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When people think of the oil industry, the first thing that usually comes to mind is the cost of fuel. When oil and fuel cost more, everything costs more. It’s not just at the pump; groceries cost more, deliveries cost more and of course, motor oil costs more. While AMSOIL produces only synthetic lubricants, the company is still hit hard by high oil prices.

An example of how shock waves from current market volatility will be felt lies in the auto industry. Up to now, automakers have protected themselves from market fluctuations by locking into long-term contracts with steel producers. That’s why the large increases in steel prices haven’t driven up the costs of new vehicles. But those contracts are starting to run out. The same sort of scenario is playing out with every other commodity. Copper, zinc, aluminum, platinum, magnesium and plastic are all skyrocketing in price. According to Ward’s Automotive, in the near future a $20,000 vehicle will be a $30,000 vehicle, a $30,000 vehicle will be a $40,000 vehicle and so on.

Raw Materials
Ingredients of synthetic lubes, additives and base stocks, even synthetic base stocks, have some basis in crude oil and natural gas. The unprecedented increase in crude oil over the past year is driving the costs of key chemicals up sharply and often. Butane, ethylene, propylene, benzene and other chemicals used to produce base oils have all skyrocketed in price. Over the past 12 months, the price of base oils used in the production of AMSOIL synthetic lubricants has risen by 47 percent. Additives have been greatly affected as well. Diesel oil additives are up 24 percent, two-stroke oil additives are up 27 percent and gasoline engine oil additives are up 25 percent, all in the past six months. The price increases from AMSOIL chemical and raw material suppliers are issued so frequently and with such significant impact that it’s almost impossible to maintain sufficient pricing levels. And more price increases are in the pipeline.

Packaging
The price of plastic has risen dramatically due to the increased price of crude oil, and AMSOIL is greatly affected. Plastic packaging, including quarts, gallons, pails and twin packs, has risen in price by over 14 percent in the past 12 months, and plastic cap prices have risen 21 percent in the past 12 months. In addition, steel drums have risen in price by 39.5 percent in the past six months alone.

Freight
Freight companies commonly use fuel surcharges to cope with fluctuations in the price of fuel. Twelve months ago, AMSOIL paid a fuel surcharge of $0.35 per mile. Currently, the company pays $0.71 per mile, and has paid as much as $0.81 per mile. Fuel surcharges are in addition to regular freight rates, and current fuel surcharges nearly double the cost of shipping. Additionally, fuel surcharges apply to everything coming in and going out, so AMSOIL pays a fuel surcharge and freight on packaging as it comes in and again when it is shipped out as finished product.

Supply & Demand
While demand for finished lubricants continues to rise, supply has remained tight. China, India, South Africa and other densely-populated countries are using more oil all the time. In addition, competition for many of the chemicals used to produce lubricants continues to increase. For example, the demand for biofuels has dramatically increased the demand for the crops used in their production, which has in turn increased the demand for fertilizer. Many chemical fertilizers are formulated with raw materials derived from the same chemicals used to produce additives, further depleting supplies.

Seventy percent of sulfur produced is used in fertilizers. Sulfur prices went from $60 to $452 since Q2 2007 - an increase of 650 percent.

Ninety-five percent of phosphate rock is used in fertilizers. Phosphate rock prices increased from $20/MT in March 2007 to $400/MT in March 2008. That’s an increase of 1,900% in the last year, and 430% just since the end of 2007.

Lithium is another common ingredient necessary to grease production that is being used up quickly by other industries. Lithium is a silver-white, soft alkali metal that, under normal conditions, is the lightest metal and least dense solid element. Lithium hydroxide, a lithium derivative, is primarily used in the grease industry, with demand growing at a steady 2 percent per year over the last 20 years. Lithium-based greases are popular in automotive, industrial, military, aircraft and marine applications. Lithium is also used in glass and cement applications, and has the ability to store electrical energy. Lithium carbonate is an important component in batteries for mobile phones, laptops, camcorders, cameras and electric and hybrid cars. With the popularity of portable electronic devices, and environmental concerns increasing demand for electric and hybrid cars to unprecedented levels, demand for lithium is increasing and will continue to increase. For example, Toyota plans to offer only hybrid vehicles by 2020.

