U.S. motor oil suppliers are expressing relief these days that hefty price hikes for GF-4 oils appear to be taking hold in the market. At the same time, some are complaining that recent increases for GF-3 oils failed to cover rising costs. They added that the market for oils that do not meet the new specification is much more competitive than they were after the last upgrade.
The American Petroleum Institute began licensing oils that meet the GF-4 standard on July 31 and is scheduled to stop licensing GF-3 oils April 30, 2005. Most, if not all, major marketers have begun selling GF-4 products, as have some smaller independent blenders. Most companies have so far switched to GF-4 formulas only for 5W-20 and 5W-30 grades, stating that they will wait until as late as next spring beforeupgrading their 10W-30 products. Shells Pennzoil and Quaker State appear to be an exception, as distributors reported those brands have already upgraded their 10W-30 products.
Sources say most marketers have raised prices for GF-4 products by 30 cents to 40 cents per gallon, though a few may have gone up as little as 25 cents. Observers say these increases are far larger than any other in memory, though not surprising given that chemical limits and performance requirements for GF-4 are significantly more stringent than for GF-3.
The biggest question mark on GF-4 pricing now seems to be ExxonMobil. The company said in May that it would begin offering selected grades of GF-4 oils sometime this month, but several sources said this week that the company has not announced price increases for those products. ExxonMobil officials could not be reached for comment late yesterday.
Blenders and distributors said the market appears to be accepting GF-4 prices, despite the size of the markups.
Prices always go up during a spec change, said Glenn Krasley, vice president of automotive products for Advanced Lubrication Specialties, of Bensalem, Pa. This particular change is bigger than usual, but it seems that customers understand that the quality has improved. We were surprised that dealerships, especially, knew about GF-4 and were ready for it even before we went to them.
Thats certainly good news for marketers who worried about being able to pass on higher costs for formulating GF-4s. But some said they are more concerned about prices for GF-3 oils, which are expected to remain the biggest part of the market until API licensing phases out.
What really matters is prices for 10W- products, because thats still where most sales are, said an independent blender who spoke on condition of anonymity. Its clear that the majors are going to stay with GF-3 for awhile on their 10Ws, and theyre not raising prices on those. So once again, the squeeze is really on for independents.
In fact, industry sources say prices for GF-3 oils did rise this month, but that increase was much smaller than the GF-4 hike – generally in the range of 10 to 15 cents per gallon. Blenders said thats not much given that they have endured several rounds of price increases for base oils this year and two for additive packages. Base oil prices rose again at the end of July and additive prices are expected to go up again.
Observers said they expect marketers to try pushing through more markups for GF-3 oils, but some noted thatthe GF-3 arenais still very competitive since the majors have not yet vacated it. This years situation contrasts with what happened when GF-3 oils came to market three years ago. For that upgrade, oil majors immediately switched all of their formulas to the new specification, leaving independents to soak up sales in the lag market.
Were going to continue selling GF-3 products with our own brands because we see an opportunity for lower-priced products, said Anthony Misetich, senior vice president with General Petroleum, a distributor in Rancho Dominguez, Calif. But its true that its not going to be as big of an opportunity as it was the last time around.