Profit fell to a two-year low as Asia Group II prices lagged the diesel surge, pushing lube margins below refining margins for the first time since 2022
Refining profit surged to its highest since Q2 2022, pointing to the challenge facing base oils producers when diesel crack spreads run high
Asia Group II prices have since recovered to a more-than-six-year-high premium over gasoil in May, pointing to a margin recovery ahead
South Korean Group II refiner Hyundai Shell Base Oil's (HSB) first-quarter profit fell to a two-year low as Asia Group II prices lagged a surge in diesel crack spreads, widening the profit gap of transport fuels over base oils.
Operating profit fell to 22 billion South Korean won ($15 million) in the first quarter, down 52% year on year and 56% from the fourth quarter of 2025, a Hyundai Oilbank earnings report showed.
HSB is a joint venture between Hyundai Oilbank and Shell.
Sales fell 43% year on year and 5% from the fourth quarter, lagging the sharper drop in profit as base oils prices failed to keep pace with the March surge in feedstock and gasoil prices.
HSB’s lubricants profit margin fell to 10.5%, dipping from 22.6% in the fourth quarter to the lowest since the first quarter of 2024.
Refined product margins surge
Surging refined product sales and profit compounded the pressure on base oils.
Refining profit margin rose to 13.3%, the highest since the second quarter of 2022 and above the lubricants margin for the first time since then.
The divergence reflected the faster response of refined product prices to the surge in crude oil prices from the beginning of March, with diesel crack spreads climbing to multi-year highs.
Refined products account for a much larger share of total refinery output and sales, with diesel making up a significant portion. The multiplier effect of high refined product prices and margins magnified the impact of already-high diesel output.
That dynamic increased the premium that base oils prices needed in order to incentivise refiners to maintain production of the lubricants feedstock.
Prices rebound
Asia Group II prices outpaced gasoil prices in April and May, but they lagged the scale of the surge in Group III prices that more than compensated for elevated diesel crack spreads.
Plant maintenance scheduled from around end-March reduced HSB’s supply regardless of margin incentives.
Base oils margins had recovered sharply by the time the unit restarted in May, pointing to a reversal in the compressed margins that had weighed on Group II producers in the first quarter.