Asia/China Base Oil Margins: Market Signals and Trade Implications

·         Domestic China Group II light-grade price-premium to Shandong diesel extended its rise in January, climbing to the highest in more than four years.

·         The rising price-premium pointed to firm supply-demand fundamentals and signs of stock-building ahead of Lunar New Year holidays in the second half of February.

·         The firm margins incentivized domestic refiners to maintain higher operating rates, adding to domestic supply.

·         China light-grade base oils margin strength contrasted with Asia base oils margins, which faced pressure this month following the Nov-Dec 2025 rebound.

·         The divergence drove a widening domestic China base oils price-premium to Asia prices, that rose to the widest level in more than three years.

·         The underperformance of Asia’s Group II light-grade prices versus domestic China prices contrasted with their growing strength versus other grades and other regions.

·         Asia Group II light-grade prices held firm versus regional gasoil prices, contrasting with a sustained slide in the heavy-grade price premium.

·         The Asia Group II light-grade price discount to Europe prices narrowed to the smallest level in almost five years, complicating arbitrage economics for light-grade exports to that market.

·         The heavy-grade price-discount remained wide, sustaining the viability of arbitrage shipments to Europe for those supplies.