Political instability around the globe, rampant speculation, restricted access to new sources, lack of investment in new production and a weak U.S. dollar are major issues affecting the current state of volatility. These issues are outside even the U.S. government’s control and all have some impact on the lubricants industry by affecting prices.

Current Trends
Vehicle manufacturers are under pressure to provide more efficient cars and trucks. As a result, many have begun recommending lower-viscosity motor oils as a way of improving fuel efficiency.

As environmental concerns continue driving trends toward fuel efficiency and reduced waste, quality becomes more important. As a result, top-tier, high mileage and synthetic oils now account for almost 20 percent of the North American personal car motor oil (PCMO) market and continue to gain ground.

Heavy-duty diesel applications are facing many of the same trends. Higher value, biofuels compatibility, extended drain capability and fuel economy are hot topics among heavy-duty diesel owners. In addition, the EPA recently acknowledged that lubricants in general can deliver a 1-2 percent improvement in fuel economy, increasing the trend toward quality oils.

Future Trends
Environmental concerns look to be the driving force behind future lubricant trends. Improved fuel economy, reduced emissions, maximum engine cleanliness, improved durability and extended oil drain intervals will be the targets for future oil formulations. But environmental issues are far from the only factor to consider when planning future lube formulations. As noted in the chart above, the lubricant industry is a complicated business.

The Competition
All motor oil companies have been greatly affected by today’s volatile market. As the following chart illustrates, other companies raised prices to their distributors an average of 24 percent since March 2008. AMSOIL has just issued a 12-16 percent price increase effective August 1 and only had a 5 percent surcharge prior to that.

According to Jobber’s World figures obtained from leading auto parts chain stores in December 2005 and May 2008, competitive motor oil quart pricing has increased at an equal or greater percentage over that time period compared to AMSOIL synthetic motor oil as well.

Additional Challenges
As an independent oil company, AMSOIL faces many unique challenges. The volatility of the current market impacts independent manufacturers differently than it does “Big Oil.” Recently, the Independent Lubricant Manufacturers Association (ILMA) submitted comments to the Federal Trade Commission (FTC) renewing its criticism of the pricing practices of major oil companies. ILMA’s biggest complaint lies with the majors’ practice of issuing a price increase for base oils to all of their competitors and delaying the subsequent price increase on their finished lubricants. Independent blenders, like AMSOIL, buy base oils from the majors and compete against them in the sale of finished goods.

In some cases, ILMA contends, the same suppliers that implement numerous base oil price increases to independents delay increasing prices on their finished products for 45 to 60 days, causing a price squeeze on independent lubricant manufacturers. For example, Shell announced a price increase on finished lubes May 23 that doesn’t go into effect until August 5.

ILMA General Counsel Jeff Leiter said the only conclusion that can be reached is that the major oil companies are trying to squeeze out the independents for market share. “ExxonMobil might say ‘Shell’s our competition, not ILMA members,’ but it’s kind of curious that ExxonMobil is selling base oil to Shell. Exxon raises prices, and the rest of them follow suit the next day by the same amount. Our sense is, we’ve lost a competitive market for base oils, and that’s what is creating the problem,” said Leiter. Price increases from base oil suppliers used to be approximately $0.05 per gallon. Now they are more like $0.30 per gallon each increase.

AMSOIL Advantage
At a glance, the current state of the lubricant industry might appear rather gloomy, but not for AMSOIL Dealers. AMSOIL synthetic lubricants already address many of the forecasted issues of the future (extended drains, fuel economy, environmental concerns).

