Europe

Europe’s Group II base oils supply fell in June, cutting into a key alternative to an already-tight Group III grade and leaving blenders with fewer options to manage the premium-grade shortage.

Supply fell to less than 140,000 tonnes in June from around 180,000 tonnes in May, Eurostat, CBS Statline, HMRC and US Census Bureau data showed. The decline was the second year-on-year drop in three months, cutting second-quarter supply to its lowest since the beginning of 2025.

Supply fell as imports from the US slumped to the lowest since November 2023, while the Netherlands’ output held steady. Those two sources typically account for more than 90% of Europe’s Group II supply.

The timing magnified the impact of the slowdown. Europe already faced a slump in Group III supply during the second quarter, pushing blenders toward Group II as an alternative.

Tighter Group II availability now limits that option while the Group III shortage persists.

Key Highlights

·         Europe imports from the US fell to less than 35,000 tonnes in June, well below typical monthly volumes of close to 60,000 tonnes over the past year.

·         The Netherlands’ output held close to 100,000 tonnes, just above typical monthly levels, leaving little extra to offset the US shortfall.

·         Second-quarter Group II supply fell to around 450,000 tonnes, down more than 70,000 tonnes from the first quarter and the second lowest since the second quarter of 2024.

·         Second -quarter Group II and Group III supply combined fell by more than 200,000 tonnes from the first quarter, sliding to the lowest since the first three months of 2024.

·         There was no meaningful pick-up in supplies from other markets including Taiwan, whose most recent shipment to Europe arrived in March.

Market Repercussions

Europe's need for alternative premium-grade base oils supply is only growing, while availability remains constrained.

US exports to Europe rose in June, pointing to some improvement in July arrivals. But those cargoes remained lower than usual through July and August, shipping data showed.

An extended slowdown would offset the usual summer lull in lubricants demand.  

It would also coincide with the start of a heavy round of Group III maintenance across Europe and Asia in the third quarter, deepening a shortfall that already left second-quarter supply at its lowest level in at least seven years.

Europe's elevated Group II and Group III prices relative to the US and especially Asia already point to the regional supply imbalance which now faces a seasonal pick-up in demand, as well as further Group II maintenance in other markets.