Base oils output climbs to highest since early 2021, adding to December’s fourteen-month high
Domestic Group II premiums reach multi-year highs despite rising supply, signalling firm demand
Pre-holiday stock-building could curb short-term buying, especially if post-holiday demand underperforms
China’s base oils output rose to a near five-year high in January, extending a late-2025 surge as refiners ramped up production ahead of Lunar New Year holidays and an anticipated seasonal rise in lubricant demand.
Total paraffinic base oils output rose above 570,000 tonnes in January, jumping 25% year on year to the highest since early 2021, OilChem China data showed.
The increase added to December production, which already reached a fourteen-month high.
China’s domestic base oils prices stayed unusually firm despite the supply surge, suggesting demand was sufficiently strong to absorb the additional volumes for now.
Key Highlights
· Group I, Group II and Group III base output all rose month on month for the first time since March 2025, underscoring broad-based supply growth.
· Group II base oils output climbed to its highest level since December 2021, marking the twenty-ninth year-on-year increase in thirty months.
· Group III base oils output rose year on year for the first time in eight months to a three-month high, pointing to early signs of stabilisation after a prolonged slowdown.
· Group I output rose to a one-year high even as it extended its year-on-year fall for a nineteenth straight month, reflecting the structural shift to premium-grade supplies.
· The domestic Group II light-grade price premium to Shandong diesel widened to a multi-year high at end-January, despite rising output.
· The domestic Group II premium to FOB Asia cargo prices rose to its highest level in almost three years.
Market Repercussions
Higher output alongside firm price signals pointed to a round of stock-building ahead of the Lunar New Year holidays in February.
The inventory-build should leave distributors and blenders well positioned to meet a seasonal pick-up in lubricants consumption once factories resume operations.
The stocks are also likely to curb additional buying in the coming weeks as blenders first work through inventories and assess underlying end-user demand.
Any signs of weaker-than-expected consumption would prolong the inventory-overhang, delaying replenishment moves and weighing on procurement activity.
Still-firm base oils prices in the meantime continue to incentivize refiners to maintain elevated run rates, increasing the risk of a supply-demand mismatch if downstream demand falters.