Finished Lube Prices Climbing

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Finished Lube Prices Climbing
Several major and independent lubricant marketers informed customers of finished lube price increases in the United States that will take effect from mid-January through early February.

Several major and independent lubricant marketers informed customers of finished lube price increases in the United States that will take effect from mid-January through early February. Factors cited included rising base oil prices and related costs, such as transportation.

Among oil majors, ExxonMobil, Shell, Chevron and Phillips 66 will raise prices by up to 12%.

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Shell’s general lubricants price increase will be effective Jan. 25. The company said its adjustment is due in part to increasing costs of raw materials used in the production and delivery of its products.

ExxonMobil’s general lubricants price increase will take effect Feb. 1. The company in its notice cited supply tightness and steady demand that led to base stock producers’ posted price increases, as well as rising costs for raw materials, transportation and manufacturing.

Chevron’s general price increase on all lubricating oils and greases is effective Feb. 8.

Phillips 66’s general price increase also goes into effect Feb. 8.

According to sources, a variety of independent lubricant blenders led the way earlier, with price increases between 8% and 15%, with effective dates mostly during the second half of January. Among those were Chemlube International, Omni Specialty Packaging, Pinnacle Oil, Warren Distribution, Old World Industries, Advanced Lubrication Specialties, Safety-Kleen, Smitty’s Supply and Cam2 International.

The last round of finished lube price increases took place primarily in October and early November last year. Several oil majors increased prices in the range of 8%-12%, while independent lubricant blenders’ increases were generally in the range of up to 9%-14%.

Consultant Geeta S. Agashe, president of Geeta Agashe & Associates LLC, said that several factors impacting U.S. base oil supply during the last several months of 2020 had ramifications for finished lubricant pricing.

Agashe noted that active Atlantic hurricanes Delta in October and Laura in late August impacted two major U.S. API Group II base oil producers, including Motiva’s 38,300 barrels per day plant at its refinery in Port Arthur, Texas, and Excel Paralubes’ 22,200 b/d plant at its refinery in Westlake, near Lake Charles, Louisiana. “These were shut down due to being in the path of the hurricanes and especially Excel took time to get back up as the power grids required nearly a complete rebuild,” she recalled. “Excel’s outage, and ongoing reduced rates by other refiners kept the U.S. base oils market very tight.”

In addition, she noted, some refineries performed maintenance turnarounds in October, and others brought down their refinery capacity utilization percentage because demand was soft, which resulted in snug supply. “Base oil producers are focused on supplying their domestic contract customers,” she said. “Spot availability quickly dried up. Export market prices went up as demand continued from Brazil and India. I think this created a perfect storm and even though demand has not gone back to pre-COVID levels, reduced supply resulted in a tight market.

In this round of finished lubricant price increases, the smaller independent blenders notified their customers before oil majors – Shell and Chevron so far – instituted their price hikes. “This is why perhaps the independents who are not backwardly integrated had to move their prices up as crude, [vacuum gas oil] and base oil prices increased as supply got snug,” Agashe suggested. “Shell and Chevron have their own base oil refineries, and perhaps produced volumes well-aligned with demand and therefore were not under immediate pressure to increase prices. The conclusion is that even though demand has not come back – though it has improved significantly from March to June levels – the tightness in [base oil] supply has led to the price increases.”

Suzan Jagger, IHS’ vice president for oil markets, midstream and downstream, explained that, “Generally, marketers always try to push through price increases at the beginning of the year to take advantage of  anticipated higher costs and hopefully carry stronger margins through the year. These current price increases are not an exceptional move on the part of additive suppliers, base oil supplier, and marketers, but of course the shock to the entire supply chain from COVID is exceptional.”

According to Jagger, current price increases are reacting to several factors: base oil pricing, additive costs, higher plastic resin prices, increase in corrugated prices probably driven by significant increase in demand for cardboard by e-commerce sales, and manufacturing costs and higher transportation costs

“As we hopefully gain traction on economic recovery during [the first quarter and second quarter] this year, it remains to be seen how much of these price increases will actually hold across the consumer, and commercial and industrial markets,” she told Lube Report.

Contrary to what typically occurs at the end of the year, when base oil producers have to contend with rising inventories and downward price pressure, last November, suppliers raised posted and spot prices. These movements were fueled by healthy demand – both on the domestic and export fronts – against tight base oil availability given that most refineries were running at reduced rates on account of lackluster fuel demand and thin distillate margins.

Firm crude oil values offered further support to the higher base oil numbers. A majority of paraffinic producers and rerefiners raised API Group I, II, II+ and III posted prices by 20, 25, 26 and 30 cents per gallon, depending on the grade, with increases going into effect between Dec. 7 and Dec. 16.  The Group II+ and III suppliers had previously also revised postings in late November.

Similarly, naphthenic base oil producers implemented price increases between Dec. 1 and Dec. 18, with values rising by 20, 25 and 30 cents/gal, depending on the viscosity and the producer.

Agashe noted that in addition to increased base oil prices, rising prices for lubricant additives, plastic resin, higher transportation costs and higher manufacturing costs also led to the increased lubricant prices. “For example, Afton Chemicals will increase the price of its lube additives by 8% or more effective Jan. 20,” she added.

She noted that one of the biggest questions surrounding transportation is how spot rates will affect next year’s contracts, as rates averaged 20% to 30% higher than 2019 over the past three months. In this context, she explained, spot rates refers to hiring a logistics company without a 12-month advance negotiated fee and agreeing to instead pay the spot price, which is like the “current ongoing” price as opposed to contracts negotiated in the prior year.

Gabriela Wheeler contributed to this report.