Africa has many different scenarios playing out with the rains coming to West Africa, and temperatures rising in East and Southern African countries as the southern hemisphere heads towards Spring and Summer.

A number of key personnel in Middle East regions have left for cooler climes in Europe, and some companies are arranging meetings during August with suppliers and customers that tend to congregate in popular resort centers during the holiday month. 

Outlooks are improving with forecasts that demand for all types of lubricants will start to build heading into the fourth quarter, with all participants wanting to be in prime position to take advantage of an upswing. Some players remain in station to take remaining deliveries of base oil required when normal operations resume. Some blenders will continue to operate during August, but purchasing and marketing of products will remain subdued until the beginning of September.

There seems to be little pressure on prices at the moment – either upward or downward. There are few signs of potential disruptions looming, apart from rising tensions between Israel and Hezbollah. The sides have ramped up missile attacks the past few days, including a deadly explosion at a Golan Heights soccer field that Israel blamed on Hezbollah but which the latter organization disavowed. Should this skirmishing develop into full-scale war, it would raise the risk of Iran being drawn in, and the region could be set for testing times. Base oil markets in the Middle East would likely face major disruptions.

Examining current fundamentals, crude oil weakened a little towards the end of last week, but has now returned to very similar levels as those posted a week ago. Dated deliveries of Brent crude are showing at $81.25 per barrel, Still for September front month settlement, down by $0.50 from last week. West Texas Intermediate crude performed similarly, stabilizing at $77.40/bbl, also for September front month. 

Low-sulfur gasoil prices also dipped, but are now reported at $744 per metric ton, still for August front month. All of these prices were obtained from London ICE trading late July 29.

Europe

Europe continues to look like a market that has shifted from an exporter to importer of API Group I oils, with more shipments from Red Sea suppliers lining up. More cargoes are planned for the remainder of the year from Yanbu and Jeddah, Saudi Arabia, these being conducted under the control of S-Oil, which is part of the Saudi Aramco group, and being taken into Rotterdam to be resold to regular buyers. 

A global major continues to load out of Rotterdam and Fawley, United Kingdom, for various African destinations, moving mixed cargoes of various base oils to contracted receivers in West Africa, where only Group I material is delivered, and to affiliates in South Africa. Other than these quantities, there are no Group I cargoes moving from European producers.

Whilst imported Group I is starting to play a increasing role in the European market, options for sources are limited now that the arbitrage from the United States is closed due to higher prices in that market. Demand in the U.S. is running strong because hurricane season is beginning.

Group I supply in Europe remains tight, but probably adequate since buying activity is slowing for the summer recess. Demand and supply are almost in balance, but a shortfall is noticeable for some of the heavier neutrals and bright stock in Mediterranean regions such as Spain, where demand is running higher than markets such as Germany and the Benelux countries.

Some buyers are still looking for material to take into tank prior to the summer holidays starting, but time is running out as a number of suppliers will close their gates from the end of this week and not reopen until the end of August.

Demand has undergone a mini lift, with sources hinting that many blenders prefer to have stocks in tank in order to be ready for the resumption of business at the end of August. Buyers are keeping a close watch on crude and feedstock prices trying to read whether it would be better to wait until September to replenish inventories – a difficult call to make given the state of the world at this time.

Prices are stable, as crude and vacuum gasoil values have remained flat, taking out any pressures for base oil levels to rise. Margins remain attractive versus distillates, which has the same impact.

In last week’s report it was wrongly suggested that the refinery at Puertollano, Spain, was run by Cepsa. In fact, the facility is run by Repsol, whereas Cepsa operates a refinery and base oil plant at San Roque, Spain. Cepsa can still only offer solvent neutral 150 and bright stock for the remainder of July, and FCA prices are at $1,150/t for SN150 and $1,390/t for bright stock.

The lack of SN600 or SN500 is a concern going forward, but news heard last week suggested that the problems have been solved and that heavy solvent neutral will become available during August, meeting an expected demand spike for September.

Overall prices for Group I sales within Europe are unchanged at between €1,065/t and €1,150/t for SN150, €1,185/t-€1,215/t for SN500 and €1,385/t-€1,445/t for bright stock, all on an FCA basis.

The dollar exchange rate to the euro remained flat, posting at $1.08111 July 29. The average price differential across all grades between Group I sales within the region and notional export numbers is unchanged at €10/t-€25/t.