• AMSOIL customers are quality-conscious, and AMSOIL is the benchmark for quality lubrication.
• AMSOIL offers a complete line of products, making the local AMSOIL Dealer a one-stop shop for automotive needs.
• AMSOIL synthetic lubricants provide maximum fuel economy and can improve mileage by up to 2 to 5 percent.
• AMSOIL synthetic lubricants offer unsurpassed protection from wear.
• The extended drain capabilities of AMSOIL synthetic lubricants set them in a league of their own. Only AMSOIL has formulated lubricants designed for extended drain intervals for more than 35 years, and only AMSOIL provides oils capable of 25,000 miles or one year of service.
• AMSOIL lubricants offer many environmental benefits. Reduced volatility provides fewer emissions, while extended drain intervals reduce the amount of used oil generated.
• AMSOIL synthetic lubricants are made in the U.S.A. Their ability to provide maximum protection over extended drain intervals significantly reduces America’s dependence on foreign oil.
• AMSOIL synthetic lubricants are more cost-effective. While the initial investment is slightly more than that of competing oils, AMSOIL products save money long-term.
• AMSOIL Dealers are lubrication experts. Nothing lends to credibility better than the demonstration of knowledge and the willingness to help. Honest, accurate answers to customers’ lubrication questions will undoubtedly lead to more sales, and AMSOIL Dealers know a great deal more about lubrication than nearly anyone working the counter at a parts store.

Bottom Line
AMSOIL Dealers are poised perfectly to address all of the issues facing the lubricant industry. They have the tools to provide answers to the problems consumers face. And AMSOIL will not sacrifice quality.

For information on an AMSOIL Dealership follow this link:
AMSOIL Dealership Information

To Retail AMSOIL in your business:
AMSOIL Retail on the Shelf Program

To Retail AMSOIL products in your Lube Center:
AMSOIL Quick Lube Program

To purchase AMSOIL products in bulk commercially priced for your business or municipality:
AMSOIL Commercial Program

To become a Preferred Customer and purchase AMSOIL products at a discount:
AMSOIL Preferred Customer Program

AMSOIL Online Store for product pricing or more detailed product information:
AMSOIL Online Store

The extreme pressures and temperatures generated by modern vehicles increase stress on gear lubricants and can lead to a serious condition known as thermal runaway. As temperatures in the differential climb upward, gear lubricants lose viscosity and load carrying capacity. When extreme loads break the lubricant film, metal-to-metal contact occurs, increasing friction and heat. This increased friction and heat, in turn, results in further viscosity loss, which further increases friction and heat. As heat continues to spiral upward, viscosity continues to spiral downward. Thermal runaway is a vicious cycle that leads to irreparable equipment damage from extreme wear, and ultimately catastrophic gear and bearing failure.

In order to ensure continued viscosity protection in high-shear conditions, it is required that SAE 75W-140 automotive gear lubes stay in grade throughout the CEC L-45-A-99 (KRL) 20-Hour Shear Test. AMSOIL recently subjected Severe Gear 75W-140 Synthetic Gear Lube (SVO) and four competing 75W-140 gear lubes to KRL shear stability testing.

SAE J306 standards dictate SAE 140 gear lubes maintain a minimum 24.0 cSt viscosity. Although each of the test oils met this standard before testing began, each competitor failed to stay in grade following the test. In fact, two experienced viscosity losses so dramatic that they dropped well below SAE 140 requirements and all the way down to an SAE 85 viscosity. AMSOIL Severe Gear, on the other hand, easily retained its viscosity within SAE J306 requirements, indicating its superior ability to protect against thermal runaway by maintaining its protection qualities in severe, high shear operating conditions.

AMSOIL also took the opportunity to subject Severe Gear 75W-110 Synthetic Gear Lube (SVT) to KRL testing. SAE J306 standards dictate SAE 110 gear lubes maintain a minimum 18.5 cSt viscosity. Like Severe Gear 75W-140, SVT demonstrated its superior protection qualities by easily retaining its viscosity and staying in grade.

The graph indicates the viscosity losses experiencedby each of the tested gear lubes:

KRL Shear Stability Test CEC L-45-A-99 (20 Hours) Larger view click picture

The superior viscosity protection, viscosity index and shear stability properties of AMSOIL Severe Gear Synthetic Gear Lubes effectively protect equipment from the devastating effects of thermal runaway. Severe Gear Synthetic 75W-90, 75W-110 and 75W-140 Gear Lubes are ideal for severe-duty applications, including towing, hauling, steep hill driving, commercial use, plowing, racing, off-road use, rapid acceleration, frequent stop-and-go operation and high ambient temperatures.

