Consumer choices are shifting too: western European drivers have largely migrated from diesel to petrol over the past decade, adding complexity to regional product balances.
Green transition: A demand headwind, but not across the board
Electric vehicle (EV) adoption, though slower than some projections, continues to build momentum. In January– August 2025, hybrid vehicles surpassed pure gasoline models in new registrations, highlighting a gradual but undeniable shift in road transport demand patterns.
At the same time, renewable blending mandates continue to rise across major European economies, increasing compliance costs for refiners while reducing the use of fossil fuels.
The double-edged sword of geopolitics The loss of Russian crude and gas raised costs for European refiners, but geopolitical disruptions also tightened global product markets, temporarily improving refinery profits in Europe.
However, if Russian refined products are eventually re-admitted to EU and UK markets, several marginal refiners could struggle to compete.
Recent fires at refineries in France, Italy and Hungary, sanctions on some operators, and uncertainty surrounding Nigeria’s Dangote refinery have made European prices more sensitive to sudden supply shocks.
Implications for base oils With all of the above in mind, the three major takeaways for the base oils segment are as follows... 1. Lower crude prices could spur base oil production
Across global markets, from Asia to Europe to the U.S., base oils are more attractive to produce when crude and refined product prices fall. Current trends show that Group I and Group III base oils generally trade above long-term average premiums. Meanwhile, Group II values vary more by region but remain economically favourable in Asia and the U.S. because of a larger production capacity.
Keeping the finger on the pulse of the interplay between gasoil/diesel crack spreads and base oil premiums will be key through 2026.
2. Premium grade capacity is set to expand through to 2030
The global market is set for substantial shifts in supply. By 2030, at least 3.7 million tonnes per year (t/yr) of new Group III capacity may come online (≈28% increase), with 2.3 million t/yr of new Group II capacity also expected (≈10% increase).
With demand for high performance lubricants rising, these premiums continue to be of great importance, yet some regional shortages persist in the near term because of supply and logistical disruptions.
Europe is expected to remain a net importer for Group II/ III base oils because most of the new capacity is concen- trated in other markets. Key units to watch in Europe include PK Orlen’s 450,000 t/yr Group II expansion in the second half of 2026, and Shell’s new 300,000 t/yr Group III German facility that is expected to start by 2028.
3. China’s rising base oil output: Import substitution intensifies
China is rapidly expanding domestic base oil production, cutting its reliance on imports. This drive has seen net imports fall sharply since 2021, as output from state owned majors (Sinopec, PetroChina) and high performing Shandong plants continues to rise and specifications are improving.
That being said, export feasibility remains limited due to a lack of market presence, an unfavourable tax structure and limited formulation approvals. Notwithstanding, China’s evolving role is already reshaping Asian supply dynamics.
Volatility and transformation will define the next 5 years
Europe’s refining future is shaped by structural demand decline, geopolitical unpredictability and accelerating green policies. While some regions are resilient, many refiners face increasing pressure from competitors.
For the base oils market, shifting crude prices, new capacity additions and China’s domestic expansion will be major global drivers. Stakeholders across lubricants, energy and chemicals must track these indicators closely to navigate the volatile years ahead.
argusmedia.com
LUBE MAGAZINE NO.193 JUNE 2026
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