Base Oil Prices Remain Elevated Since Ceasefire

Why It Matters

The sustained price surge signals ongoing supply bottlenecks that could tighten margins for refiners and raise costs for downstream manufacturers. Persistent constraints also limit the ability of refineries to shift production toward higher‑margin base oils, affecting global fuel and lubricant markets.

Key Takeaways

• Group III spot prices doubled in US, up 70% in Europe
• Strait of Hormuz closure keeps 20% of global output stranded
• Truck-to-ship logistics add ~$1,090/t, making moves uneconomical
• Shell’s Pearl plant damage cuts 1.1 mn t/yr capacity for a year
• Diesel‑base oil spread stays thin, limiting refinery production incentives

Pulse Analysis

The ceasefire between the United States and Iran has done little to alleviate the supply shock that began when hostilities erupted in late February. The Strait of Hormuz, a critical chokepoint for Middle‑East crude and feedstock, remains effectively sealed, stranding Group III base‑oil inventories that represent about one‑fifth of global production. As a result, Argus‑assessed spot prices have surged to $2,406.50 per tonne in the United States and $2,515 per tonne in Europe, a two‑fold increase in the U.S. market and a 70 % jump in Europe. These price spikes are further amplified by the loss of capacity at Shell’s Pearl gas‑to‑liquid plant, which suffered missile damage and will be offline for roughly a year, removing 1.1 million tonnes of potential output.

Refiners and traders have explored alternative logistics, such as trucking supplies to Jeddah or Oman for trans‑shipment, but the added cost—approximately $1,090 per tonne after converting the €1,000 truck fee—makes such routes uneconomical. Consequently, many shipments remain on allocation, and the market relies on limited existing inventories. The high freight and handling expenses, combined with the risk of further disruptions, have discouraged any significant shift in trade flows, keeping the price premium for base oils over diesel narrowly above $22 per tonne, far below the five‑year average of $285.

The narrow diesel‑base‑oil spread curtails incentives for refineries to increase base‑oil runs, especially as many Asian facilities continue cutbacks due to feedstock shortages. In the United States, refiners are simultaneously building diesel inventories ahead of the hurricane season, adding upward pressure on base‑oil prices. Until the Strait reopens and damaged plants return to service, the market is likely to see continued price volatility, with downstream manufacturers needing to factor higher feedstock costs into their pricing strategies.