Base Oil Prices 2026 — Why Group III Costs Almost Three Times Group I

What are base oils, and why are they grouped?

Base oils make up most of a finished lubricant — typically 70% to 99% by volume — with additives providing the rest. The American Petroleum Institute sorts them into five groups under API 1509 by three measures: saturates, sulphur and viscosity index (VI). Group I is solvent refined and has less than 90% saturates or more than 0.03% sulphur, with a VI of 80 to 120. Group II is hydrocracked, with more than 90% saturates and under 0.03% sulphur, and the same VI range. Group III meets the same purity but has a VI above 120, which allows the low-viscosity, low-volatility engine oils that modern car makers specify. Group IV is polyalphaolefin (PAO), synthesised in a chemical plant rather than refined from crude. Group V covers everything else, from esters to silicones ^[5].

The grouping is not only a chemistry lesson: it is the price ladder. Each step up needs more hydrogen, more pressure and more capital, so Group III is structurally more expensive than Group II, which is more expensive than Group I. In normal years the spreads are modest. In October 2026 they are not.

Where base oil prices stand in October 2026

In Asia, the most liquid spot market, Group I SN150 was assessed at $1,290–1,330 per tonne FOB Asia on 26 October and SN500 at $1,320–1,360. Group II 150N and 500N were $1,520–1,560 and $1,560–1,600. Group III 4 cSt was $3,660–3,700, 6 cSt $3,640–3,690 and 8 cSt $3,470–3,510 — levels the report describes as historic highs, with prices rising moderately week on week despite softer demand because crude, feedstock costs and supply restrictions all point the same way ^[1].

Europe is pricier for Group I but similar for Group III. Northwest European Group I was quoted FCA Antwerp–Rotterdam–Amsterdam at $1,765–1,825 per tonne for SN150, $2,010–2,055 for SN500 and $2,245–2,280 for bright stock on 20 October. European Group II was softening at €2,100–2,200 for the main grades, while fully approved Group III 4 cSt stood at €3,765–3,845 FCA. The same report notes that the premium of average base oil prices over diesel has fallen to its lowest for a number of years — refiners can earn almost as much by sending the same molecules to the diesel pool, so they are favouring diesel and jet fuel over base oil ^[2].

In the Americas, most Group II+ and Group III producers — ExxonMobil, SK Enmove, Motiva and Petro-Canada among them — have raised posted prices since early September, with Motiva adding 75 cents per gallon on Group II+ and Group III 4 cSt from 1 October after a $1.00 per gallon increase on 1 September ^[3,4]. By 21 October no fresh increases were announced, but light grades and all Group III cuts were still short, and Group II and re-refined oils were being used as substitutes for Group III where approvals allow ^[3].

The official statistics confirm the move. The US producer price index for lubricating oil base stocks reached 348.8 in September 2026, from 297.2 in July and 241.5 in May — a rise of roughly 44% in four months ^[11].

Why the Gulf matters: Hormuz, Pearl GTL, Ruwais and Sitra

The Gulf is the world's fastest-growing source of Group II and Group III base oil, and in 2026 almost none of it can leave. Iran has kept the Strait of Hormuz largely closed since hostilities resumed on 8 July, with only some tankers from neutral-linked fleets allowed through, and marine loadings from base oil plants in Abu Dhabi, Bahrain and Qatar remain blocked ^[1]. The Bab el-Mandeb strait is closed as well, restricting Red Sea movements, and Saudi loadings from Yanbu face a longer route around South Africa ^[2].

Shell's Pearl GTL plant at Ras Laffan — a gas-to-liquids complex with 1,372,000 tonnes a year of Group II/III nameplate capacity — halted production after an attack in March that damaged one of its two trains ^[1,6]. Reuters reported on 8 October that Shell had partially restarted the plant to build limited inventories, but a spokesperson said repairs to Train 2 would not be completed until the first quarter of 2027, and the company has tied a full restart to open shipping through Hormuz ^[6,7]. ADNOC's Ruwais unit is reported undamaged but running at reduced rates, and Bapco's 400,000 t/y Group III plant at Sitra is believed to be producing; cargoes from both are moving out of the Gulf by local vessel to ship-to-ship transfers in the Gulf of Oman or to India's west coast, rather than by the normal routes ^[1,2]. Luberef's Yanbu plant has run at reduced rates and begins a turnaround at the end of October ^[1,4].

The effect on importers is direct. North America consumes about 2.2 million tonnes of Group III a year but can make only around 575,000 tonnes, so it relies on Gulf and Asian cargoes ^[10]. By 21 October at least two Gulf Group III cargoes were reported heading for the United States, but most expected demand remained unmet and Asian suppliers were shipping under strict allocations ^[3]. Europe has turned to Indian and Indonesian Group III, with some Chinese offers facing EU sanctions-related documentation problems because of Russian feedstock rules ^[2].

