Several major oil companies notified customers of finished lubricant price drops in recent weeks, although industry sources indicate a wide chasm remains between the majors and independents on pricing, increasing the independents appeal in a tough economy.
Some marketers say these decreases were sorely needed. The majors have been so far out of whack compared to the independents, an official with a Midwestern distributor told Lube Report. Some of these independent guys went down as much as $2 a gallon the last two months. The majors went down, some only by 50 cents, and some up to a dollar or more.
This source said he has seen a fair share of business shift away from majors and to independent brands the distributor also works with. We personally havent had a problem with that, but some of our competition has lost a lot of business to us because their majors arent coming down enough, he added. This reduction will help, but its still not going to be anywhere close enough to get back some of the business lost by the majors. Also, a lot of customers seem to have lost confidence in some of the majors because theyre not getting any relief.
ExxonMobil in a Feb. 11 letter informed customers it would decrease prices by up to 10 percent on ExxonMobil branded and unbranded lubricants and greases. The new prices went into effect for all pending (ordered but not yet shipped) and new orders scheduled to ship on or after Feb. 17.
BP Lubricants told customers in a letter Feb. 12 it would reduce list prices by 60 cents to 72 cents per gallon on all passenger car, commercial and industrial engine oils and most ancillary products effective March 2. Orders received by BP on or after the effective date receive the new price.
Chevron on Feb. 13 told customers it would decrease finished lube prices by up to 9 percent for bulk and packaged products effective March 2. In addition, from February 16 to 27 a price adjustment, via a manual credit, in the same amount of the posted price decrease, will be implemented to allow for immediate benefit of this price decrease, the company said in its letter. The price drop excludes synthetic oils, coolants and fuel additives.
ConocoPhillips in a Feb. 20 letter to customers said it would decrease posted prices for most lubricants products by 55 cents per gallon, depending on product-specific factors. Products exempted from the decrease include all full synthetic products, all grease, and Family Hydraulic AW 32, 46, 68 and 100 economy hydraulic oils.
Additionally, sources told Lube Report that Shell recently informed customers of plans to decrease prices effective Feb. 23 by 48 cents to 60 cents per gallon on a variety of products, including Rotella in cases, heavy-duty motor oil in bulk and drums, Pennzoil and Quaker State passenger car motor oil in cases, and specialty products including automatic transmission fluids, synthetic blend oils and lubricants, and high mileage motor oils. Shell did not plan to decrease prices for full synthetics, the source said.
According to another industry source, Citgo recently told customers that effective immediately it would reduce prices 50 cents per gallon or 6 cents a pound, on most of its lubricant products, including Mystic greases. Exceptions included fire-resistant hydraulic fluids, cutting fluids and Clarion food-grade greases, the source said.
An official with a Southern U.S. distributor noted that majors tend to be slow to raise prices even when the price of crude goes up dramatically. When the price of a barrel [of crude] was $30, about 11 months passed before majors moved prices, he recalled. Then about every 60 or 90 days, and in some cases four months, they raised prices. On the way up, its nice for us against the independents because theyre getting next-day base oil increases and majors are lollygagging, but on the way down its going to be slow.
He termed the current price spread between majors and independents ungodly. Right now, theres a $1.50 to $2 a gallon spread between independents and the majors, this source said. I know Ive got a lot of customers that are buying ILMA- type product. Theres nothing wrong with that — theyre just in a better price position. ILMA refers to those blenders who are members of the Independent Lubricant Manufacturers Association.
This source speculated that the majors might continue to decrease prices on a regular, gradually staged basis over the coming months. It may be to the point that by midyear or third quarter we ought to be back to normal with ILMA and major spreads, he added.
As noted by Tom Glenn of the market research firm Petroleum Trends International, Metuchen, N.J., the majors held prices steady throughout 2007, but added an average of 42 cents a gallon in January 2008. They bumped prices another 42 cents in May, and 85 cents in July. A final hike, coming in August and September as base oil prices were peaking, averaged close to $1.70 a gallon. In all, the majors added about $3.40 a gallon on average to their branded lubricant prices last year.
A Western blender acknowledged that independents have been far more aggressive in cutting their prices in recent months, but is skeptical about the impacts of finished lube price reductions in general.
The economy is so slow, and nobody is about to spend any money they dont have to, this source said. Since theres not much work going on, theres not much equipment to keep in repair. I dont think a cut of any size is necessarily going to jack up the volumes that much. Well have to wait and see.