Base oil price questions. Base oil price spread not as large as retail price spread

[thrace]

I am sure there are experts who can explain base oil pricing better.

From this link, it seems that Group II is may cost less than Group I base oil.
Group II+ 5-8% higher than Group II
Also, Group III appears about 21% higher than Group II.

So it seems that base oil price spread not as large as retail price spread of oil at the retail store. Group III base oil is more than 21% higher than group II at the store shelf unless there are many other factors that outweigh base stock prices.

If higher grade oils need less make up oil and additives than lower grade base oil, there should be less difference in price after additives are included. The oil bottles are often the same except for color and label for high and low base stock oils. Marketing and advertising varies widely.

http://www.imakenews.com/lng/e_article000645751.cfm?x=b11,0,w

 

[pitzel]

In theory, assuming identical profit margins, the difference between Group III and Group II should be less than 21% on the shelf.

The issue is, however, that the retail market will pay extra for a premium product.

For instance, we have, in Canada, ExxonMobil's Mobil-1 product, and we have a product known as "XD-3", also by ExxonMobil, on the shelves. Both are available in full synth versions.

Mobil-1 was $8.50 + tax at Wal-Mart this evening per quart. A few feet away was the Exxon XD-3 product, full synth (with great UOA's), for $5/quart.

Dust literally is settling on the bottles of the cheaper XD-3 full synth (again, from ExxonMobil), while the Mobil-1 flies off the shelves.

Consumer behaviour will not always be perfectly rational, and people willing to pay a premium price for a premium product often have a very poor ability to perceive the extent of premium they should be paying.

 

[BrianWC]

Please send all excess XD-3 down here!

 

[Tom NJ]

Hi Thrace,

Retail pricing is a function of consumer perceived value, and raw material cost is only one factor among things like brand, claims and packaging. The reason the Grp III producers jumped on the word "synthetic" is because this word carries higher value to consumers and thereby allows higher profits.

Also the additive cost for synthetic oils is often "higher" than for petrolem oils. While the synthetic base oils may need less anti-oxidants, they may need more of other additives such as dispersants. More important, a company's synthetic oil is usually intended to be their premium "best" product and are formulated more for performance claims than for for cost. If you are already popping for PAO or ester or AN at 2-4 times the cost of Grp I or II and intend on selling the finished oil at $5-7/qt, then the net treat cost of the additives becomes less important than the marketing claims that increase perceived value. Grp IIIs may be an exception since these are often intended to be economical synthetics, i.e., get into the "synthetic" game at the lowest cost and highest profit.

These are my opinions and not universal facts - every oil company has its own drivers when it comes to formulating philosophy.

Tom

 

[Vilan]

Same reason Nike shoes cost a fortune even though they don't cost much more to make than no-name. Just charging what the market will bear.

 

[Ken2]

To add to Tom's excellent observations, Group I oil is mainly used in industrial oils and very little in engine oil and newer ATF. Group I production facilities are being converted to Group II and II+. Supply and demand of Group I and Group II set the differences in their prices.


Ken

 

[dave1251]

Another possible consideration to consider. Is what is cost for the manufacture is the additives used. Also the development of the product