What’s Driving Lubricant Price Increases Right Now - Doug’s Tip of the Month
Conflict, Supply, and Demand are all contributors to the latest (and still upcoming) Lubricant price increases. Traditional pricing matrices have not followed the normal timeline. When crude oil and base oils had price increases in the past, it was usually 30, 60, 90 or even 120 days before blenders and manufactures would pass them on to customers. This time, volatility is so intense that we have seen blenders almost immediately passing on price increases.
The conflict in the Middle East/ Iran has disrupted the supply chain and damaged refineries for base oils that are used to manufacture many motor oils, greases and lubricants. The Group III refinery in Qatar - Shell’s Pearl GTL has halted production due to damage from the attacks on Laffan Industrial City in March. This plant is one of the largest suppliers of Group III base oil producing nearly 30,000 barrels per day. Group III base oils are used in manufacturing almost all Synthetic and Synthetic blend lubricants, greases, gear oil and hydraulic fluids.
Supply issues are not the only factor contributing to the price increases. Geopolitical uncertainty, shipping access at the port, and changing demand in the market to more premium Group III products are all playing a role in pricing. All major blenders and manufacturers have announced several price increases with possibly more to come. Price increases vary from 15% to as much as 35% depending on products.
Although partial production has resumed at Pearl’s GTL facility, supply remains tight. The Ceasefire with the US/Iran included a provision to reopen the Strait of Hormuz, an important route for base oil shipping. However, it is important to remember that even with the Strait reopened fully, base oil and DEF components will be under severe demand pressure, as the damage to the Pearl’s GTL facility is so extensive that it will likely be several years before output is restored to prior levels.
Group III recovery in the market will be a long-term process. There is no immediate relief in sight.
ILMA (Independent Lubricant Manufacturers Association) has requested from API and GM to allow alternative base oils like Group II and Group II+ for blending and manufacturing GM Dexos under API’s Emergency Provisional Licensing, which can provide some flexibility for varying Group III grades. This would allow some breathing room in supply availability, but GM has stated that they will not support alternatives and will continue to enforce Dexos’ requirements. If you have any questions, please reach out to your Sales Representative or email contactus@burkeoil.com
