• Europe's Group III base oils supply fell to a 42-month low in April as Middle East imports collapsed from a decade-high in March to their lowest since January 2024

• Supplies from alternative sources including Spain and South Korea also slipped, highlighting their inability to offset the Middle East shortfall

• Europe's structural dependence on Middle East volumes and its narrow alternative supply sources added to the importance of a timely resumption of Hormuz shipments

Europe's Group III base oils supply fell in April to its lowest level in more than three years, as Middle East imports collapsed from a decade-high in March and no alternative source was in a position to fill the gap.

Total Group III supply fell to less than 90,000 tonnes in April from more than 190,000 tonnes in March, Eurostat, Port Authority of Cartagena and HMRC data showed. The April volume was the lowest since October 2022.

Middle East imports drove the surge and the collapse. Imports from the region fell from more than 110,000 tonnes in March to less than 15,000 tonnes in April— the lowest since January 2024.

The March surge in Middle East supply had inflated Europe's Group III inventories. Those stocks were the region's main support against a supply gap that alternative sources lacked the capacity to close.

Key Highlights

·         The Middle East accounted for 17% of European Group III supply in April, down from around 36% during the previous three years.

·         The decline was driven primarily by the near-total halt in shipments from Qatar, while flows from Bahrain and the UAE remained closer to typical levels.

·         Combined imports from the Middle East during March and April still averaged above 2025 monthly levels, extending the period before stocks ran low.

·         Supply from other sources fell to a four-month low, highlighting their limited capacity to adjust to the slump in Middle East volumes.

Market Repercussions

Supplies from other sources including Spain and South Korea showed signs of holding steady in May, preventing a more rapid deterioration in stocks.

But steady flows rather than an increase in shipments highlighted their inability to replace the lost Middle East volumes.

The March stock-build extended Europe's buffer. But those supplies were set to draw down faster than they could be replenished from remaining sources.

A surge in demand since March to cover against supply disruptions accelerated the drawdown.

The gap between supply and demand increased the importance of a resumption of Hormuz shipments or a sharp drop in demand.

Buyers could switch to Group II grades where possible, reducing demand for Group III base oils in applications where the premium-grade supply was preferred rather than essential.