March 30, 2011   

JOBBERSWORLD...MARKET INTELLIGENCE FOR INTELLIGENT MARKETERS...  The First and Only Independent Newsletter to Focus on Lubricant Distributors.

Lubricant prices in the US market have increased 14 times and decreased twice en masse since 2004. One of the more memorable and challenging times over those years occurred at the end of 2007 and the first half of 2008. That's when there were four price increases, three of which were roughly $0.40 a gallon and a fourth coming in at over $0.80.

As shown in the Figure 1, these increases tracked the run-up in the price of crude that started in 2007. This is expected since crude oil is the feed stock used to produce vacuum gas oil (VGO) and VGO is the feed stock used to produce the base oils required to make finished lubricants. In addition, the price of the performance additives used to blend finished lubricants are also, in a large part, driven by the price of crude.

But before the ink was dry on the announced price increases in 2007 and 2008, the price of crude dropped like a rock.   With that, many buyers insisted that what goes up with crude must come down with crude, and it did. There were two (unprecedented) lubricant price decreases announced during the first four months of 2009.

Whereas many thought this was the end of the wild, once in a lifetime ride, there are signs (the most recent crude oil, base oil and finished lubricant price increases) we could be once again looking at a period in time similar to what was seen in mid-2007. And if we are, now is the time, at a minimum, to bang on the tanks to see if they are empty or full.

One of the most commonly asked questions when price increases occur in the lubricants business is, "do they stick?" This is because whereas it is easy to change the date and the percentages or numbers on the previous increase letters sent, and then mail to customers, in reality customers push back. Rather than simply accepting increases, customers sometimes do unsavory things like threatening to switch suppliers, insist on negotiating due to their high volume, payment history, and others.

Then there are lubricant marketers who while formally pushing through price increases just like everyone else, send foot soldiers onto the streets to undercut the competition by a nickel or two when a price increase is announced, or switch the customer from a major brand to private label in an effort to retain business. And last but not least, are the decisions those on the front line, the lubricant marketers/distributors have to make about their ability to push through price increases and the risks if they do or they don't. 

With this as a backdrop it's little wonder why many ask, "do lubricant price increases stick?"  

Well one way to answer this question is to examine the sum of the announced price increases over time. Based on this analysis, it's clear price increases don't always stick. That's because if they did, lubricant prices would have increased by close to $7.00 a gallon since 2004. This means the bulk price for PCEO would now be close to $13.00 a gallon, and that is clearly not the case.

So if the price increases don't always stick, who is letting go when price increases are announced? Are the majors pulling back by sweetening supplementals, offering tiered product/pricing alternatives, offering off-schedule price adjustments, or simply recalling increases? Or are the distributors thinning their margins by insulating their customers from the full impact of price increases?

Based on what JobbersWorld is hearing, it's a bit of both.  And with that, maybe there are even more lessons to be learned from the past and how best to move forward.

For more information about lubricant pricing, contact

Thomas Glenn at JobbersWorld

Craig Callé has been appointed Senior Vice President and Chief Financial Officer of Maxum Petroleum, reporting to E. Perot Bissell, CEO. Mr. Callé has assumed responsibility for all financial matters related to the company, including accounting and control, financial planning and analysis, and tax, in addition to the responsibilities he has had since joining the company in January, which include treasury, customer and supplier credit relationships, corporate finance and risk management.  

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"Using re-refined (or recycled) oil cuts fossil fuel use, lowers greenhouse gas emissions and reduces harmful environmental impacts on our Nation's waterways. ECO ULTRA® provides American drivers the performance and reliability they expect in a high quality motor oil while at the same time having one of the highest percentages of recycled oil content," said John Wesley, chief executive officer of Universal Lubricants. "Hitting the 1.5 million gallon production mark already is a great milestone, but we think it's just the tip of the iceberg.  ECO ULTRA® has received great marketplace acceptance among professional installers and we think consumers are ready for it, so we are now moving the product into retail channels."

The U.S. produces approximately 1.3 billion gallons of used oil each year, and only 10% of it is re-refined.  The rest of the used oil is either improperly disposed of (damaging the environment) or burned as an industrial fuel and is gone forever. Universal Lubricants says it is dedicated to reversing this trend.

Shell Rotella SuperRigs® Coming to KENLY 95 Petro in Kenly, North Carolina 

The 29th Shell Rotella SuperRigs® will be held from June 2-4 at the KENLY 95 Petro in Kenly, North Carolina. Shell Rotella SuperRigs®, the premier truck beauty contest, will feature a number of fun and entertaining events for drivers, their families, and the entire community.  More details will be announced as they become available.

The Shell Rotella SuperRigs® competition is the premier truck beauty contest for actively working trucks. Owner/operator truckers from across the United States and Canada will compete for cash and prizes valued at $25,000.  Additionally, 12 lucky drivers will be selected to have their trucks featured in the 2012 Shell Rotella SuperRigs® calendar.  Every entrant in the contest will be awarded with a gift package valued at more than $50 while supplies last.

Trucks are judged by industry professionals who work for major trucking publications and broadcast companies.  Judges score the rigs on exterior appearance, design, detail/finish, originality, and workmanship.  In total, 18 working trucks receive awards for categories such as Best of Show, Tractor, Tractor/Trailer Combination and Classic categories.