Valencia, Spain — Regulatory pressure, tariffs and sanctions, evolving lubricant specifications and rising defense and infrastructure spending are reshaping base oil demand and trade flows across Europe, the United States and neighboring markets, industry participants heard recently.
Regulation-led demand erosion remains evident in Europe’s largest lubricant markets, driven primarily by fuel-efficiency mandates and accelerating electrification, according to Argus Media.
“Evolving fuel-efficiency requirements and emissions regulation are already weighing on finished lubricant consumption in Germany, the U.K. and Italy,” Gabriella Twining, base oil editor at Argus, told the ACI’s European Base Oils and Lubricants conference here on Nov. 26.
Germany’s lubricant demand in 2024 was running 16% below 2023 levels, while the U.K. was 14% lower year on year, highlighting how efficiency gains are compressing volumes even as lubricant formulations become increasingly complex.
“Evolving requirements are clearly pressuring European lube demand,” Twining said, noting that the trend is structural rather than cyclical, with regulatory ambition continuing to outpace near-term economic recovery.
At the same time, base oil supply conditions in Europe are easing. European Group I output is expected to recover in 2025 following heavy reductions in 2024, when around 700,000 metric tons of capacity were removed from the system. Planned reductions for 2025 are far smaller, totaling roughly 70,000 tons, as refinery maintenance schedules normalize and closures taper off, according to Argus estimates.
Some operational disruptions persist. Mol’s 195,000 t/y Group I refinery in Százhalombatta remains in recovery following a fire earlier in October. Meanwhile, PKN Orlen’s 250,000 t/y Group I refinery in Gdańsk is the only major Eastern European base oil plant scheduled for maintenance in the first quarter of 2026, while Luberef’s 270,000 t/y Group I plant in Jeddah, Saudi Arabia, is set to close by mid-2026.
More broadly, the return of supply is already driving a wider divergence between European domestic prices and export values, as spot fundamentals reassert themselves after a period dominated by outages and logistical disruptions, Argus found.
Beyond regulation, Twining highlighted a less visible but increasingly material driver of lubricant demand: rising defense and infrastructure spending across the European Union. Germany is set to invest €500 billion (U.S.$588 billion) in infrastructure and increase defense spending to 3.5% of GDP by 2029, as Berlin accelerates military preparedness linked to Russia’s war in Ukraine and continued support for Kyiv.
Germany has already placed initial orders for 1,400 military vehicles. Twining noted that even under peacetime conditions, tanks typically consume 100 to 300 liters of lubricants per year, pointing to a potential uplift in industrial and defense-related lubricant demand over time. Spain offers a historical parallel: when infrastructure tenders rebounded from €7.2 billion in 2012 to €18.5 billion in 2019, national lubricant consumption recovered by about 15%, according to Argus analysis.
Trade policy developments between the U.S. and Europe were another focal point. Base oils and finished lubricants remain exempt from U.S. tariffs, even as duties on chemicals and automotive components have reshaped some trade flows. Discussions are ongoing over the possible removal of the EU’s 3.7% import duty on U.S. Group II base oils, a move that would likely encourage additional transatlantic shipments.
Export data underscore Europe’s importance to U.S. suppliers. Exports to Europe account for roughly 14% of total U.S. base oil and finished lubricant exports, with shipments heavily concentrated in the Amsterdam–Rotterdam–Antwerp (ARA) hub. On average, 87% of U.S. exports to Europe flow into the ARA region, according to figures cited from the U.S. Energy Information Administration. Shipments to Belgium and the Netherlands in particular have remained consistent, reinforcing ARA’s role as the primary entry point for U.S. material.
Pricing trends reflect these structural linkages. European Group II prices remain the highest globally, supported by limited regional nameplate capacity and sustained demand for premium grades, even as plentiful heavy-grade supply in Asia and growing competition from the U.S. weigh on sentiment.
Twining also addressed the re-refining segment, where regulatory support is strengthening even as prices come under pressure. EU waste legislation prioritizes regeneration of used oils over disposal or energy recovery, reinforcing the long-term role of rerefined base oils in the European supply mix. Although rerefined prices have declined, Argus data show they are falling more slowly than virgin Group I grades, reflecting regulatory backing and relatively resilient demand.
“The policy framework is clearly supportive, even if near-term economics remain challenging,” she said.
Geopolitical factors continue to ripple through base oil markets. Sanctions on Russia are reshaping crude and fuel trade flows, with knock-on effects for base oil yields and competing fuel values. Concerns over products derived from Russian crude, combined with tight diesel inventories, are adding upward pressure across the barrel, Argus found.
In the Black Sea region, refinery repair work and domestic market prioritization have curtailed spot availability, prompting Turkish buyers to source more Group I material from Europe amid heightened sanctions-related uncertainty.
Looking ahead, tighter lubricant specifications are expected to reinforce the shift toward higher-quality base stocks. The ILSAC GF-7 standard, effective from March 2025, and the phased rollout of Euro 7 emissions rules from late 2026 will require improved fuel economy, oxidation stability and low-temperature performance. These requirements favor lower-viscosity, higher-viscosity-index base oils, accelerating the move toward Group II and Group III formulations.
That transition is already visible in Group III markets, where the availability of fully approved supply is increasing, easing tightness that previously underpinned price premiums. Even so, Twining cautioned that regulatory complexity, uneven demand recovery and ongoing geopolitical risk will continue to shape pricing and trade patterns.
“Differing EU and U.K. REACH regimes, sanctions and tariff discussions are adding cost and complexity,” she concluded, “but spot prices are still ultimately driven by supply and demand.”