The Middle East conflict is driving structural disruption to the global base oils market, with lubricants prices rising up to 30% in a six-to-nine month scenario and more than 50% in a worst case, Rosefield Energy Tech said
Blenders faced simultaneous pressure from feedstock shortages, additives constraints, freight costs and currency depreciation, with local and regional blenders most exposed
Rosefield recommended diversifying feedstock sources, shifting to regional hubs and adopting more dynamic pricing to reduce risk
The global base oils market faced historic structural disruption rather than a temporary supply shock as the Middle East conflict triggered feedstock shortages, logistical disruption and surging costs, Rosefield Energy Tech said in a report.
“Blenders are being hit from all sides – feedstock shortages, soaring freight costs and currency pressure – all at once,” said Shailendra Gokhale, Founder and Director at Rosefield Energy Tech. “The conflict has exposed deep vulnerabilities in global supply chains, and the response is likely to reshape sourcing and pricing strategies over the longer term.”
The lubricants market faced price increases of up to 30% year on year in a six-to-nine month scenario of chronic feedstock supply tightness, crude oil prices around $100-120/barrel, and the partial closure of the Strait of Hormuz.
The report said the market was currently pricing in this scenario.
Lubricants prices plateaued and spot base oils eased in a one-to-three month best-case scenario based on a rapid ceasefire and full resumption of flows through the Strait of Hormuz.
Even with such a scenario, lubricant blenders faced an immediate cost increase of as much as 10% for second-quarter contracts, which customers were likely to resist.
Price increases rose by more than 50% year on year in a nine-to-twelve-month worst-case scenario whereby the Strait of Hormuz remained closed indefinitely, crude oil prices rose to $150-200/barrel and the market faced severe base oils supply scarcity.
Beyond base oils, blenders faced tighter additives availability as the conflict disrupted supply of key raw materials used to produce products such as viscosity-index improvers and antioxidants.
Working capital requirements also faced pressure from higher freight costs and logistical disruptions. Importing countries’ currency depreciation compounded the impact of elevated input costs.
Local and regional blenders were most exposed, as limited ability to pass through higher costs squeezed margins.
Rosefield recommended that blenders diversify feedstock sourcing, shift operations towards regional hubs to reduce transit times, and replace fixed-term prices with more dynamic spot-based pricing.
To read the full report, contact Rosefield Energy Tech at info@rosefieldb2b.com