Europe's Group II base oils supply fell to a two-year low in April as the Netherlands’ production dropped sharply, tightening an already squeezed market
The supply squeeze coincided with disruption-driven stock-building and Group III shortages, boosting demand for Group II as an alternative
The tighter market opened arbitrage opportunities from the US and Asia but also underscored Europe’s competitive disadvantage versus regions with more diverse supply
Europe's Group II base oils supply fell to a two-year low in April, just as Group III supply was running short.
Group II supply, comprising domestic production and imports, fell to less than 135,000 tonnes in April from almost 170,000 tonnes in March, Eurostat, CBS Statline, HMRC, and Census Bureau data showed.
The decline marked the first year-on-year fall in five months and the lowest supply since refinery maintenance disrupted production two years ago.
Buyers were already counting on Group II to cover a shortfall elsewhere. Demand was rising as blenders built stocks and as Group III shortages pushed buyers toward Group II instead. Group II supply then fell as well.
Regional prices surged in response, with the gains outpacing the US and Asia.
Key Highlights
· Netherlands Group II production fell to a ten-month low of 71,000 tonnes, from 110,000 tonnes in March.
· Base oils production declined much faster than overall refinery output and diesel production, a sign that refiners allocated relatively less feedstock to base oils during the month.
· Imports remained steady as higher arrivals from the US offset lower shipments from other suppliers.
· Additional overseas cargoes moved to Europe, including stronger US exports in April, and a Taiwan cargo fixed during May.
Market Repercussions
Two grades tightened at once, leaving buyers with no remaining alternative within the region.
While Asia sources premium-grade base oils from a broader network of producers, Europe relies heavily on the Netherlands’ production and US imports.
Any disruption to one of those supply channels has a disproportionately large impact on regional availability and prices.
The resulting Group II price-surge attracted additional overseas cargoes. It also left European buyers paying more for feedstocks than blenders in other regions.
That disadvantage could become more pronounced as Asian supply continues to recover and crude oil weakens, increasing downward pressure on base oil prices outside Europe before any adjustment in regional premiums.