Stalled Increases and Softening Demand
In what looked like the beginning of a fifth round of lubricant price increases in 2022, the sudden drop in base oil prices seen in September and other factors appear to have stalled further upward movement in lubricant prices.
ExxonMobil, for example, announced a price increase on August 15th set to take effect on September 15th. Shortly following this announcement, however, the company notified marketers that it conducted a review of market conditions, including the recent decreases in base oil prices, and as a result, it would be implementing select adjustments to the September 15th increase. While the amount and timing of the adjustments would vary, marketers say the increases were limited primarily to synthetics (e.g., Mobil1, aviation lubricants), and greases.
Shell also announced a fifth increase on August 31. Although the increase was set to take effect on October 1, 2022, marketers say that they were later advised that the adjustment would not impact Shell’s distributor prices at this time.
In addition to these developments, a number of other lubricant blenders say they pulled back on recently announced or planned increases, due in part to the drop in base oil prices.
While the announced increases were initially considered necessary due to a significant increase in the cost of additives announced in the 3rd quarter, the roughly 45 cpg decrease in Group II and II+ base oil prices helped to offset the increase in the cost of additives and other inputs going to conventional and synthetic blend lubricants.
In addition to the influence the recent decrease in the price of base oil has had on finished lubricant prices, pricing is also being shaped by softening demand. In fact, more than softening, many distributors report that their lubricant sales fell by 5 to 7% year-over-year in the past three months. The decline is believed to be attributed to buyers moving to reduce spending in response to inflationary pressures. And if the recession continues and history repeats itself, we can expect to see lubricant marketers making moves to cut costs, scrutinize and potentially delay investments, and reduce prices. Further, there will likely be growing interest in private label brands.
Marketers also point out, however, that distributor inventory levels are currently high and this too must be considered with regards to downward pressure on finished lubricant prices. Higher cost inventory generally has to be profitably moved out before marketers can consider putting lower priced product on the street. Further, with the recent firmness in crude oil prices, some marketers are now wondering if the drop in base oil prices (currently exhibited in spot pricing even more so than the postings changes) will be short-lived.
Summary of Lubricant Price Increases in 2022