The Asian base oils market is currently experiencing a fascinating confluence of factors, presenting both opportunities and challenges for refiners and traders alike. As the region emerges from a period of extensive plant maintenance, the outlook for supply is set to rise, coinciding with a seasonal slowdown in demand. This dynamic landscape, particularly in the week of 7 July, underscores the critical importance of strategic market navigation and efficient arbitrage.
According to Iain Pocock’s latest analysis, the price-premium for heavy grade base oils in Asia remains elevated compared to Singapore gasoil prices, while light grades are seeing lower-than-usual premiums. This disparity incentivises refiners to maintain higher production levels for heavy grades, even as they consider adjusting output for lighter counterparts. These adjustments in production are set to align with a significant increase in regional production capacity, as the bulk of plant-maintenance work wraps up.
Key Supply & Demand Shifts
Heavy Grades Thrive, Light Grades Adapt:
Strong margins for heavy grades are driving continued robust production, while light grade margins are prompting refiners to re-evaluate output.
Post-Maintenance Production Surge:
The completion of extensive plant maintenance across Asia means a significant uptick in overall base oil production capacity in the coming weeks.
Seasonal Demand Dip:
This increase in supply is set to coincide with a typical seasonal slowdown in demand, creating a potential surplus.
Arbitrage as a Lifeline:
The growing surplus will amplify the need for viable arbitrage outlets. Firm prices for shipments to India and China offer promising channels for surplus supplies. However, moving light grades to more distant markets like the Middle East and Americas remains marginal, and heavy grade arbitrage to these regions continues to be challenging.
Regional Snapshots
Taiwanese Exports Rebound, Then Pause:
Taiwan’s Group II base oil exports, particularly heavy grades, have seen a revival since late June 2025. However, a major storm has recently disrupted cargo loadings, potentially causing a slowdown.
Singapore’s Export Fluctuations:
Singapore experienced a sharp drop in weekly base oil exports in the past week, reaching a five-month low, following an unusual surge the week prior. Despite this recent dip, overall exports from Singapore have remained higher than usual over the last four weeks. Interestingly, the share of re-exports (supplies originating from outside Singapore) has fallen over the last month, following a significant rise in late June. This decline in re-exports aligns with a dip in Singapore’s base oil imports in Q2 2025, including an almost complete pause in shipments from the US and Europe. A sustained slowdown in imports could further reduce Singapore’s re-export share, necessitating a rise in domestic production to maintain overall export volumes.
Japan’s Output Declines:
Japan’s base oil output fell to a three-month low in May 2025 and is down 5% year-to-date (Jan-May 2025). This mirrors a broader trend of lower output across Asia in H1 2025 due to maintenance, which has inadvertently curbed surplus supply and facilitated more arbitrage shipments from the US to markets like India. However, this trend is expected to shift with the completion of maintenance and the commencement of new production capacity.
Thailand Prepares for Maintenance:
Thailand’s base oil output is anticipated to fall in July-August 2025 due to scheduled plant maintenance. Despite this, a rise in surplus Group I supply in April-May 2025 provides a significant buffer to cover for the upcoming drop in output.
India’s Production on the Cusp of Recovery:
India’s base oil output dipped in Q2 2025 due to plant maintenance, staying lower than usual in May for the third time in four months. However, increased imports have balanced out the lower output, keeping supply within a stable range. Production is expected to recover in Q3 2025 following the completion of maintenance and receive a further boost in Q4 2025 with the anticipated start-up of new production capacity, potentially curbing the need for overseas supplies.
Group III Market Weakness Persists:
Asia’s Group III base oil supply remained healthy in Q2 2025, despite increasingly weak regional prices. Imports from the Middle East held firm in May, contributing to a sixteen-month high in shipments for the three months ending May 2025. This rising supply likely bolstered stocks, cushioning the impact of Group III plant maintenance in the Middle East during Q2. The ongoing price weakness into early July 2025 suggests that these weak fundamentals are extending into the beginning of Q3.
As the second half of 2025 unfolds, the Asian base oils market will be defined by its ability to balance increasing production with a softer demand environment. The effectiveness of arbitrage routes, particularly to key markets like India and China, will be paramount in managing regional surpluses and shaping price trends.
