The disruption to shipping through the Strait of Hormuz has fractured the global base oil market, leaving Europe scrambling for scarce Group III supplies while soaring prices in Asia have begun destroying demand, according to traders and market participants who say the industry has entered unfamiliar territory.
The crisis has exposed the lubricant industry’s heavy reliance on Middle Eastern Group III production, a dependence that many market participants underestimated before the conflict. “I don’t think everyone understood how much this region relied on Group IIIs from the Middle East,” Jeremy Kriska said during an industry discussion. A market that had been “a bit oversupplied” quickly became “a difficult market to source,” he said, as suppliers warned customers almost immediately that normal trading conditions had disappeared. While North America has been cushioned by its own Group I and Group II production, Europe’s search for replacement barrels is beginning to pull material across the Atlantic. “Especially Europe is putting pressure on bringing U.S. product over, which is going to elevate the prices here a bit more,” Kriska said. He expects Group III prices to remain elevated through at least the end of the year despite lower crude oil prices.
Europe has emerged as the epicenter of the supply squeeze. Ray Masson, a longtime European base oil trader, said the disappearance of cargoes from Bahrain, the United Arab Emirates and Qatar had driven prices to unprecedented levels while leaving buyers unable to secure material. “Group III is now short. That’s the word for it,” he said. Production in Spain has offset only a fraction of the lost imports and additional cargoes from Indonesia are unlikely to fill the gap.
“We’re still facing huge shortages of Group III material in Europe right now,” Masson said. Availability has overtaken price as buyers’ main concern. Ray described one supplier who turned away spot inquiries because “his tanks were dry,” adding that buyers “will pay anything, basically, for it right now.” Some lubricant blenders have already begun informing customers they cannot guarantee supplies of finished products until shipments from the Gulf resume.
The picture in Asia is markedly different. Aleksandr Borisov of Petrobell said the region was hit first because many refiners depend almost exclusively on Middle Eastern crude and cannot easily substitute other feedstocks. Initial shortages sent prices soaring after producers withdrew offers, but India and China unexpectedly helped stabilize supply by redirecting cargoes that could no longer reach Gulf markets and re-exporting base oils across Asia. As a result, “availability in Asia is very good for all the grades, Group I, Group II and even Group III,” Borisov said. The problem is no longer finding product but convincing customers to buy it. “End users cannot accept such high prices,” he said. “They just stop buying or decrease their consumption a lot. So consumption and demand for base oils vanished in Asia almost at all.” Borisov added that the traditional relationship between crude oil and base oil prices has weakened since the pandemic, with supply constraints now dominating the market. “The issue of this market is still there — Strait of Hormuz and lack of supply, lack of raw material for the production of base oils. That’s the main problem.”
Gabriela Wheeler, who moderated the discussion, said the scale of the disruption had caught even experienced market participants off guard. “I’ve heard comments from market sources saying, ‘I’ve never expected anything like this to happen in my lifetime,’” she said. While crude oil prices have retreated from their highs, she noted that Group III values have remained elevated because the market is still constrained by physical shortages rather than feedstock costs. The result is a global lubricant market increasingly defined not by price negotiations but by access to supply, with Europe competing for every available barrel while Asia grapples with the economic consequences of prices that many buyers can no longer afford.