Base Oil prices are on the rise again which in my mind begs the question, “Why, exactly?” We know that oil prices are low and have been declining over the last few months. In addition, the latest edition of “Lubes ‘N’ Greases” Magazine comes with an analysis of total U.S. lubricant sales over the last four years, and as you might have guessed, demand has consistently declined over that period. Abe Podolak, a major buyer of base oils in North America was quoted as saying “I just don’t need as much lubricant as I used to.”
So oil prices are low and demand is lower than it has been at least five years. How did we end up with a price increase? Well, as it turns out, as demand weakened, producers cut capacity to keep prices at preferred levels. Recently demand had a slight uptick (although levels are still lower than a year ago) and that increase has caused prices to rise. I suppose if this trend were isolated to one or two producers I wouldn’t be too concerned, but watching the demand and feedstock curves dive down while the price for finished product skyrockets makes me raise an eyebrow. Could all the producers have such similar pricing strategies even if they aren’t talking to each other?
So oil prices are low and demand is lower than it has been at least five years. How did we end up with a price increase? Well, as it turns out, as demand weakened, producers cut capacity to keep prices at preferred levels. Recently demand had a slight uptick (although levels are still lower than a year ago) and that increase has caused prices to rise. I suppose if this trend were isolated to one or two producers I wouldn’t be too concerned, but watching the demand and feedstock curves dive down while the price for finished product skyrockets makes me raise an eyebrow. Could all the producers have such similar pricing strategies even if they aren’t talking to each other?
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