Base oil prices are almost three times prewar levels since the United States and Israel launched military strikes against Iran on Feb. 28, tightening global lubricant supply and raising costs for manufacturers, according to market participants and regional trade data.
The conflict has disrupted shipping through the Strait of Hormuz, one of the world’s most important energy corridors, increasing freight costs, delaying cargoes and adding pressure to global supply chains. Tanker operators had altered shipping movements and reassessed routes because of security concerns and uncertainty surrounding Iranian retaliation, Reuters reported.
The price increases have affected all major base oil grades, which have risen alongside crude oil and freight costs, while buyers in Asia and Europe face longer lead times and tightening availability, according to traders and lubricant blenders. European prices for API Group I and Group III grades have increased by around 175% and Group II by 124%, according to Lubes’n’Greases data.
“These are the highest base oil prices I can remember, and I can assure you that there were no higher Group I prices going back 50 years ago. Unbelievable,” Ray Masson, managing director of trader Puma Crown and a contributor to Lubes’n’Greases, told Lube Report.
Refiners are increasingly shifting production toward diesel and gasoil, which currently offer stronger margins than base oils. Both diesel and lubricant base stocks are produced using vacuum gas oil feedstock, known as VGO, meaning refiners are diverting material away from lubricant production and into fuel manufacturing, in turn reducing availability of Group I and Group II base oils and pushing lubricant prices higher, according to market participants.
Traders and blenders said the supply squeeze is now spreading across the lubricants value chain, with higher additive, freight and blending costs increasing pressure on industrial and consumer lubricant prices globally.