ExxonMobil Hikes Motor Oil Prices


ExxonMobil Lubricants and Petroleum Specialties next week will raise prices on passenger car motor oils and other consumer automotive lubricants by as much as 56 cents per gallon, according to a letter sent to lube distributors last month.

The company told Lube Report yesterday that the action has nothing to do with a recent complaint by independent lubricant manufacturers that it had employed predatory pricing. Officials with the Independent Lubricant Manufacturers Association welcomed ExxonMobils markups but said they will continue to press their case with the U.S. government.

On the one hand, we are glad to see they took this action, said Jeffrey L. Leiter, the associations legal counsel. Everyone feels it is about time. But I still think ILMA has a long-term concern about whether this was a one-time effort to grab market share, or whether we can expect to see more of it in the future.

2004 has been a year of unusually steep cost and price increases for the lubricants industry. Record-setting crude oil prices have driven a 20 percent rise in base oil costs (based on posted prices for Group I stocks) and also pushed up costs for chemical additives, transportation and packaging. The motor oil market took a double hit because of the adoption of a new passenger car motor oil standard, GF-4, which requires larger quantities of premium base oils and more expensive additive packages.

Several major motor oil marketers raised prices by upwards of 50 cents per gallon this year. Prior to last months announcement, ExxonMobil had imposed two increases, but in both cases exempted products such as packaged motor oils.

ILMA cried foul in late August, saying the company had engaged in unfair business practices by failing to raise finished lube prices despite repeated base oil markups. ExxonMobil is the largest base oil manufacturer in the United States and one of the markets two largest finished lube producers, meaning that it is a base oil supplier for some of its competitors in markets for motor oils and other products.

ILMA accused the company of holding down finished lube prices in order to wrest market share. The association asked the U.S. Department of Justiceand the Federal Trade Commission to investigate whether ExxonMobils pricing of finished lubes was anticompetitive. It also asked the agencies to revisit the commissions 2000 approval of the Exxon-Mobil merger to consider if it allowed the company too much control of the base oil market.

ExxonMobil has maintained it does not use unfair trade practices but rather follows sound market principles in setting its prices.

The price hikes announced last month are the type of movement ILMA officials would have liked to have seen earlier. In an Oct. 15 letter to distributors, ExxonMobil said it will impose prices increases of 2 percent to 10 percent on selected passenger vehicle lubricants and greases sold under the Exxon and Mobil brands, effective Dec. 1. That amounts to markups of between 28 cents and 56 cents per gallon. The letter attributed the increases to higher expenses for raw materials and production, formulation changes and changing market conditions.

From the ILMA perspective, we are quite pleased to see that ExxonMobil raised a portion of their product line to meet the increased raw materials costs that the industry has seen, association President James A. Taglia told Lube Report. He added, though, that association members would still like to see similar increases in prices for industrial lubes. We dont fully understand why the increase does not apply to all products, since all products have had the same cost increases.

Taglia and Leiter both speculated that ExxonMobils action was at least partly motivated by ILMAs complaint, but the company said that was not the case.

We make our own independent judgments on product pricing, spokeswoman Barbara E. Leatherwood-Gomez said. As it has in the past, the company declined to discuss specifics about its prices, saying that antitrust laws prohibit it from doing so.

Leiter said ILMA has not received a formal response from the Justice Department or the trade commission and that the association will keep pursuing its complaints to try to keep ExxonMobil from holding down prices in the future.

It still behooves ILMA to continue pushing the Justice Department and the FTC to review the matter, because we dont know if it will happen again, he said.

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