The 30-year-old South African, who won the 2010 British Open by a massive seven strokes, produced a course-record 63 to reach halfway on 16 under par in the HSBC Champions at Mission Hills.
"I'm in a great position to win, but it's not even crossed my mind at the moment," Oosthuizen said.
"There's still a lot of golf to be played - I need to put myself in a great position going down the back nine on Sunday."
After making birdies at each of the five par fives in his opening 65 he went even better on his return to the Jose Maria Olazabal-designed lay-out.
Oosthuizen birdied four of them again, eagled the 566-yard seventh and also picked up four other birdies to go clear of the field.
"I started off a bit shaky with a bogey on the second, but immediately made birdie and was putting really well.
"I gave myself a lot of opportunities for birdie and if you make the putts you shoot a low number."
Making his return from an ankle injury that forced him out of last week's PGA Grand Slam in Bermuda - replacement Padraig Harrington won it - Els threatened to go even lower when he turned in a seven-under 29.
The 43-year-old added further birdies at the 12th and 14th, hitting approaches to within two feet of the flag, and kept a bogey off his card for the second day running.
Scott was keeping pace early on with five birdies in the first 11 holes, but he bogeyed the next two and after coming back with two more birdies he came up short of the green at the 197-yard 17th and dropped another shot.
After eagles at the third and seventh - and three birdies - Mickelson was alongside Scott, but then came a missed four-foot putt at the 14th and after that bogey worse was to come on the last.
Twice winner of the title in Shanghai, Mickelson pushed his second to the last into the hazard and in attempting to hack it out from amongst the rocks moved the ball only a matter of inches.
The next found the green, but a double bogey six meant a 69 and dropped him to sixth place.
Joint fourth are Ireland's Shane Lowry, bidding for a second win in three starts and a place in the world's top 50 for the first time, and American Ryder Cup player Jason Dufner, but they are six strokes behind.
Watson, who beat Oosthuizen in a play-off at Augusta in April, was in a tie for seventh until he put two balls in the water for a triple bogey eight at the reachable 15th.
The Swede double-bogeyed the 12th after seeing a chip come back down a bank at the front of the green and let another shot go at the 14th in a 71 that left him nine back.
Lowry said: "I didn't birdie two easy par fives and made a bad bogey on the sixth, but other than that I played lovely all day and gave myself a lot of chances.
"What's not to enjoy? I'm playing a World Golf Championship and I'm up there in the top five going into the weekend."