Group I: shrinking capacity, tight bright stock

Group I has a different story. Its capacity has been closing for a decade as hydrocrackers replaced solvent plants, and ICIS notes that shuttered export capacity has created structural shortages, especially in bright stock, the heaviest Group I grade used in marine cylinder oils, gear oils and greases ^[10]. In 2026 that structural tightness meets a cyclical squeeze: Russian and Iranian Group I supply is unavailable to Indian buyers because of production disruptions and sanctions, Chinese Group I buyers have rushed to secure cargoes, and vacuum gasoil — the feedstock for both Group I and diesel — has tightened as China allowed clean fuel exports ^[1].

Yet Group I is also the grade most exposed to the diesel economics described above. When the premium of base oil over gasoil is thin, a Group I refiner with a vacuum column has every incentive to divert feed to distillates. The EMEA report says refiners are doing exactly that, and that turnarounds planned for the coming months will "restrict growing base oil surpluses" once demand recovers ^[2]. In other words, Group I prices in Europe are held up by cost, not by demand.

From forecast surplus to wartime shortage

The irony of 2026 is that the year began with analysts warning of too much base oil, not too little. In February, ICIS counted about 3.4 million tonnes a year of new Group II and III capacity coming online in Asia since the second half of 2025 — including ExxonMobil's one-million-tonne Group II expansion in Singapore, equal to 5% of 2025 global Group II capacity — plus 1.3 million t/y of Indian projects and more than 600,000 t/y of Group III scheduled for 2026 across India, China, the United States and Saudi Arabia. Global utilisation was put at 60–70%, and the outlook to 2030 was for "global base oil oversupply as capacity is added before downstream demand appears" ^[10].

Some of that capacity is still coming. Chevron's Pascagoula plant in Mississippi is due to start producing the first North American Group III+ grade, NEXBASE 4 XP, in the fourth quarter of 2026, joining Petronas and SK Enmove as the only producers of that quality ^[8]. But the war has removed more supply than the new plants add, and it has removed it from the region that was supposed to supply the deficit markets. The structural picture — Group I declining at 1.3% a year to 2030, Group III growing at 1.8% ^[10] — has not changed; the timing has. Meanwhile the industry keeps consolidating: HF Sinclair will retire its 15,600 b/d Mississauga base oil refinery by the end of 2027 and buy Group II from Chevron and Group III from SK Enmove instead ^[9].

How base oils are priced and traded

Base oils are not exchange-traded. Prices are assessed weekly by price-reporting agencies for each region — FOB Asia and ex-tank Singapore, CFR India and China, FCA or FOB Northwest Europe, FOB Middle East Gulf, and US Gulf export — and the large US producers publish posted prices for their domestic customers, which they change by cents per gallon ^[3,4]. Term contracts are usually indexed to one of these assessments plus or minus a differential for grade, origin and approvals; some contracts are indexed to diesel ^[3].

Grade names carry history. Solvent-neutral grades such as SN150 and SN500 are named after their Saybolt viscosity at 100 °F; Group II and III grades after their kinematic viscosity at 100 °C, so a "4 cSt" Group III and a "150N" Group II are similar in viscosity but very different in VI and price ^[5]. Approvals matter as much as chemistry: Indian Group III, for example, is in demand in Europe and the United States because supply there is short, but it lacks the engine-oil approvals that Asian and Middle Eastern grades carry, so it is not a straight substitute ^[1]. Physical cargoes move by chemical tanker in parcels of a few thousand tonnes, or in flexitanks, ISO tanks, drums and IBCs for smaller lots, under Incoterms® 2020 and against a certificate of analysis and an independent inspection report.

What to watch

The single most important variable is the Strait of Hormuz. Gulf plants can restart within weeks of a reopening, but the Group III premium will not normalise until cargoes from Ras Laffan, Ruwais and Sitra can load and sail normally, and Pearl GTL's second train is not due back before the first quarter of 2027 ^[1,6,7]. Second is the diesel crack: as long as refiners earn more from distillates, base oil output in Europe and the Americas will be rationed, which supports Group I and II prices even where lubricant demand is weak ^[2,3]. Third is substitution: Group II and re-refined oils are already replacing Group III where approvals allow, and that demand shift will outlast the shortage if blenders requalify formulations ^[3]. Fourth is new capacity — Chevron's Group III+ in Pascagoula and the Indian and Chinese projects due in 2026 — which will arrive into a market that, once the Gulf reopens, could quickly return to the surplus ICIS forecast in February ^[8,10].

Alupetra follows base oil, additive and catalyst markets alongside crude and refined products from its Istanbul, London and Dubai offices, and quotes base oils in writing against the published assessment of the buyer's choice.