macro factors impacting each of the three segments of the lubricants business (industrial, commercial and consumer automotive).
Although industrial lubricant demand rebounded in the period between mid-2020 and 2022 following the pandemic, demand has been soft this year due to a slowdown in US manufacturing. While the slowdown in manufacturing is attributed to sluggish consumer spending, production was also weakened by manufacturers pulling back after building up stocks following the pandemic supply chain disruptions.
The same can be said for lubricant demand. While demand was bolstered in 2022 by many working hard to rebuild inventories, uncertainty around base oil and finished lubricant prices slowed demand in 2023.
In addition to nearly flat-line manufacturing activity impacting demand for industrial lubricants, it also suppressed demand for commercial automotive lubricants. This is due to a commensurate decline in freight movements.
The decline in commercial automotive activity can, in part, be seen by observing US product supply of distillate fuel oil (a surrogate for demand). As shown below, distillate demand decline in 2023. The EIA forecast US distillate product supplied will reach 1.45 billion barrels in 2023, down from 1.47 in 2022. It is important to note that although demand for distillates is a directional indicator of commercial automotive lubricant demand, extended drains, fuel efficiency and other issues are also at play.
The EIA also points to a decline in the product supplied of finished motor gasoline in 2023. According to the EIA, “Although the U.S. population has grown in recent years, the nation’s gasoline consumption has increased more slowly in comparison, meaning U.S. gasoline consumption has been decreasing on a per capita basis.” According to the EIA, major factors that may be contributing to the decline in per capita gasoline consumption include:
- The unclear effects of increased remote work on gasoline consumption since 2020. Although a higher percentage of the workforce engages in some remote work than before the pandemic, some studies suggest these workers drive more for nonwork purposes.
- Relatively high gasoline prices and persistently high inflation may be affecting consumer budgets and reducing discretionary driving.
- An aging population is reducing per person driving. Since 2001, the share of population over the age of 65 has increased, and this age cohort is less likely to be working. Partially offsetting this trend, however, is increasing employment as a share of the working age population, which has reached the highest levels since 2001. The replacement of older and less efficient internal combustion engine vehicles for newer internal combustion engine vehicles with higher fuel efficiency. Purchases of newer vehicles is partially offset by people keeping their vehicles longer, contributing to an increase in the average age of the vehicle fleet.
- Increased adoption of electric and hybrid vehicles, which reduces gasoline consumption.
The EIA forecasts the average person in the United States will consume 402 gallons of gasoline in 2024, down from a peak of 475 gallons per person in 2004. Its forecast takes into account the combined effects that newer, more efficient internal combustion engine vehicles and electric vehicles have on gasoline consumption.
As with commercial automotive lubricants, although gasoline consumption is also an indicator of directional changes in demand for consumer automotive lubricants, lubricant demand in this segment is also influenced by extended drains, power platforms, fuel efficiency and a number of other variables.