Prices for motor oils and other finished lubricants are on the rise. Two major suppliers announced price hikes this month and observers expect others to follow suit. And that could be just the beginning, with a new engine oil specification expected to spur further markups later this year.
That might sound like cause for celebration on the part of motor oil suppliers, but at least some sources warn that increases may not be well received by the market. Furthermore, some blenders complain that increases in their own costs never match the cost increases they incur.
According to sources, on April 2 ExxonMobil and ConocoPhillips both announced price increases for finished lubricants effective May 3. ExxonMobil will raise prices by 15 to 18 cents per gallon, but excluded products packaged in cases – including motor oils – from the markups. ConocoPhillips was said to be increasing its prices by between 2 percent and 6 percent. Lube Report was unable to determine if its announcement covers cased products.
Motor oil blenders and distributors noted that major lubricant companies usually move in generally uniform patterns on prices. They predicted that other majors will soon raise their prices by similar amounts.
Market sources also agreed it is no surprise for motor oil prices to be rising now. Everyone points to costs. Paraffinic base oil prices in the United States have undergone two rounds of increases in 2004. Among the main motor oil additive suppliers, Lubrizol and Infineum raised prices, and some sources said Chevron Oronite did, too. Crude oil costs recently rose to their highest levels since the United States declared an end to the war in Iraq one year ago.
Base oil prices have been rising significantly, said Mike DeBiasi, marketing manager for BPs Castrol Syntec motor oil. Additive prices also went up, and of course, energy costs did, too. All of that is contributing.
Sources predict passenger car motor oil prices will rise again later this year, even assuming the rest of the market follows ExxonMobils and ConocoPhillips recent moves. The reason, they say, is the looming onset of GF-4, the PCMO specification scheduled to become commercially available this summer.
As soon as GF-4 hits, youre probably going to see another move, said Garry D. Rooney, president and chief operating officer of North American Lubricants Co., a bulk lubricant supplier based in San Juan Capistrano, Calif. From what Ive heard, the majors are telling their customers that its going to be in the neighborhood of 30 cents per gallon. So, by the end of the year, well have seen some pretty significant increases during 2004.
Bigger than normal, perhaps, but not much different than 2003. Prices rose twice last year – in the spring and again in the fall.
Prices have been a lot more volatile since last year, said Don Noll, supervisor for PPC Lubricants, a distributor in Jonestown, Pa. In the past, there were periods when we would go five or six years without an increase.
While there appears to be consensus that materialscosts are exerting upward pressure on motor oil prices, individuals contacted for this article expressed varying opinions about demand-side receptiveness to markups. Some predicted suppliers will succeed in passing through their cost increases.
I dont think anyone ever wants the prices they pay to go up, DeBiasi said. For the most part, though, customers understand the pressure that motor oil suppliers are under.
Others predicted that buyers, at least in some segments, will resist.
This is a problematic year to raise prices because of the economy, an independent blender said on condition of anonymity. The mood out there is not too good right now – especially for installers and bigger commercial facilities. We had a customer call us and say that they dont accept price increases.
If sufficiently averse to price hikes, buyers will look for cheaper alternatives, sources said. And if that happens on a large enough scale, suppliers that impose cost increases may end up retracting them or refraining from future markups.
Not surprisingly, motor oil producers and distributors also expressed different opinions about the need for motor oil price increases – or, put another way, whetherblenders are maintaining margins. Several distributors noted that their suppliers frequently raise prices when base oil costs climb, but almost never cut prices if base oil costs fall. Some expressed resentment about practices of major lubricant companies.
I can assure you the oil companies never fall short in passing on their cost increases, PPCs Noll said. Anytime they see instability in the market, they know they can justify [price increases] without people complaining too much about it.
Blenders, on the other hand, contended that motor oil prices have not kept pace with increases in the costs to produce them. These sentiments seem particularly prevalent among independents.
Historically, we really havent been able to pass on those costs, said another independent blender, also on condition of anonymity. Sometimes weve raised prices and then had to rescind them. Theres so much competition that the market just wont accept them, and our profit margins just continue to dwindle.