Demand rose for the first time in three months in July, reaching its highest level since March as buyers returned toward more typical purchasing patterns
Base oils supply recovered, but the increase was not enough to produce the larger surplus normally seen during the summer
Open arbitrage to Europe and the Americas kept Asian shipments moving overseas, leaving less surplus available as demand recovers and fourth-quarter maintenance approaches
Asia's lubricants demand rose in July for the first time in three months, limiting the surplus build that normally comes with the summer slowdown.
An open arbitrage to Europe and the Americas also cleared more of that limited volume from the region, further squeezing the surplus heading into the final weeks of the third quarter.
Lubricants demand rose 3% year on year to more than 880,000 tonnes, from less than 800,000 tonnes in May and June to the highest level since March, according to Ministry of Energy, METI, KPA, PSA and other government data. The volume excluded China.
The increase signalled an end to a round of destocking in May and June and a return to more typical consumption patterns, with buyers growing comfortable enough about supply to hold leaner inventories.
Base oils supply recovered to a three-month high of more than 950,000 tonnes as elevated South Korean output and a recovery in Indonesia’s supply offset lower production in India and Thailand.
Including premium-grade imports from the Middle East, total supply rose to more than 965,000 tonnes from close to 925,000 tonnes in June. It was still the second-lowest level in 13 months.
The combination left Asia with a smaller surplus heading into August, when the seasonal slowdown typically allows supply to build sharply.
Key Highlights
· The surplus fell to less than 70,000 tonnes, down from more than 150,000 tonnes in June to a four-month low.
· Including Middle East imports, the surplus fell below 80,000 tonnes, down from more than 110,000 tonnes in July 2025.
· The smaller surplus coincided with a rise in India’s lubricants demand that extended to a five-month high in August.
· Europe and US Group II prices maintained a steep premium to Asia cargo prices through July and August, encouraging refiners to move more cargoes to those markets.
Market Repercussions
The combination of elevated US and Europe prices and a smaller surplus reduced the need for a marked adjustment in Asia prices to make the arbitrage work.
The open arbitrage kept more Asian shipments moving into overseas markets, while supply disruptions in the Middle East reduced the amount of additional supply moving back in.
The result is a smaller overhang heading into the end of the third quarter, just as seasonal demand is recovering in China and India, fourth-quarter maintenance approaches and high diesel prices encourage refiners to prioritise motor fuels output.