Five drivers of base oil amid Middle East crisis

Base oil amid Middle East crisis

In a quick analysis, Amanda Hay, Deputy Managing Editor, Americas/Global Lead, Base Oils at ICIS, exclusively sent Lubes em Foco magazine a summary of five key factors impacting the global base oil market amid the crisis in the Middle East.

They are:

• Middle East supply constraints will tighten the Group III market.
  • 25% of global Group III capacity is constrained in the Middle East.
  • Dual supply shock with refinery closures and blocked trade routes.
• Gasoil strength will divert refinery economics away from base oils.
  • 25% of Europe’s middledistillate import flows from the Persian Gulf is tightening the gasoil balance.
  • Rising gasoil cracks are improving fuel margins, which incentivizes refiners to prioritize distillate output over base oils.
  • This dynamic affects all base oil groups.
• Upward pressure on crude will lift base oil prices.
  • Base oils typically adjust to crude with a twomonth lag.
  • Given the weak macro outlook and the tightening product markets, the passthrough is likely to happen faster than usual.
  • This will impact all base oil groups.
• Higher shipping costs will add further cost pressure and constrain trade flows.
  • Disruptions in key maritime routes and longer voyage times are driving freight rates higher.
  • This will raise landed costs for importdependent markets and could reduce arbitrage flows, adding another layer of tightness to global supply dynamics.
• Higher energy costs will lift production costs, especially in Europe and Asia.
  • Rising natural gas and power prices are increasing operating costs for producers, supporting higher base oil price floors across all groups.

We will continue to follow the unfolding events and bring you the news focusing on the lubricants market.