Anuj Kumar Singh
Senior Project Manager, Energy
Sharbel Luzuriaga
Senior Project Manager, Energy
The global base oil industry is undergoing one of the most profound transformations in its history. For decades, lubricants derived from base oils were indispensable to internal combustion engines (ICEs). Today, the rise of electric vehicles (EVs), including hybrid, plug-in hybrid, and full electric battery vehicles, combined with regulatory pressures, sustainability demands, and technological innovation, is reshaping both the scale and composition of base oil demand.
While EVs reduce or eliminate the need for traditional engine oils, they introduce new requirements for specialty fluids: dielectric, thermal management, and transmission and e-axel fluids that require higher-performance base oils such as Group III+, IV (PAO), and V (esters, PAGs). This shift, combined with uneven adoption rates across regions, is redrawing the global demand map for base oils.
This article explores the forces driving these changes, assesses their implications for base oil suppliers, and identifies strategies to remain future-proof in an evolving mobility landscape.
A Changing Market
The global base oil market has long been tied to automotive lubricants, which account for more than 50% of the total demand. The ICE defines the industry’s scale, specifications, and technology roadmaps. However, two megatrends are forcing a reset:
- Electrification of Mobility: In 2024, over 35% of new passenger vehicles sold globally were either electric or hybrid, including plug-in hybrid electric vehicles (PHEV) and hybrid electric vehicles (HEV). Preliminary data for 2025 shows double-digit growth across all electrified powertrain types. Hybrid vehicles have gained significant traction since governments, including the United States, are retreating from ambitious BEV targets. Moreover, the European Union’s revised targets permit the sale of hybrid vehicles beyond 2035. EVs impose additional performance requirements on fluids to address the unique operational conditions of electrified powertrains. Fluids used in EVs should have excellent heat removal properties, high dielectric breakdown voltage, low viscosity, and material compatibility.
- Sustainability and Regulation: Lower viscosity, longer drain intervals, and tighter limits on formulation components that can compromise aftertreatment systems are causing a shift from legacy formulations to higher‑performing base oils, especially where oxidative stability, volatility control, and low‑temperature performance are important. At the same time, sustainability is changing procurement criteria. Buyers are increasingly asked to demonstrate progress on life cycle impacts, driving interest in circularity (re-refined base oils), lower‑carbon feedstocks, and credible mass‑balance claims. For base oil suppliers, this is not merely a challenge; it is a chance to reposition portfolios toward higher-value, future-ready niches.
ICE Vs. EV Outlook: The Demand Reset
In 2024, global finished lubricant demand was broadly flat, and base oil demand likewise remained steady overall, yet the composition continued shifting, with the growth of Group III/III+ and synthetics. At the same time, the market remains structurally long in several categories: effective utilization sits roughly in the 70–75% range, and surplus is concentrated in lighter–viscosity grades, much of which clears into non‑lube outlets. In other words, EVs land on a market that is already managing substitution, surplus, and mix‑shift, making portfolio strategy more important than ever.
EV Fleet Growth
China is operating at a near 50% electric share of new‑car sales, pulling fluid innovation and supply chains forward. Europe’s trajectory remains policy‑driven but uneven, while the United States continues to grow from a lower base. Meanwhile, many emerging markets will remain ICE‑heavy for the foreseeable future due to affordability and infrastructure constraints.
For base oil suppliers, this means a two‑speed market: some regions will accelerate toward EV‑fluid qualification, higher‑spec synthetics, and new partnerships, while others will remain anchored in conventional lubricants, yet still migrating toward higher‑quality base oil due to viscosity and performance trends.
ICE Lubricant Decline
EV adoption is expected to have a negative impact on the lubricants industry. The highest impact will be expected on automotive engine oils used in ICEs. However, there are potential volume and value growth opportunities in other lubricants and fluids segments, as the deployment of zero-emission vehicle technologies accelerates.
Base Oil Demand Shifts: Segment-by-Segment
Automotive Engine Oils
Across the world, the automotive engine oil demand represents the higher end of the finished lubricant quality spectrum. The global market is rapidly moving toward lighter-viscosity grade engine oils, both in consumer and commercial segments. In the consumer, the demand is gravitating toward 0W-xx grades, whereas demand in the commercial segment is moving toward 10W-xx grades, with some movement toward 5W-xx grades as well. The growing EV penetration will directly impact the engine oil demand—the higher the penetration of EVs, the lower will be engine oil demand.
