Europe's Group III supply fell to a multi-year low as Middle East shipments almost disappeared following the Strait of Hormuz closure
Tight supply and surging price premiums are pushing some buyers toward Group II while opening unusual arbitrage opportunities
Scheduled summer maintenance threatens to tighten supply further, increasing the risk that weaker demand becomes the market's remaining balancing mechanism
Europe's Group III base oils supply fell to a multi-year low in May as a drop in Asia supplies added to the loss of Middle East shipments, deepening a structural shortage that is reshaping the global premium-grade market.
Total Group III supply fell to around 70,000 tonnes in May from close to 90,000 tonnes in April and from typical monthly volumes of more than 135,000 tonnes in 2025, Eurostat, Port Authority of Cartagena and HMRC data showed.
Supply fell to levels last seen during the 2020 pandemic, when Middle East exports similarly collapsed.
Imports from the Middle East slumped to less than 2,500 tonnes from typical monthly volumes of around 50,000 tonnes before the Strait of Hormuz closure.
The region supplied just 3% of Europe's Group III market in May, down from around 36% in 2024 and 2025.
A pick-up in shipments from Asia, Europe’s other main source of overseas Group III cargoes, would help cover the gap. Shipments from the region instead fell to a five-month low, compounding the decline.
The prolonged disruption left premium-grade supply entering the second half of the year at unusually low levels, increasing pressure on producers of high-performance lubricants.
Key Highlights
· June flows from alternative sources stayed muted before improving in July, but held within a narrow range overall.
· Scheduled maintenance at multiple Group III plants in Europe and Asia over the summer threatened to squeeze supply further, just as buyers were already depending on those same sources to cover the shortfall.
· Prospects for a resumption of some Middle East flows dimmed as growing security concerns curbed flows through the Strait of Hormuz in July.
Market Repercussions
Europe's Group III market entered the summer with substantially less supply than in previous years and with alternative volumes insufficient to make up the shortfall.
Surging Group III prices encouraged refiners to maximise production and delay some maintenance work, while the wide premium in the US and Europe opened unusual arbitrage opportunities for markets such as India.
The steep Group III premium to Group II also incentivised buyers to switch to Group II where formulations allowed.
Those adjustments helped ease the shortfall but were insufficient to close a gap that could widen further once summer maintenance begins.
That left weaker demand as the market's remaining mechanism for restoring balance.