The standard 3,000-mile oil change interval is under attack. Promoted for years by most motor oil companies and quick lube businesses as an essential part of proper vehicle maintenance, the public has become much more skeptical in recent years. In fact, searches for “3,000 mile oil change” in top Internet search engines such as Google and Yahoo! primarily yield articles and blog postings that challenge the practice and refer to it as a “scam” or “myth.”

AMSOIL synthetic motor oil was introduced in 1972 as the only motor oil on the market recommended for 25,000-mile/one year drain intervals, and the company has spent much of the last 36 years as the lone voice promoting the benefits of extended drain intervals. However, AMSOIL has recently welcomed an increasing number of companies and organizations to the party. Although they still don’t recommend drain intervals as long as AMSOIL recommendations, the momentum is growing.

Vehicle manufacturers have mostly recommended oil change intervals exceeding 3,000 miles in recent years. In fact, most recommend intervals of 5,000 miles or more. Ford Motor Company recommends drain intervals of 7,500 miles in its model year 2007 and newer vehicles, while other manufacturers incorporate oil monitoring systems in their newer vehicles that allow motorists to extend drain intervals even further.

In its December 2006 issue, Consumer Reports encourages drivers to follow the longer oil change recommendations of vehicle manufacturers, saying, “Although oil companies and quick-lube shops like to promote this idea [that engine oil should be changed every 3,000 miles], it’s usually not necessary. Go by the recommended oil-change schedule in your vehicle’s owner’s manual. Most vehicles driven under normal conditions can go 7,500 miles or more between oil changes. Some models now come with a monitoring system that alerts the driver when the oil needs changing. Depending on driving conditions, these can extend change intervals to 10,000 or 15,000 miles.”

Steve Ritter, senior editor of Chemical & Engineering News, writes, “Conventional wisdom has held that the oil should be changed about every 3,000 miles. This notion has been ingrained into people’s heads for decades, in part as a marketing ploy by oil companies. The 3,000-mile interval made sense when engines used single-grade nondetergent oils. But with the latest oils and car designs, it’s no longer necessary to change oil that often under normal driving conditions.”

Concerned about the effects of used oil on the environment and responding to research thatindicates 73 percent of California drivers change motor oil more often than their vehicle’s manufacturer recommends, the California Environmental Protection Agency and its Integrated Waste Management Board (CIWMB) have emerged as another strong opponent of the 3,000-mile oil change. The group recently launched a public information program and website (www.3000milemyth.org) designed to “bust the 3,000-mile myth” and encourage drivers to reduce used oil volume by following the longer oil drain recommendations of vehicle manufacturers.

“Used motor oil poses a great risk to the environment,” said CIWMB Chair Margo Reid Brown. “With better made cars and the rise of synthetic oils, the 3,000-mile standard is not always recommended.”

Most recently, General Motors announced its support of the CIWMB program to educate drivers about oil change intervals. According to GM, standard 3,000- mile oil change recommendations are based on outdated engine and oil technology, and the company instead recommends changing oil based on its Oil Life System. Currently included on over 97 percent of all GM vehicles sold in the U.S., the GM Oil Life System typically allows drivers to extend drain intervals up to 10,000 miles through use of a computer-based software algorhythm that measures vehicle operating conditions. With 31 million vehicles on the road equipped with the Oil Life System, GM spokesman Tom Henderson claims following its recommendations rather than the 3,000-mile rule could save 100 million gallons of oil annually.

In addition to the environmental benefits associated with less waste oil, extended drain intervals save consumers money. For example, customers who purchase conventional oil at $3 or more per quart, drive 12,000 miles per year and follow 3,000-mile oil change recommendations spend atleast $60 per year on oil alone (assuming a five-quart sump capacity). AMSOIL Dealers and AMSOIL Preferred Customers who pay $6.45 per quart (based on case pricing) under the same conditions pay only $32.25 per year.

“When it comes to oil changes, less is more,” claims the CIWMB. “You’ll have more money in your wallet by changing your oil less, and fewer oil changes mean less oil that needs to be safely managed and recycled.”

Premium AMSOIL synthetic motor oils offer the longest drain intervals on the market, unsurpassed protection and performance that effectively extends equipment life and improved fuel economy, saving customers money at the pump and reducing the nation’s dependence on foreign oil.