The global base oils market is getting no respite from the ceasefire announcement in the Mideast Gulf, as logistic and feedstock issues that are constraining supply persist, market participants told Argus.
The ceasefire announcement between the US and Iran on 7 April has not changed global base oil market fundamentals, and even if a permanent peace deal is reached it would take a couple of months before production and trade flows resumed, participants said.
Group III supplies remain stranded in the Mideast Gulf as the strait of Hormuz remains effectively closed, and spot prices in net importing regions continue to surge. Argus-assessed Group III 4cst spot prices have increased more than twofold in the US and by 70pc in Europe since the war began in late February, to $2,406.50/t and $2,515/t respectively on 10 April.
The Mideast Gulf accounts for about 20pc of global Group III output, according to Argus estimates. The region supplied 47pc of US Group III imports in 2025 and 72pc of European imports, EIA and Kpler data show.
European and US term customers are on allocation and some suppliers looked at alternative means to get product out of the Middle East, including moving supplies via truck to Jeddah or Oman to be loaded on to containerships, bypassing the strait of Hormuz. But trucks are being prioritised for fuel movements, and with costs estimated at up to $1,000 per truck before loading and freight costs, spot offers would be raised by €1,000/t compared with assessed prices. No movements of this nature have been reported, and logistics costs are too high and complicated.
Supply will anyway be limited from the region. Shell's 1.1mn t/yr Pearl Group III gas-to-liquid plant sustained missile damage to one of its two trains that will take a year to repair.
Diesel margins over feedstock vacuum gasoil (VGO) reverted to a discount compared with light-grade Group I base oils when the ceasefire was announced. But the spread between the two remains minimal at $22.50/t, as assessed on 9 April. The five-year average premium that base oil carries over diesel after feedstock costs is $285/t.
A higher and more sustained spread over diesel would need to happen before refineries consider increasing base oil production, participants told Argus. But supplies remain constrained as refineries undergo maintenances and some have production issues.
Base oil run cuts at Asian refineries are ongoing because of feedstock supply disruptions from the Middle East, affecting Group I and Group II output. Refineries have to prioritise strategic fuels over base oil output.
US suppliers are looking to move volumes there to support term customers. US refineries are also looking to building inventories for hurricane season, which typically runs from June to October. This continues to add upward pressure to prices.
