Effects of Tariffs on the Lubricants Business – Too Soon to Tell
JobbersWorld has received numerous inquiries about marketers’ views on the impact of new tariffs on the U.S. lubricants sector. The primary concerns involve tariffs that impose a 25% surcharge on most imports from Canada, with energy resources facing a 10% tariff instead.
Conversations with marketers suggest that, although there is some apprehension, it is not currently viewed as a major issue, as they primarily source lubricants domestically. Additionally, although retaliatory tariffs from Canada and Mexico could negatively impact U.S. lubricant exports, it remains unclear if these countries can find affordable alternatives to U.S. products.
There are worries that the tariffs may elevate the costs of crude oil imports from Canada and Mexico, which are two key suppliers to the United States. This could lead to higher input expenses for refineries and, in turn, raise base oil prices. However, these concerns are somewhat mitigated by the observation that crude oil prices have been decreasing. Specifically, Brent crude fell for three consecutive weeks, while WTI experienced a decline for almost seven weeks. The reduction in U.S. crude oil prices is largely attributed to concerns about declining global demand, market reactions to trade policies, fluctuations in currency values, and increased domestic oil production. As crude oil prices remain low, base oil prices are continuing to stabilize.
It is noteworthy, however, that while the US is capable of producing ample Group II and II+ base oils to meet domestic demand, it relies heavily on imports of Group III base oil from countries such as South Korea, Qatar, Canada, the United Arab Emirates, and Indonesia. As such, a 10% tariff on Group III base oil sourced from Canada remains a concern for some base oil suppliers more so than others.
A key factor further alleviating concerns regarding the effects of tariffs on crude oil prices is the expected rise in crude oil supply overhang. According to the latest Short-Term Energy Outlook (STEO) report from the EIA, global crude oil inventories are projected to decrease in the second quarter of 2025, primarily due to lower production levels from Iran and Venezuela. However, in the latter part of the year and into 2026, an increase in crude inventories is anticipated as OPEC+ eases its production restrictions and non-OPEC oil producers boost their output. The expected increase in supply is expected to exert downward pressure on crude oil prices.
In addition to the immediate expenses associated with tariffs, marketers are wary about how these tariffs might affect the overall economy by altering consumer demand and industrial production, potentially hindering economic growth. Such a slowdown could lead to a decrease in demand for lubricants, especially in industries such as manufacturing and transportation, which are particularly susceptible to economic fluctuations. However, they note that these secondary effects have not yet materialized.
In conclusion, it is essential to acknowledge that while marketers express concerns about the potential impact of tariffs on their businesses, they remain optimistic that ongoing negotiations will yield beneficial outcomes. Additionally, they emphasize that challenges such as declining domestic demand for finished lubricants, increasing competition, and commoditization are more pressing issues in 2025 than the uncertainty related to tariffs.