Group II prices around Europe are steady with little upward or downward pressure on current numbers. Availability is due to improve over the next few months as U.S. producers move away from precautionary inventories that protecting against disruptions during the hurricane season. There should be opportunities to move surplus material towards the end of season, assuming there is no requirement to delve into insurance stocks.

A number of market sources vehemently disputed comments here about finished lubricant blenders shifting from use of Group II to Group III, saying that to make such a move would require reformulations, involving additive suppliers and possibly adding costs.

Group II prices remain relatively high compared to markets in Asia-Pacific and the Americas, hence producers are incentivized to move Group II base oils to Europe, where demand is being forecast to grow over the next few years. The premium to VGO and diesel remains at very acceptable levels.

Price ranges for Group II are wide because some larger blending operations able to negotiate levels much lower than smaller buyers. This is to be expected in a market where there is interdependency between sellers and buyers, each looking after their own interests.

Prices from one U.S. importer remain at €1,090/t for 110 neutral €1,120/t for 220N and €1220/t for 600N, on an FCA basis ex Antwerp-Rotterdam-Amsterdam. The next replenishment cargo from that supplier is expected in early August, and prices may be reviewed at that time.

Overall Group II prices are unchanged at €1,140/t-€1165/t ($1,245/t- $1,270/t) for 110N and 150N, €1,200/t-€1,225/t ($1,305/t-$1,335/t) for 220N and €1,275/t-€1,295/t ($1,390/t-$1,410/t) for 600N.  These prices apply to a wide range of Group II base oils from European, U.S., Red Sea and Asia-Pacific sources, all imported in bulk.

There are conflicting reports from the Group III market, with some sources suggesting that demand has risen over the past month while contend there is a surplus of availabilities giving buyers choice about where they make purchases. The former comments were mainly from distributors and resellers, whilst the latter statements were from the buying community.

Prices appear to still be dragged down by an oversupply situation, with one or two suppliers continuously undercutting the market. This is not necessarily offering lower prices against competition, but word gets around the market, causing problems for incumbent suppliers who have been loyal to customers and expect the same in reverse.

Discussions between buyers happen and in such situations appear to weaken current prices being offered, triggering price erosion that becomes very difficult to stop.

European prices for Group III oils with partial slates of finished lubricant approvals or without approvals are unchanged at €1,230/t-€1,300/t for 4 and 6 centiStoke grades and at €1,320/t-€1,355/t for 8 cSt, all on an FCA basis ex Antwerp-Rotterdam-Amsterdam or Northwestern Europe.

Two South Korean suppliers continue to offer lower numbers of €1,230/t-€1,270/t for 4 cSt, reportedly only to “regular” customers.

Prices for rerefined Group III oils are also unchanged at €1,225/t-€1,320/t for 4 and 6 cSt, on an FCA basis ex rerefinery in Germany.

Prices for Group III oils with full slates of approvals4  remain at premium levels of €1,785/t-€1,820/t for 4 and 6 cSt and €1,825/t-€1,835/t for 8 cSt, FCA ex hubs in Antwerp-Rotterdam-Amsterdam, Northwestern Europe and Spain.

Baltic & Black Seas

There are few reports of cargoes loading out of the Baltic this week – only one piece of news suggesting Russian sellers are targeting Central and South American destinations. This may have come about due to reports that India will rapidly become self-sufficient and even turn into a net exporter of Group I and II base oils, reducing need for imports currently moving into that country.

Russian suppliers established India as a new market after the European Union banned Russian petroleum products in the wake of Moscow’s invasion of Ukraine, but they may now find themselves pushed out. The irony of this situation is that the surplus of Indian base oils has come about due to the huge quantities of cheap Russian crude oil, which has taken over the Indian market.

As they say, “You can’t have your cake and eat it.”

The South American option may lead to quality problems for many receivers in Brazil for example, which is becoming dependent on U.S. base oils that will carry a higher specification that Russian Group I grades. It is also feasible that Russian refineries will start to look at exporting quantities of Group II and Group III base stocks, which could be of interest to Mexican buyers. This report will try to keep track on news emanating from Baltic sources.

