Will oil prices usher in a new round of price increases in the second half of 2024?
With the recovery of the global economy and the increase in energy demand, the lubricants market is facing a new price movement trend in the second half of 2024. Since the beginning of the year, the continuous rise in crude oil prices and the sluggish profits of refining companies have had a profound impact on the lubricant industry.
First of all, the rise in crude oil prices has directly led to an increase in production costs for refining companies. In order to maintain operations and profits, some refiners have had to reduce capacity and even shut down some Base Oil production units. This move has made the supply of Class I base oil tight, and the price of medium heavy base oil has risen significantly. Among them, the price of base oils such as BS and 500N has increased particularly significantly, reaching 10-13%. This makes the lubricant industry face huge cost pressure, price pressure also followed.
Entering the first and second quarters of 2024, the profit level of the lubricant industry has fallen to its lowest point in nearly three years. This phenomenon broke the industry record since July 2023, making many lubricant companies feel pressure. In order to cope with this dilemma, a number of domestic and foreign refineries announced stoppage for maintenance in the third quarter, further aggravating the imbalance between supply and demand. This has also made base oil prices rise further, bringing greater cost pressure to the lubricant industry.
At the same time, the trend of international oil prices has also had an important impact on the price of lubricating oil. Opec and other oil producers announced on June 2 that they would continue to cut production in the third quarter, which has kept U.S. and Brent crude prices high. This cost pressure is passed to the lubricant industry through the industrial chain, making the price of lubricant facing upward pressure.
In addition, changes in the regional situation have also had an impact on the lubricants market. The tight supply of lubricating oil in the European and American markets has prompted the transfer of lubricating oil resources in Asia to Europe and the United States. This further aggravates the supply shortage of lubricating oil in Asia, making domestic lubricating oil prices face upward pressure.
Although domestic and foreign lubricant brands such as the Great Wall, Kunlun, Shell, Mobil and so on have raised prices for many times, but these increases are basically offset by the rise in international oil prices. This means that despite the rise in prices, the profit margins of lubricant companies have not been substantially improved. On the contrary, due to increasing costs and intensifying market competition, the overall profit level of the industry is still declining.
Faced with this dilemma, some lubricant brands have begun to respond to price increase pressure by providing value-added services. For example, strengthen pre-sale consultation and after-sales services, provide value-added services such as "pre-purchase and deposit", and help downstream enterprises reserve lubricating oil in advance to reduce additional costs caused by price increases. These measures have eased the pressure on downstream enterprises to a certain extent, but have not fundamentally solved the problem of price increases in the industry.
Industry experts predict that oil prices will continue to rise in the third and fourth quarters of 2024. This is mainly due to the high international crude oil prices under the influence of production cuts by oil producing countries; Refineries cut production due to low profits, resulting in lower supply and inventories of base oils and lubricants; And lubricating oil enterprises in the inventory digestion and market competition weakened, there is a need to raise prices to restore profit margins.
In summary, the second half of 2024 lubricant prices may usher in a new round of increases. For enterprises with large demand, it is a wise choice to reserve and plan in advance. At the same time, lubricant enterprises also need to improve production efficiency and reduce costs through technological innovation and management optimization to cope with market changes.
