December US base oils supply rose to a four-month high, outpacing demand and lifting inventories to an eleven-month high
Rising surplus volumes limited refiners’ ability to pass through higher feedstock costs, leaving margins exposed to higher crude oil prices
Imports accounted for the smallest share of fourth-quarter supply since 2020, suggesting rising domestic Group III output is covering a larger share of US requirements
US base oils supply rose to a four-month high in December, outpacing demand and adding to a surplus that carried into the start of 2026.
Total supply, or output and imports combined, rose to 6.68 million barrels (941,000 tonnes) in December, up from less than 6.2 million barrels in November and a six-month low of less than 5.90 million barrels in October, data from the US Energy Information Administration showed.
Without a sustained demand recovery, the supply build threatened to grow, amplifying pressure on margins.
Key Highlights
· December base oils output extended its rebound to 5.34 million barrels, the second-highest monthly level in more than three years and up from less than 4.60 million barrels in October when a key plant underwent maintenance work.
· Imports recovered to a three-month high, from a nine-month low in November, adding to the pick-up in total supply.
· December supply exceeded demand by the second-largest volume in fifteen months, lifting inventories to the highest since last January.
· Fourth-quarter supply totalled 18.67 million barrels, up 3% year on year and the highest fourth-quarter level since 2021.
· Imports accounted for 19% of fourth-quarter supply, the smallest share since the third quarter of 2020, suggesting rising domestic Group III output is covering a larger share of US requirements.
Market Repercussions
US base oils margins trended lower in the first two months of this year as steady-to-weak outright prices contrasted with rising crude oil prices.
The squeeze partly reflected seasonal winter demand softness, while persistent surplus supply amplified the pressure.
Elevated inventories limited refiners’ ability to pass through higher feedstock costs. The dynamic increased the need for demand to hold firm to prevent a further stock-build.
Margin pressure intensified in early March as crude oil prices surged, pointing to the importance of pricing leverage to respond to rising feedstock costs.
A seasonal pick-up in demand ahead of the spring oil-change season offers the most immediate prospect of relief.
Overseas demand could also rise if buyers need to line up alternative shipments in response to any supply disruptions in the Middle East.