China’s February Base Oils Demand Stays High For Second Month

China’s base oils demand stayed unusually strong in February for a second month, with the stock-build leaving the market better cushioned to absorb any Middle East supply disruptions.

Total demand, or output and net imports combined, came to more than 660,000 tonnes in February, up 27% year on year and marking the third increase in four months, General Administration of Customs and OilChem China data showed.

The volume was the second-highest since early 2022, with January demand of more than 690,000 tonnes the highest since then.

Demand rose sharply in the first two months of the year, with imports jumping even as domestic output rebounded, pointing to a period of sustained stock-building ahead of the spring oil-change season at the end of the first quarter.

The build in inventories left the market better positioned to sustain steady base oils supplies for longer even if Middle East-related disruption limited feedstock shipments to the country’s refiners.

Key Highlights

·         Base oils imports rose to 279,000 tonnes in the first two months of the year, up 27% year on year and outpacing a 25% rise in China’s domestic output.

·         China’s Group II base oils supply, or output and imports combined, accounted for 85% of total supply in February, up from 80% in 2025 and the highest since end-2021.

·         Group III supply fell 15% year on year to a 21-month low, but the contraction was smaller than the 63% fall in domestic production as imports rose sharply.

·         Imports accounted for more than 70% of China’s Group III supply in February, climbing from less than 50% in 2025 to the highest since end-2023.

·         Group III imports from the Middle East accounted for more than 60% of total Group III supply in February, up from less than 45% in 2025.

Market Repercussions

China’s limited reliance on Group III base oils within its overall supply mix reduced the impact of its dependence on Middle East imports for that grade.

A growing reliance on imports in recent months coincided with increasingly weak domestic Group III base oils prices, encouraging refiners to favour Group II production and masking the expansion of the country's Group III capacity.

A shift in relative pricing could alter this balance.

Any rebound in domestic Group III margins could spur higher domestic output and cut import requirements.

Stronger price signals and improved arbitrage conditions could also support higher Group III exports to markets that faced a loss of supply from the Middle East.