In the PCMO segment, there is an increasing demand for Group III/III+ and PAO as the market shifts toward 0W-xx grades. Meanwhile, in the HDMO segment, Group II/II+ basestocks are playing a more significant role, with Group III also gaining importance as the demand for 5W-xx grades rises.
Transmission and Gear Oils
The accelerating EV penetration is set to structurally erode the demand for conventional automotive gear oils and transmission fluids, as EVs eliminate multi-speed transmissions and engine-linked drivetrains. However, the shift is not only about decline, as a new frontier is emerging: Specialized e-fluids are gaining traction, designed for reduction gears, thermal management, and optimization of drivetrain efficiency in electric powertrains.
Meanwhile, in the conventional segment, the trend is clear: grades such as 80W-90 and 75W-85/90 are becoming the norm, driving a stronger demand for Group II and Group III base oils in modern formulations.
Industrial and Specialty Oils
Industrial lubricant is the steady anchor in a shifting market. In an otherwise flat—or even declining—finished lubricant market, the industrial segment offers a cushion of stability and a reliable growth avenue. Historically, Group I base oils dominated industrial lubricant blending, but the landscape is evolving. Group II and II+ have firmly established their presence largely at the back of surplus availability, reshaping the formulation mix.
Nevertheless, certain applications still demand specialized base oils. Group I and naphthenics remain critical for metalworking fluids, greases, and process oils. However, beyond these niche requirements, cost and availability will largely dictate base oil selection for most industrial uses. In short, while performance is crucial, economic factors will ultimately drive decisions.
EV Fluids: The New Frontier
The rise of EVs will transform lubricant demand in many ways. As EVs do away with multi-speed gearboxes and combustion-driven components, the need for traditional engine oils and transmission fluids is diminishing. In their place, specialized e-fluids are emerging as critical for electric powertrains. Dielectric fluids ensure safe insulation for high-voltage systems, while thermal management fluids regulate battery and motor temperatures to prevent overheating and extend life. Additionally, electrical transmission fluids optimize reduction gears and enhance drivetrain efficiency. Not only are these advanced formulations functional, but they are also essential for performance, safety, and longevity in the EV ecosystem. As electrification accelerates, these new lubricant categories will define the next frontier for innovation in the industry.
EV Fluids: The New Frontier
The rise of EVs will transform lubricant demand in many ways. As EVs do away with multi-speed gearboxes and combustion-driven components, the need for traditional engine oils and transmission fluids is diminishing. In their place, specialized e-fluids are emerging as critical for electric powertrains. Dielectric fluids ensure safe insulation for high-voltage systems, while thermal management fluids regulate battery and motor temperatures to prevent overheating and extend life. Additionally, electrical transmission fluids optimize reduction gears and enhance drivetrain efficiency. Not only are these advanced formulations functional, but they are also essential for performance, safety, and longevity in the EV ecosystem. As electrification accelerates, these new lubricant categories will define the next frontier for innovation in the industry.
Market Outlook
As EV penetration rises, demand will shift from high‑volume engine oils to a range of coolants/thermal management fluids, driveline fluids, and greases, each with more stringent safety and performance standards. With internal EV architectures still evolving, this uncertainty is significant because if immersion cooling scales beyond niche deployments, it can materially expand demand for dielectric fluids and the high‑performance base oils that they require. Even without immersion cooling dominance, the trend is clear: EV fluids categories are forecast for sustained double‑digit growth, albeit from a small base. The winners will be those who tailor their base oil offerings to meet OEM qualification needs, such as oxidation stability, low volatility, dielectric performance, and compatibility, rather than relying on traditional engine oil volume strategies.
As EVs redefine mobility, their specialized fluids, dielectric, thermal management, and electrical transmission fluids must meet stringent performance requirements far beyond those of conventional lubricants. This demands high-performance base oils such as Group III/III+, polyalphaolefins (PAO), and other synthetics, which deliver properties essential for EV applications.
These advanced base oils offer exceptional oxidative stability, ensuring long fluid life under high thermal loads. Their superior low-temperature fluidity guarantees reliable performance in extreme climates, while excellent electrical insulation makes them ideal for high-voltage and high-temperature environments. Additionally, low volatility and high thermal conductivity help manage heat efficiently, protecting batteries and power electronics.
