Valencia, Spain – European lubricant demand is expected to remain flat for the rest of the decade as weak economic growth, political volatility and shifting technology trends continue to suppress consumption, according to the latest outlook from Kline & Co.
“Europe lubricant demand is stagnating amid economic and political uncertainty,” Konstantin Melnichuk, director of Kline’s energy practice, told the ACI 2025 European Base Oils & Lubricants conference held here last week. He added that the region’s transition will be shaped by forces largely outside of the industry’s control, while the market is squeezed between structural decline and new opportunities in the premium products.
The consultancy projects little or no volumetric recovery over the next decade. European lubricant demand hovered around 6.6 million to 7 million tons in recent years and will remain under pressure as manufacturing softens and rising costs and demographic challenges drag on consumption.
Melnichuk attributed this directly to the “economic stagnation driven by competition from emerging markets, high labor cost, aging population, tariffs, the Ukraine war consequences and environmental legislation constraints.” Some markets in the south and east may grow, he noted, but not enough to offset declines in the established industrial centers of Western and Northern Europe.
As volumes slide, pricing and value dynamics are shifting, according to Kline.
Melnichuk observed that several negative demand drivers may “positively impact the monetary return from each lubricant liter sold,” as customers turn to higher-performance lubricants to reduce downtime, meet tougher OEM requirements and power new technologies. Europe’s industrial and energy sectors are already searching for more advanced fluids, especially as the war in Ukraine has “urge[d] Europe to search for alternative energy sources including green energy and high-tech solutions raising the demand for premium lubricants, especially for wind turbines.”
Economic uncertainty remains a heavy weight on the regional outlook. Melnichuk said growth across Europe remains “modest and uneven across countries,” while inflation is forecasted to fall toward 1.9% in 2030,” easing cost pressure but not fundamentally changing the trajectory.
Policy frameworks are also in flux. He warned that without fiscal consolidation, European debt could “reach 130% of GDP by 2040,” a burden that limits investment in the downstream sector, including the refiners and lubricant producers. Even a new U.S.–EU trade agreement, meant to stabilize economic relations, comes with mixed effects: It “introduced higher tariffs on EU exports but reduced policy uncertainty.”
A major complicator for the lubricant industry is the volatile path of the global electrification, Kline found. Once anticipated to follow a predictable upward curve, the transition has become tangled in political reversals and consumer hesitation.
“We are witnessing an uncertainty following the end of the $7,500 EV tax credit and the reversal of stricter emissions standards in the U.S.” In addition to a regulatory shift that pushes consumers back toward hybrids.
Europe, meanwhile, faces its own turbulence with the “delay in Euro 7 emissions regulation and relaxation of 2035 ICE ban enforcement.” This regulatory backpedaling has prompted automakers across both continents to recast their strategies, leading to a “rollback of targets by several OEMs – GM, Stellantis, Ford, Toyota, Volvo, Mercedes Benz, VW, JLR, Honda, Nissan,” Melnichuk said.
Kline also found that against this backdrop, Europe remains a critical but constrained buyer of higher-grade base oils.
Although it represents only one-sixth of global base oil demand, the region continues to “lead all regions in the use of high-quality base oils for automotive applications,” driven by strict OEM recommendations and sustainability targets. Group III and III+ base oil dominate the modern passenger car motor oils, while Group II continues to gain ground as local capacity expands. Group I, however, is steadily eroding. Melnichuk reported that “Group I is facing double whammy of declining domestic as well as export demand,” and ongoing rationalization will accelerate as producers shut older, less profitable units. Nearly 2 million tons of Group I capacity shutdowns are expected by 2034, according to the consultancy.
Supply fundamentals are shifting in other ways too. Kline notes that Europe is gradually moving “from net importer to a more balanced supply-demand position,” thanks to new Group II and III facilities announced in Poland (Orlen Oil) and Germany (Shell).
“At the same time, base oil categories are sorting themselves into niche to high value commodities to premium products, with Group I and naphthenics becoming shrinking niches, Group II emerging as a high value commodity, and Group III/III+ positioned firmly as premium,” Melnichuk said. What differentiates these premium molecules, he added, is increasingly not viscosity or volatility but certification: “The most material influencer of relative prices of Group III base oils is the degree to which each possesses OEM, Addco and certification agency approvals.”
Europe’s circularity leadership remains another defining characteristic of this important market. The region generates around 3.8 million tons of used oil annually and collects 2.8 million t/y, producing about 600,000 t/y of rerefined base oils.
Rerefined basestocks are gaining traction by OEM acceptance as regulatory frameworks and sustainability mandates push the industry toward lower-carbon options. Still, Melnichuk cautioned that rerefined base oils “will ultimately be a niche segment,” even as new projects from ExxonMobil, TotalEnergies, Castrol and others expand aggressively this category.
ExxonMobil is advancing a new rerefined base oil project in France; Castrol and Slicker Recycling partner to establish circular oil management in United Kingdom; TotalEnergies has acquired Finland’s Tecoil; Pennzoil has introduced its first fully regenerated racing oil as a minority shareholder in Blue Tide, a U.S. refiner that recently completed a large rerefinery that could influence European imports.
“Momentum is real,” Melnichuk said. “But rerefined base oil will not replace mainstream Group III. It will complement it.”
Looking ahead, new growth avenues are emerging in areas such as EV thermal fluids, battery-cooling systems and immersion-cooling solutions for data centers. These emerging technologies demand higher-performance, higher-value fluids, extending the premiumization trend.
“There will be opportunities and challenges for base oil suppliers – the key will be to position according to the evolving landscape,” he concluded.