Why Engine Oil Prices Fluctuate
Have you ever pondered how fast engine oil prices can go up or down even over a very brief period? This may appear random for many consumers. Nonetheless, there must be more going on in the global logistics chain because engine oil prices are determined by one vital component: crude oil.
The engine oil market is linked to the global energy market, and one thing that largely impacts the engine oil prices is the price of producing the base oil itself. Approximately 90% of base oils are produced as a result of crude oil refining, meaning that there is a strong link between crude oil prices and lubricant production, especially engine oil prices.
The international lubricants market is characterized by a very integrated supply chain system. An increase in crude oil prices affects all participants, from refineries to base oil suppliers, lubricants manufacturers, and ultimately consumers. Therefore, engine oil prices do not stay constant for prolonged periods of time.
Various reasons cause engine oil price movements, including:
Of all the above-listed reasons, global crude oil supply changes play the most important role on engine oil prices since they directly influence the cost of base oil production.
One of the key ideas that exists within the lubricant industry is something that experts often call the "90% Rule."
The base oil is the main ingredient in all types of lubricants and engine oils. This is the basic component of the end product before additives are added for better performance in terms of viscosity, oxidation stability, and wear reduction.
Typically, lubricants have the following components:
Because the majority of lubricant composition comes from base oil, any increase in base oil production costs directly impacts engine oil prices.
👉To gain a clearer image on the structure of the lubricant industry and how market shifts impact, you can also read our detailed article.
The connection between crude oil and lubricants is simple yet significant.
From crude oil, various petroleum products are obtained:
When crude oil prices in the world market go up, refineries incur higher expenses for operation. This results in high prices for petroleum products, such as base oils of Groups I, II, and III, widely used by manufacturers of lubricants.
Engine oil makers then have to raise prices to keep up with expenses, which pushes engine oil prices to grow around the globe.
Moreover, there is also refinery output prioritization where based on demand levels and profitability considerations, refineries opt to give priority to fuel manufacture over that of base oils.
There are several effects of this practice on the engine oil prices since low base oil production has an influence on the availability of lubricants. Under these circumstances, it is common for base oil prices to be high, thus causing difficulties in engine oil price formation. Under these circumstances, there will be delays in shipment, more competition among buyers, and volatility in prices. The situation will be further exacerbated by low base oil supplies but stable or growing demand levels.
It is difficult to acquire good purchase terms for lubricants in the present scenario. This proves that crude oil plays an important role in engine oil prices, which should be understood by organizations procuring lubricants at commercial scale.
The market for lubricants is very reactive to global happenings.
Tensions, sanctions, or any disruptions in the production zones will lead to disruptions in oil supply as well as its transportation channels. Any form of geopolitical uncertainty may cause price hikes within the lubricant market, thereby increasing engine oil prices.
Freight charges, port costs, and lack of containers also have an effect on lubricants including engine oil prices because base oils are traded across the globe.
A planned shutdown by any oil refinery in preparation for maintenance work may reduce supply in the market. In case several refineries shut down at once, base oil prices tend to increase.
Under the current dynamic situation, sourcing lubricants involves much more than just selecting suppliers offering the lowest pricing.
Organizations who carefully observe the lubricant market will be able to:
At Synergysol Trading, market intelligence is incorporated in sourcing strategy. Through analysis of refinery output and crude oil trends, along with international supply considerations, Synergysol assists partners in making appropriate decisions amidst a dynamically changing environment.
The future of engine oil prices will continue to be dictated by the dynamics of global energy markets. Despite the developments in synthetic lubricants and alternative energy sources that could possibly transform the business landscape, crude oil is still the primary source used in lubricant manufacturing.
A number of factors will likely affect prices in the years ahead:
With increasing market volatility, companies cannot afford to make purchasing decisions reactively. A proper approach to sourcing and pricing strategies can greatly contribute to minimizing costs, securing adequate supplies, and competing effectively in highly volatile markets and specially better engine oil prices.
The reasons for changes in the engine oil prices go further than its finished product alone. As most base oils are produced from crude oil, developments in the international energy sector affect the cost of producing lubricants.
Many factors can cause base oil prices volatility or crude oil prices fluctuate within the lubricants market, including refinery processes, transportation, geopolitical issues, and supply-and-demand issues.
For organizations looking for stability in their supply chain and better procurement methods, understanding the market is key. With a keen eye on global trends and refinery performance, Synergysol Trading enables its clients to succeed in the dynamic world of lubricants.