South Korean refiner S-Oil’s base oils unit saw its profit rise in the first quarter as surging Group III prices outweighed weaker Group II values, reinforcing stronger fundamentals in premium-grade supplies before end-February disruptions accelerated the trend.

The unit’s operating profit rose 52% year on year to 166.6 billion South Korean Won ($111 million) in the first quarter, extending gains for a second straight quarter.

S-Oil is one of the world's largest producers of Group III base oils.

Profit rose even as sales dropped 7% amid continued weakness in Asia Group II base oils prices, which fell for a fourth straight quarter.

The sustained pressure left Group II prices at a discount to regional gasoil values during the first quarter for the first time in more than four years, squeezing margins.

Group III prices surge

Global Group III prices by contrast held firm through the first two months of the year before surging from March.

The divergence pointed to firmer Group III fundamentals relative other grades even before a wave of refinery outages and supply disruptions from end-February disproportionately tightened Group III availability.

The March rally helped push first-quarter Europe Group III prices to their widest premium to crude oil since late-2023, with premiums extending further during the second quarter.

S-Oil’s first-quarter base oils operating margin rose to 22.6%, up from 13.9% a year earlier, reflecting the stronger pricing environment for higher-specification grades during the final weeks of that period.

S-Oil’s first-quarter refining margin also rebounded, climbing to 14.6% from a loss a year earlier to the highest since 2022.

The simultaneous rise in refining and premium-grade base oils margins added to the challenge facing the Group III market. Limited production volumes constrained their contribution to overall refinery profit, incentivising refiners to prioritise fuels output instead.