Meanwhile, an October 19 Reuters analysis reports that Asian refiners are confronting exceptionally high transportation and insurance costs, even as crude oil exports from the Middle East show signs of recovery. Freight expenses can account for as much as 30% of the delivered cost of crude oil on certain routes, compared with a more typical 3% to 7%. Reuters reported that these additional expenses are substantially reducing refining margins and contributing to decisions by some refiners to limit crude processing or draw on inventories.

The developments are also relevant to the lubricant industry. Strong diesel margins can influence refinery production economics, while higher transportation costs and changes in refinery operating rates can affect the economics of base-oil production and international trade. However, the extent to which these conditions will affect base-oil availability or finished-lubricant prices remains uncertain and will depend on individual refinery operations, supply arrangements, and regional market conditions.

For lubricant manufacturers, blenders, and distributors, these developments add to the challenges of managing costs and maintaining profitability in an already strained market. Changes in feedstock costs, transportation expenses, and product replacement costs do not always move in step with selling prices. JobbersWorld has heard from blenders and distributors who say that competitive pressures are making it increasingly difficult to pass along higher costs to customers. According to these industry participants, margins are coming under increasing pressure, forcing companies to balance the need to remain competitive with the need to protect profitability.