The Chinese government has already moved to address overcapacity. In June 2023, it expanded the finished oil product list, which includes lubricants and fuels, to cover a variety of refined mineral oils, or white oils. Oils on the list are subjected to consumption taxes. Four months later, crude oil refiners were requested to get government approval for new capacities.

Some of the approved capacities include CNOOC’s 800,000 tons per year facility in Taizhou, CNPC’s 400,000 t/y facility in Panjin, Sinopec’s 600,000 t/y facility in Jingmen and a 200,000 t/y CTL-based synbase facility in Zibo by a joint venture between Inner Mogolia Yitai Group and Shandong Boneng Engergy. All these facilities are scheduled to start operations by the end of next year.

“Base oil oversupply has been an issue in China for years,” Sun said. “It’s getting worse now as the demand is weak in a struggling economy.” Annual demand for base oils remained flat from 2022 to 2024, averaging 8.4 million t/y. API Group II and III base oils were most in demand in the same period, according to Zhuochuang.

Chinese base oil demand dropped 4.26% y-o-y in the first 5 months in 2025, while supply fell 0.5%, according to Zhuochuang.

Sun said buyers in wealthier eastern areas of the country accounted for 30% of all buyers, while suppliers are primarily from Shandong, Liaoning and Guangdong provinces.

A noticeable change in suppliers is the growing number of so-called teapot refiners, whose combined base oil capacities accounted for 56% as of 2024, surpassing the combined capacities of the three major state-owned companies – Sinopec, CNPC and CNOOC.