South Korea’s base oils output extended its rise in January to a three-year high, boosting stocks ahead of scheduled plant maintenance work and a potential slowdown in crude oil supplies from the Middle East that could reverse the surplus sooner than expected.

Total base oils output rose to 2.92 million barrels (411,000 tonnes) in January, climbing 12% and for a sixth straight month from year-earlier levels, Korea Petroleum Association data showed.

Supply rose from 2.89 million barrels in December, reaching the highest level since March 2022. December’s volume was itself the second-highest since then.

A sustained rise in output added to signs of a broader rebound in Asian base oils supplies in recent months, with sliding base oils margins early this year reflecting the growing surplus.

Key Highlights

·         Base oils output in the two months to January rose to close to 820,000 tonnes, the highest two-month volume since December 2021 and almost 90,000 tonnes above year-earlier levels.

·         Total supply, or base oils output and imports combined, exceeded demand in January for a third straight month, with the surplus reaching the highest level in a year.

·         Supply similarly outpaced demand in January 2025 before sliding to a deficit over the following three months because of plant-maintenance work, a pattern that could repeat this year.

·         South Korea’s January refinery throughput climbed to the highest in more than a decade, with diesel and jet fuel maintaining a combined 38% share of total production.

Market Repercussions

South Korea’s surplus is likely to reverse in the coming months as plant maintenance work begins later this month.

The inventory-build, combined with high output from other refiners, should cushion the impact of the shutdown.

Any slowdown in output by other refiners would instead magnify the effect and accelerate the drawdown of stocks built up in recent months.

The Middle East crisis raised the risk of such a development, with any disruption of crude oil feedstock supplies to South Korea limiting refiners’ ability to sustain current output levels.

Surging diesel crack spreads added further pressure.

The sharp rise in the diesel premium to crude oil in early March already gave refiners an incentive to maximise middle distillate output and redirect very-light grade base oils back into the diesel pool, reducing availability even before any feedstock shortage materialises.