A global oversupply of base oils weighed on U.S. base oil margins through 2025 and is expected to keep pressure on the market into 2026 as production growth outpaces demand, according to a recent report by commodity data provider Argus.
The report goes on to comment that additional API Group II supply from new capacity in Singapore and planned output increases in India have intensified competition in export markets and added surplus barrels for U.S. refiners domestically.
The imbalance has coincided with softer demand across several lubricant segments. The trend for latest passenger car engine oil specifications to require greater use of Group III base oils has reduced consumption of certain Group II grades for the largest finished lubricant product category, while lower trucking and agricultural activity cut demand for mid-viscosity grades, Argus said. High-viscosity grades also faced weaker buying amid slower industrial and manufacturing activity.
Margin indicators reflected the shift. The spread between Argus U.S. domestic spot Group II 100 neutral and the Argus four-week average price for U.S. Gulf Coast diesel narrowed to an average 88 cents per gallon in 2025 through mid-December, down from 98 cents in 2024, and briefly hit a 20-month low in late November. Export economics also weakened, with the Argus U.S. 100N export price averaging $2.54 per gallon, compared with $2.77 a year earlier, prompting heavier discounting and lower contract prices for 2026.
“A buildup of global Group II supply combined with weaker lubricant demand has eroded U.S. base oil margins and left refiners watching spreads closely as they consider output adjustments in 2026,” wrote John Dietrich at Argus.