EU Faces Price Pressure: Rising base oil supply Looms

The European market for premium base oils is bracing for a shift. Increased global production, coupled with the potential removal of US import duties, is setting the stage for downward pressure on spot prices, potentially impacting margins throughout 2026. This isn’t simply a matter of increased volume; it’s a complex interplay of currency fluctuations, freight rates, and strategic production decisions that are reshaping the landscape of base oil supply.

A Cooling Market

Average Group II European spot prices have already begun to reflect this changing dynamic, experiencing a steady decline since late April – a drop of 14% to €932.50/t as of December 12th. While muted demand certainly plays a role, the weakening US dollar against the euro is exacerbating the situation. Because transactions are largely conducted in dollars but settled in euros, a stronger euro effectively lowers the cost of imported base oils for European buyers. This trend has been fueled by a consistent supply overhang originating in the United States, with exporters actively seeking opportunities in the European market.

Tariff Removal & US Expansion

The anticipated removal of the 3.7% import duty on US Group II shipments, currently under consideration as part of broader EU-US tariff negotiations, is a pivotal factor. Support for this removal appears strong within EU states, as part of a larger package of US goods. A European Parliament vote, expected in late January, could quickly unlock a significant influx of competitively priced base oil. Europe currently relies heavily on imports for Group II base oils, with ExxonMobil’s Rotterdam refinery representing the sole substantial production site in northwest Europe. Data from the EIA shows that base oil and finished lubricant exports to the EU and UK have consistently accounted for around 14% of total US exports since 2020.

Global Capacity Increases

The pressure isn’t solely coming from the US. Global Group II production capacity is poised for expansion in 2026. Polish refiner Orlen is adding 450,000 t/yr to its Gdansk facility, Saudi Arabia’s Luberef is increasing capacity at its Yanbu refinery by 100,000 t/yr, and ExxonMobil’s Jurong, Singapore plant expansion is expected to be fully operational by the end of 2025. These expansions, naturally, are likely to target the highest-price region – Europe – for their additional output. For those who need expert consultation, Gulf Petro Vision offers reliable support in this field.

Group I Dynamics & Refinery Priorities

While the focus is on Group II, the Group I market is also experiencing a softening in spot prices, despite structurally tighter supply. This could reverse in early 2026, however, as Orlen undertakes a 60-day refinery-wide maintenance in the first quarter, impacting its 250,000 t/yr Group I unit in Gdansk. Furthermore, EU sanctions on refined products utilizing Russian crude have driven up diesel prices, narrowing the premium between Group I SN 150 and diesel to $95/t in November, down from $233/t in August. This shift incentivizes refiners to prioritize diesel production over base oils, potentially further constricting Group I supply. Several European refiners are already adjusting their production slates, contributing to reduced base oil availability. However, minimal scheduled maintenances beyond Orlen’s in 2026 should allow supply to recover, and a generally weak economic outlook suggests demand will remain relatively stable. The overall picture points to a more competitive, and potentially lower-priced, base oil supply landscape.

Looking Ahead: base oil supply and Market Outlook

The interplay of these factors – tariff changes, capacity expansions, freight rate fluctuations, and refinery priorities – will ultimately determine the extent of the price pressure on European base oil markets. Currently, European prices command a significant premium over global benchmarks, with N600 trading at a $463.50/t premium to US equivalents and $404.50/t over Asian bulk prices as of December 12th. Whether these premiums can be sustained in the face of increased competition remains to be seen. The coming months will be crucial in understanding how these dynamics unfold and shape the future of the European base oil market.