Europe’s base oils market returned to surplus in May as supply recovered and demand eased
The surplus masked a growing split between grades, with Group I and Group II more plentiful while Group III supply fell to its lowest in more than seven years
Group III shortages through the third quarter kept total supply tighter, supporting prices at elevated levels
Europe's base oils market returned to surplus in May, but persistent Middle East disruptions kept Group III supply unusually tight, keeping pressure on other grades.
Total supply rose above 500,000 tonnes in May from less than 485,000 tonnes in April, as higher production in the Netherlands and UK outweighed a drop in imports, which fell to their lowest level in more than two years, CORES, GUS, MET, Eurostat and other government data showed.
Total demand fell to around 460,000 tonnes, with regional lubricants consumption slipping to a five-month low and base oils exports also declining. The volume was down 1% year on year, marking the first annual decline in three months.
That decline followed a surge in March and April, when blenders built up stocks on concern about supply disruptions. The surge collided with a sharp drop in supply, leaving April with its largest shortfall in 26 months.
Higher supply and lower demand flipped the market back to surplus in May.
The broader supply picture improved as Group II supply recovered to a nine-month high and Group I remained close to typical levels. Group III moved the opposite way, with supply slumping to its lowest level in more than seven years as Middle East flows collapsed.
That left Europe with more base oils overall, but no relief for the grades hit hardest by the Middle East disruptions.
Key Highlights
Europe's base oils surplus recovered to more than 40,000 tonnes, close to typical levels, reversing April's steepest shortfall in 26 months.
Base oils imports fell to their lowest level since February 2024, extending declines in three of the past four months.
Europe's Group I net supply, or output less exports to markets outside the region, moved back toward typical levels.
Total supply stayed down 10% year on year as the loss of the Group III supplies outweighed steadier availability of other grades.
Regional lubricants demand fell 3% year on year to around 210,000 tonnes in May, down from more than 265,000 tonnes in April.
Market Repercussions
The lubricants demand slowdown extended into June, followed by a seasonal dip during the summer months. But Group I and Group II prices stayed elevated in the third quarter even as the market eased.
Group III base oils saw no such improvement. With Middle East supplies still disrupted, the shortfall widened, keeping prices firm and pushing blenders toward alternative base oils where formulations allowed.
That helped keep prices for the other grades firm even as their own supply balances improved. Higher diesel crack spreads added further support.
Improving overall supply failed to trigger a corresponding adjustment in prices, pointing to the impact of tight Group III and elevated diesel cracks.
Until that supply returns and diesel crack spreads ease, Group I and Group II prices are likely to stay more disconnected than their own supply balances would suggest.