There are also rumors of traders looking to offer a Russian base oil cargo to Nigerian receivers. This idea has been resurrected, but payments and finance are always going to be the fundamental problems to overcome. If this supply is to be completed, the loading would have to be from the Baltic Sea, where previously the same trader loaded around a 6,000 tons parcel from Vyborg.

Baltic cargoes continue moving into Gebze, Turkey, and Singapore but are only reported on discharge.

FOB prices for Russian base oils ex St. Petersburg or Vyborg, Russia, are estimated on a netback basis from prices being currently offered into Nigeria and after taking freight and margins into consideration. FOB values could be at $710/t-$735/t for SN150 and $740/t-$765/t for SN500. Blended SN900 could be priced at around $795/t using SN1200 or Russian bright stock plus quantities of SN150 or SN500.

This report is waiting to hear if more flexi-tank parcels move from Turkmenistan to European receivers. It was rumored last week that another shipment was underway, but no further information has come to light. This will be followed up this week to ascertain the latest position for quantities coming out of Turkmenbashi.

Blending operations in Turkey will start to run down between now and September, with some trying to perform basic maintenance on machinery and lines, although the costs of hiring specialist contractors is said to be unaffordable. Instead, managers are requesting staff to relinquish part of their holidays to accommodate repairs and maintenance to plant and equipment.

There are further reports of prime European banks heaping pressure on Turkish banks that have had trade relationships with Russian banks and suppliers. A system of sanctions or rules may be adopted if Turkish banks are to continue having international trade with European and other international banks based outside Turkey. A number of major European banks mentioned last week are among those expressing concerns.

Russian imported base oil continue to rule the Turkish market with the latest prices estimated to be around $825/t-$850/t for SN150 and $835/t-$865/t for SN500, on a CFR basis ex Gebze.

The Tupras “export” tender for around 7,000 tons of Group I grades may not come about due to a lack of buying interest from traders around the regions. One trader is trying to negotiate a deal for Nigeria, but the quantities of the grades are not right, and the emphasis would be on SN500, which would hinder the trader’s ability to blend a large quantity of SN900, which would ideally be the mainstay of the cargo. Finally, 7,000 tons is small for freight rates going into Apapa.

Tupras issued new prices for the local market:  34,935 lira per ton for spindle oil, Tl 30,582/t for SN150, Tl 32,474/t for SN500 and Tl 44,429/t for bright stock. Prices in lira are offered ex rack, plus a loading charge of Tl 5,150/t.

Prices for Group II grades, imported and resold on an FCA basis are higher this week at €1,325/t-€1,375/t for 100N, 150N and 220N and at €1,520/t-€1,555/t for 600N. Group II base oils are imported from Red Sea, the U.S. and South Korea, but now Russian Group II grades are offered in Turkey and levels reported to be around €100/t lower than incumbent suppliers.

Group III oils in the market with partial slates of approvals or without approvals include 4 cSt from Tatneft in Russia, which is now being priced at around €1,395/t. Other material had been imported from the United Arab Emirates, Bahrain and Asia-Pacific and had FCA prices of €1,625/t-€1,670/t, but most of these stocks have been depleted and are now finished.

Smaller quantities of fully-approved Group III grades from Cartagena, Spain continue to be delivered into Gemlik and resold on an FCA basis to local blenders requiring such grades to toll blend for majors. Prices are unchanged at €1,960/t-€1,995/t, on an FCA basis.

Middle East

Figures reported from Red Sea sources indicate that around 70,000 tons of base oil were loaded out of Yanbu and Jeddah in June. This quantity was around 10,000 tons less than the record shipments of more than 80,000 tons for May. These quantities moved to the regular receivers on the West Coast of India, the U.A.E., Pakistan and Singapore. An interesting statistic was that quantities loaded out of Yanbu decreased in May, but quantities out of Jeddah, where only two Group I neutrals are produced, increased markedly.

This is strange because India is moving toward having a surplus of Group I production, and the opportunities for Luberef to supply this market may diminish over coming months and years. Some reports are that the company will focus on sending Group I and Group II cargoes north to Turkey and Europe where, with the tight Group I situation, supplies will be welcomed into the market.

Southbound cargoes appear to have found a way around the Houthi attacks in the Bab-al-Mandeb Strait in the southern Red Sea.

