Addressing Oil Supply Issues

By Jeremy Peebles, V.P., Petroleum

Recently we have been receiving questions from customers worried about supply shortages around lubricants and DEF.  Many of them referenced a YouTube video or Facebook post that warned of collapse. It’s important to remember many of these sensationalized points of view are to gain clicks on their content. Let’s address some of these concerns and take a look at what is currently happening in these markets.
 
When looking at the lubricants market we can break it down into two main components, base oils and additives. Base oils generally make up 70-99% of a finished lubricant product, and while they are the bulk of the formulation the additives are expensive and harder to come by today.
 
Base Oils
 
The Russian invasion of Ukraine has created much uncertainty in the market. Russia is a very large supplier of crude oil, natural gas, and base oils. The sanctions put on Russian goods has created increased demands for exports of domestic products. These export demands continue to push base oil prices higher. Domestic refineries are planning maintenance (turnarounds) in the coming months and that is expected to have an impact on base oil supplies as well. Since March, we have seen the base oil market increase 10-12%. Base oil outlook for the next few months is uncertain at best.  
Additives
 
The additive market volatility is driven in part by the base oil market as most additives use base oils as a diluent for their chemistries. Additive suppliers continue with their allocations or Force Majeure declarations due to the lack of supply of inputs. Russia supplies much of the additive industry with their chemical components that make up the backbone of their additive chemistries. Hydraulic fluid and gear oil additives supplies have been impacted the most with relatively long lead times and small allocations. With the Russian sanctions in place the additive suppliers are scrambling to find alternative supply. The additive outlook for the next few months continues to be grim. Dow Chemical proclaimed Force Majeure on propylene glycol which is a key input for many of the additives. The additives industry is not expecting recovery for the balance of 2022.
 
Grease
 
I wanted to highlight grease specifically because it has been impacted more than any other product we carry. The Russian sanctions are impacting grease suppliers by limiting supply of lithium, calcium sulfonate and polyurea. The market has lost roughly 20% of domestic production and suppliers are reporting that costs may start to increase on a monthly basis. Lead times for these products are in some cases 6-8 months out and will continue to become increasingly more difficult to source.
 
DEF
 
The DEF market has also been experiencing exponential price increases and supply tightness over the past 14 months.  Urea pricing and supply has been putting pressure on DEF markets, but labor issues and railroad capacity are becoming the main problem.  Large amounts of DEF are moved by rail, and the ongoing supply chain issues around the availability of rail cars is causing a logjam. A single railcar can hold upwards of 21,500 gallons of DEF – enough to fill up about 3,000 trucks, every railcar that gets missed in terms of DEF delivery will reduce trucking potential by five million miles.
 
While it is very likely there will be supply constraints for the remainder of 2022, I believe some of the actions we at Garden City Coop have taken will ensure our customers have a reliable source.  Our Garden City facility warehouses over 100,000g of quality Cenex Lubricants. Our team is closely monitoring the supply chain constraints and managing our inventory to minimize impact.  We doubled our local DEF storage capacity and have added additional suppliers giving us more flexibility when supply gets tight.  The petroleum team at GCC has been working vigilantly for you to make sure your business keeps running.