China’s June Group III Base Oils Output Rises To 15-Month High

China's Group III base oils output climbed to a 15-month high in June as higher domestic prices encouraged refiners to maximise production of the premium-grade base oil, helping offset lower imports from the Middle East.

Group III production exceeded 40,000 tonnes for the first time in 15 months after more than doubling from a year earlier, OilChem China data showed.

The increase outpaced the 34% year-on-year rise in China’s total output to more than 530,000 tonnes in June.

China's refiners had tilted toward Group II as the Group III price premium narrowed in the months before the Middle East disruption. The disruption reversed that incentive, and production followed.

The scale of the response pointed to a domestic market that could partially offset the loss of Middle East supply more effectively than many other importing markets. But it could not fully replace it.

Key Highlights

·         Group III's share of total output rose to more than 8%, up from typical levels of less than 5% in the year to April, as output more than doubled from little more than 20,000 tonnes a year earlier.

·         Domestic Group III prices continued to widen their premium to Group II, reversing the pricing relationship seen before March that had incentivised refiners to maximise Group II production.

·         In May, higher domestic Group III production helped offset lower imports, keeping overall premium-grade supply relatively steady.

·         Total output held above 500,000 tonnes for a seventh straight month — a level exceeded only once in the previous 47 months to November 2025.

·         Total second-quarter output remained the second highest since 2021 even as it eased from the first quarter.

Market Repercussions

China absorbed the Middle East supply disruption better than most other major markets as rising Group III prices pulled more domestic capacity into production.

Other markets lacked the higher domestic Group III capacity to fill the same gap. Prices rose more steeply in response as buyers competed for fewer available volumes.

Even China’s higher output was insufficient to replace the Middle East volumes it had previously imported — leaving a shortfall that continued to support high domestic Group III prices.

The wider premium of Group III over Group II gave lubricant blenders more reason to substitute with Group II wherever technically possible, easing pressure on Group III until Middle East supplies recover.