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· Asia’s Q4 base oils supply rises to its highest since Q2 2022, reversing steep output dip earlier in 2025
· Strong demand caps rise in surplus volumes, leaving year-end overhang at its lowest fourth-quarter level since 2021
· Start-up of new capacity in Asia could test the region’s ability to continue absorbing rising supply
Asia’s base oils supply rose to a multi-year high in December, extending a sharp recovery in output and raising the risk of a faster build-up of surplus volumes at year-end.
Total regional supply rose to more than 1.0 million tonnes in December, up from around 950,000 tonnes in November and the highest level since early-2023, government data showed.
The surge in volumes lifted Asia’s supply surplus for a third straight month.
Unusually strong demand helped to absorb a large portion of the additional volumes, limiting the size of the year-end overhang and easing pressure on regional prices.
Key Highlights
· Fourth-quarter supply climbed to more than 2.90 million tonnes, rising 6% year on year to the highest level since the second quarter of 2022.
· Second-half supply exceeded 5.75 million tonnes, up by more than 400,000 tonnes from the first half of the year, when output dipped to its lowest level since early 2021.
· Surging supply lifted Asia’s fourth-quarter surplus to the highest level in a year.
· The surplus still fell by 9% year on year, marking the lowest fourth-quarter volume since 2021, as firm demand absorbed a large share of the additional supply.
· Demand rose for a sixth straight month in December, helping keep surplus volumes at more manageable levels despite the surge in production.
Market Repercussions
Asia’s heavy-grade base oils prices especially weakened relative to Europe and the US during the fourth quarter, reflecting pressure from rising regional supply.
But the absence of a sharp outright price-drop, and prices’ relative strength versus competing fuels, underscored continued support from firm regional demand.
Maintaining this balance is likely to become more challenging as new production capacity comes online across Asia.
Even if the regional demand is able to absorb most of the additional supply, Asia’s requirements for arbitrage shipments from other markets is likely to dwindle.
