News from the Middle East and North Africa is riveting, but what does it mean for our industry? I asked two savvy observers for their takes on current events. Stephen Ames, principal of U.S.-based SBA Consulting, looked at the big picture.
The world has become highly interconnected, especially when it comes to energy, he said. Energy is a global commodity. The price of oil is a function of three factors: 1) the fundamentals, supply and demand; 2) geopolitical factors, like war and strife; and 3) speculation in the paper markets (NYMEX, ICE, Dubai).
Crude prices have gone up, reflecting political uncertainty over events in the region. Base oil prices will respond, and higher prices drain demand, Ames continued. However, it is too soon to gauge how large or lasting the impact will be. Libya is the only major oil producing country whose production has so far been slowed. Bahrain, Yemen and Syria are relatively minor producers and have not suffered supply disruptions. The price of crude appears leveled, but the market is quite jittery.
Overall I do not foresee any major impact to the lubricants industry as it now stands, he concluded, but if Saudi Ara-bia or Iran experience upheaval, the world could face higher prices and further losses in product demand, including lubricants. If turmoil spreads to major producing countries, then all bets are off.
Mehrdad Vajedi, principal of Rodin International in Dubai, U.A.E., drilled down to cite causes. Jobless youth, bureaucratic administration and massive corruption, he said, are behind the recent turmoil. Remember that around 33 percent of the population in Egypt, Tunisia and Libya are under 14, with expected population growth rate of 10 to 14 percent til 2015, he said. The region will face a flood of educated youth asking for jobs.
Some of the impacted countries lack diverse economies, relying excessively on oil or tourism, continued Vajedi. They need to import and invest in manufacturing infrastructure.
We are facing very rapid fluctuations in crude pricing, and hence base oil prices, and the civil unrest has a psychological effect, he went on. But the region will soon have new sources of Group II, III and bright stock, and will face a golden era of rapid growth in construction, infrastructure and manufacturing – and therefore lubricants [demand] – in the next five to 10 years.
Overall, the trend in the region is toward a better future for the lubricants and additives businesses, Vajedi concluded. More liberal and competitive markets will bring growth in lube consumption. But in the short term, he conceded, some markets face problems.