In the EV era, fluid development is a collaborative process. OEMs play a pivotal role in co-developing specialized fluids with suppliers, ensuring that formulations meet exacting performance and safety standards. Their approval processes and technical validations are critical, as these fluids directly impact battery life, thermal efficiency, and drivetrain reliability. As a result, strategic partnerships and OEM endorsements have become key competitive differentiators, shaping market access and brand credibility in this fast-evolving segment.
Regional Base Oil Demand Map
Electrification is reshaping lubricant demand worldwide, but the pace and impact vary by region.
North America: EV penetration remains slower, though stricter state-level regulations are accelerating change. ICE lubricant demand will decline modestly in the near term, with long-term contractions being inevitable. Refinery rationalizations have already cut Group I capacity, raising the question: Will Group II supply have to explore market opportunities outside the region?
Europe: Rapid EV adoption is driving a steep decline in ICE fluids. Sustainability dominates the agenda, with a growing emphasis on re-refined base oils as OEMs and suppliers push toward carbon-neutral solutions.
China: Leading global EV adoption, China witnesses heavy investments in high-quality base oils refiners and re-refiners. Yet, perception challenges persist. The country could emerge as a swing market for EV fluid demand, influencing global supply dynamics.
India and Emerging Markets: ICE demand stays robust in the short to mid-term, positioning these regions as the last stronghold for conventional base oils, though Group I is gradually losing ground. EV penetration remains slow due to infrastructure and affordability constraints.
Supply-Side Implications
As lubricant demand patterns evolve, the supply side is undergoing its own transformation. Refinery closures, capacity realignments, and the rise of re-refining and synthetics, among other changes, will redefine availability, cost structures, and competitive positioning across global markets.
Refinery Closures: Aging Group I plants are shutting down, accelerating the industry’s pivot toward Group II and Group III base oils. This structural shift reflects both declining demand for conventional lubricants and tightening environmental regulations.
New Capacities: Although Asia and the Middle East continue to add Group II and III capacities, concerns over long-term profitability persist. Overcapacity risks and fluctuating regional demand could pose challenges to maintaining margins.
Re-Refining: Sustainability is driving momentum for re-refining as a viable source of Group II/III base oils. Europe and North America are expected to lead adoption, supported by circular economy goals and OEM endorsements.
Synthetic Surge: EV-driven requirements for dielectric, thermal management, and e-transmission fluids are fueling growth in PAO, PAG, and esters. These synthetics offer superior thermal stability and electrical insulation; however, their high costs remain a barrier, limiting widespread adoption in cost-sensitive markets.
Strategic Responses by Suppliers
The shift toward EV fluids and a changing base oil landscape demand a strategic response from suppliers. First, portfolio diversification is critical, including expanding beyond traditional Group I/II into Group III, PAO, and specialty synthetics to meet stringent EV performance needs. Second, forming OEM partnerships will be transformative, as co-development and approvals increasingly dictate market access. Third, sustainability integration, through re-refining, carbon-neutral products, and circular economy practices, will strengthen competitive positioning. Lastly, digitization in the supply chain and customer engagement can unlock efficiency and agility.
Leading suppliers are already taking action. ExxonMobil is investing in Group III in the United States, while Shell is doing the same in Germany and Chevron is setting up Group III+ capacity. Almost all major lubricant marketers have invested in advanced synthetics for e-fluids. These initiatives convey a clear message: adaptation is the key to success in the next era of lubricants.
Who Will Be the Winners?
The transition to EVs marks a fundamental shift from volume to value, where performance-driven, specialized fluids replace traditional high-volume lubricants. For base oil suppliers, success will lie in investing in sustainability, embracing synthetic products and solutions, and strengthening OEM collaborations to secure approvals and co-develop next-generation formulations. However, regional divergence will add complexity; for example, rapid EV adoption in China and Europe contrasts with slower transitions in North America and emerging markets, demanding agile strategies.
Beyond product innovation, digitization and supply chain resilience will become critical enablers. In short, the winners will be those who pivot early, diversify their portfolios, and align with the twin imperatives of the industry: electrification and sustainability.
Basestocks Intelligence Center
Basestocks Intelligence Center
This article originally appeared in the February issue of Lube Magazine.
