For the lubricant makers, the news of decreasing crude oil prices gives enough comfort; however, these benefits of the lowering of crude oil prices are available with a lag.
According to market analysis, the price of the base oil (main raw material for making lubricant oils) varies with the price of crude oil with a wrap of one-two months. That indicates if the crude oil prices become stable, the investors can anticipate of boosting the lubricating oil price for the coming two-three quarters. The fact is that already the lubricant making companies have started to see improvement in their profit margin at present quarter.
When a lubricant making company maintains a premium pricing strategy, it ensures its higher operating margin. For the last quarter, the share prices have declined, as the investors are not impressed with it. Therefore, it is essential now to increase the operating margin for all the lubricant making companies.
For the reason behind lower operating margin, the unresponsive volume growth is one of the major factors. Among other factors, premium pricing, rising competition for the lubricant making companies, failing of commercial vehicle sectors and delayed economic recovery are noteworthy that may have affected the falling prices for the shares of lubricant making companies for some time. However, in such situations, the news of falling prices for the crude oils has certainly given some relief to these lubricant making companies and therefore, it is expected to rising the share prices for the investors.
However, Gulf Oil’s discount for the valuation of lubricant oil companies, faster growth and rising economic condition play the significant roles for the improvement of lubricant oil markets. In fact, in this respect, the improvement of auto industry future and faster economic growth can bring massive change in the future improvement of lubricant oil market.