Base oil exports hit $662.87 million in August, up 151.4% year-on-year

Exports up 231% compared to just before the Middle East war broke out

Geopolitical risk disrupts global Group III base oil supply

Domestic refiners reap windfall as spot prices, spreads soar

Demand from data centers and other sectors expected to keep supply tight

An aerial view of SK Innovation's Ulsan CLX complex. [SK Innovation]
An aerial view of SK Innovation's Ulsan CLX complex. [SK Innovation]

South Korean refiners are reaping an unexpected windfall as Middle East conflicts disrupt production at regional base oil facilities, sending demand for domestic products soaring. Supply chain disruptions have been particularly severe for Group III base oil — a premium product used as a key ingredient in industrial lubricants and engine oils — and analysts now forecast that major domestic refiners' lubricant divisions will post record earnings in the third quarter of this year.

According to the latest statistics from the Korea Petroleum Association released Wednesday, South Korea's base oil exports totaled $662.87 million in August, up 151.4 percent from the same month a year earlier. Export volume rose a modest 5.7 percent over the same period to 2.182 million barrels, meaning the value of shipments grew roughly 2.5 times even as volumes barely moved.

Compared with February — just before the Middle East war erupted — export volume jumped 24.5 percent from 1.7524 million barrels, while export value surged 230.6 percent from $200.51 million. The average export unit price also leapt 165.5 percent, from $114.4 per barrel in February to $303.8 per barrel in August.

The supply crunch began in March, when an Iranian attack disrupted operations at Pearl GTL, a facility in Qatar, cutting Group III supply by 22,000 barrels per day. Equipment problems at Abu Dhabi National Oil Company in the UAE and Bahrain's national oil company compounded the strain, tightening the global supply chain across the board.

The disruptions hit at a time when demand for Group III base oil — prized for its high viscosity index and low sulfur content — was already rising on the back of the energy transition and growing appetite for high-performance, eco-friendly lubricants. Traditionally used mainly in premium passenger vehicles, Group III base oil is finding new applications in immersion cooling fluids for data centers and lubricants for industrial robots.

Spot prices for Group III base oil in the United States rocketed 235 percent in response, from $3.4 per gallon in January to $11.4 per gallon in July. The base oil spread — the gap between product prices and feedstock costs — nearly tripled, jumping from $49.6 per barrel in the first quarter to $139.7 per barrel in the second quarter. That figure is nearly double the $72 per barrel recorded in 2021, which had been the highest annual spread since 2011.

Domestic refiners are benefiting from the unexpected turn of events. "We have never seen base oil prices rise this high or attract this much attention," an industry official said. "The lubricant division is on track to post its best-ever results in the third quarter." South Korea's Group III producers include SK Enove, a unit of SK Innovation, and S-Oil. SK Enove holds roughly 40 percent of the global Group III market — the largest share of any single producer — and operates production bases outside the Middle East in South Korea, Spain, Indonesia and Malaysia.

Analysts expect the global Group III supply squeeze to persist for now, as damage to Middle Eastern facilities continues to affect feedstock procurement. In a recent report, LS Securities said a structural decline in heavy and medium crude is creating a mismatch with global refining capacity, and that a shortage of kerosene, gas oil and Group III-centered base oil is likely to last more than a year. The brokerage added that "the base oil rally is expected to continue."

Eugene Investment & Securities also recently raised its estimate for SK Innovation's lubricant division operating profit to 741 billion won ($552 million) — up 334 percent year-on-year and 7 percent quarter-on-quarter — citing sustained high margins for premium base oil amid supply disruptions from Middle Eastern rivals. The brokerage added that ongoing operational problems at Russian refineries are likely to keep the favorable supply-demand environment in place for the time being.


keg@heraldcorp.com