Engine Oil Demand Slows in GCC

DUBAI, United Arab Emirates - Motor oil demand volume in the six-nation Gulf Cooperation Council is projected to grow by around 20 percent out to 2023, but light vehicle sales sagged over the past two years, dampening current lubricant demand, according to a market research firm.

The GCC states include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

Light vehicle sales in the region are expected to fall 10 percent this year, after dropping as much as 20 percent in 2018, according to management consultancy Frost & Sullivan, and that has dampened lubricant demand. The expected uptake of electric vehicles in the next few years could also deal a further blow to the automotive aftermarket, including finished lubricants.

Speaking at the ICIS Middle Eastern Base Oils & Lubricants Conference here last month, Frost & Sullivan Principal Consultant for Mobility Vitali Bielski said internal combustion engines cost twice as much as EVs to maintain, with oil changes being an important factor. Total cost of vehicle ownership is a contentious issue, but Frost & Sullivan estimates oil changes add between U.S. $840 and $1,120 to operational costs over the life of a car for every 100,000 miles driven, based on a 2017 study in North America. Electric vehicles running solely on battery power do not incur these costs since they do not use engine oil.

By 2025, the growth in EV numbers is expected to reduce automotive aftermarket lubricant sales in GCC states by 2.3 percent, Frost & Sullivan forecasts. That could be somewhat offset by a projected reversal in overall vehicle sales within the region, expected to begin as early as next year. The firm forecasts that uptick even though gross domestic product in the GCC is expected to grow at just 1 to 3 percent annually due to uncertainty over oil markets.

Lubricants currently account for around 18 percent of automotive aftermarket sales in the GCC, but Frost & Sullivan predicts the portion will drop slightly as semi- and fully synthetic engine oils continue to penetrate the market. The higher unit prices of synthetic oils will not fully offset the loss of revenues, Bielski said. Frost & Sullivan forecasts that semi-synthetics and synthetics will comprise 37 percent and 15 percent, respectively, of 378,000 metric ton passenger car motor oil market by 2023. The firm believes the heavy-duty motor oil segment will continue shifting toward multigrades, which will account for 83 percent of the regions 225 ton market by 2023.

Light vehicle sales - which include passenger vehicles and pickups up to 3.5 tons in gross vehicle weight - are predicted to be less than one million units until 2023, lower than previous forecasts, according to Bielski. Still, lackluster sales are pushing distributors to focus on aftermarket sales at a time when consumers are moving away from outright vehicle ownership in favor of shared mobility. International brands such as Uber, as well as regional players - including Udrive, Careem ekar and Kiwii - have disrupted the transportation sector, heaping pressure on the wider market.

We are seeing a lot of consolidation in the aftermarket business, which has led to fewer distributors. The top ten distributors in Saudi Arabia have increased their share from 30 to 40 percent of the market in the last ten years, he said.

Bielski also pointed to the emergence of online marketplaces and mobile services that are growing at triple-digit rates in the GCC retail sector. Aggregators such as Amazon have changed the way consumers buy engine oils in the U.S. and Europe and could upend the GCC market, which may be worth U.S. $5.1 billion by 2023. Lubricants are among the top 10 most popular parts sold online, according to Frost & Sullivan. Digitization is also likely to continue to exert downward pressure on lubricant consumption, with the onset of so-called connected vehicles, which allow manufacturers to source data in real-time to assess engine oil performance.

But Bileskis bullishness on the revival of the regional automotive sector is also based on fundamental demand. With the exception of Dubai, which has a dedicated metro subway system, transport policy in the GCC is uneven. A lack of viable alternatives will continue to encourage vehicle use. Infrastructure investment is also driving commercial vehicle sector growth and will also positively impact the light vehicle fleet business, Bielski said.

The regions bellwether economy, Saudi Arabia, is expected to continue generating around 45 percent of total light vehicle sales in GCC by 2023. Just like markets in the U.S. and Europe, engines are getting smaller, and that is reshaping engine oil specifications. Frost & Sullivan predicts the market share of 6-cylinder engines in Saudi Arabia will fall sharply by 2027, supporting the transition of the lubricant market from mineral to synthetic engine oils.

The biggest winner will be semi-synthetic oils because of price - most customers are still not aware of the benefits. A lot of education is required, he said.