In the Middle East region, the latest news is the possibility for all-out warfare between Israel and the Iranian backed proxies of Hezbollah in Lebanon and Syria, Hamas in Gaza and the Houthis in Yemen. Israel blamed Hezbollah for a strike that killed children in Golan Heights, and Israel have so far struck back hitting Hezbollah bases in Lebanon. This action will only increase the likelihood of Iran directly entering the conflict, pushing the region towards open warfare on a scale not seen in modern times.

Base oil trading and supply will come under renewed threats to logistics if that happens. The interesting facts are that Iran continues to have trading relationships with the U.A.E. and Oman but not with the Saudis and Qataris, making the region totally unstable. Pakistan and India also maintain trading links with Iran.

Iranian base oil producer Sepahan continues to supply varying quantities of SN500 and SN150 though the ports of Bandar Bushehr and Bander Khomeini. Most of these exports go into the U.A.E. and Pakistan.

U.A.E. blenders continue to run down stocks and inventories that were built up as reserves when the Red Sea Houthi situation began, since many receivers in the U.A.E. were told that there could be shipping problems from Yanbu and Jeddah. Many blending operations hold stocks in tank which they need to move before replacing stocks, which will now not take place until after the summer holiday period in September or October.

With the arbitrages from the U.S. and Europe closed, Middle East Gulf buyers are no longer dependent on receiving base oils from those sources with ‘Western’ quality grades coming out of Yanbu and Jeddah.

Russian base oil cargoes have been scaled back by receivers in Hamriyah, U.A.E., due to high stocking levels which require adjustment downwards. Prices on a CFR basis were heard at $835/t for SN150 and $845/t for SN500. Parcels of between around 5,000 tons had previously loaded from Limas, Turkey, with cargoes of up to 12,000 tons loading out of St. Petersburg in the Baltic.

Netbacks for Group III exports from Middle East Gulf supply points at Al Ruwais and Sitra in respect of partly-approved base oils, are maintained following the recent adjustment.  Indications are placed in a range of $1,275/t-$1,300/t in respect of the 4, 6 and 8 cSt Group III grades.

Netbacks in respect of Shell gas-to-liquids Group III+ base oils ex Qatar remain unchanged, and are currently estimated at $1,410/t-$1,445/t. These levels are estimates or indications only, since cargo economics and cost allocations are not disclosed.

Netback levels are assessed from distributors’ selling prices, less estimated marketing, margins, handling and freight costs.

Group II base oils which are being sold ex tank in U.A.E., or on a truck delivered basis in U.A.E. and Oman, have prices maintained this week. Selling levels are relatively high compared to other regions, but these grades are being resold through traders. Prices are reported at $1,685/t-$1,725/t for 100N, 150N and 220N and at $1,775/t-$1,825/t for 600N. Some of these grades are sold in U.A.E. dirhams, since the currency is based on the U.S. dollar. The high ends of the ranges refer to RTW deliveries to buyers in remote locations in the U.A.E. and Oman.

Africa

A large base oil cargo which is bound for Durban will load out of Rotterdam and Fawley, and will comprise of Group I, II and III, and a small quantity of some easy chemicals that may be polyalphaolefins or esters. The exact dates of this cargo are not yet disclosed to shipping agent sources in Durban, but hopefully this week will yield further details.

West African news is that the Russian cargo talked about so much for so long may be resurrected, and if payment plans and financial details can be worked out then this cargo may eventually proceed. However, there are many hurdles to over come before payments can be assured without letters of credit. How letters of credit would be handled by the Belarus banking system is also not clear.

From sources close to this market, there comes news of a trader who supplied a cargo to receivers in February. Apparently this trader is still trying to recover all payments due on this cargo. These are the options open to traders when dealing with less than reputable receivers who will do almost anything to delay or avoid payments due.

Finance is still the main obstacle to placing cargoes of base oil into Nigeria and until satisfactory arrangements are in place, traders who have been doing business in Nigeria for years are staying away from this market, not wishing the get into a situation such as the “February waiting game.”

The cargo that loaded out of El Dekheila, Egypt, arrived into Lagos’ Apapa port two weeks ago and has finished discharging. Part of this cargo was sold to NNPC, with an assumption that payment for that part of the parcel will be guaranteed, but the balance of the cargo will have been sold to other receivers and it is unknown as to how payment would be made to the trader involved.

Prices CFR Apapa in respect of potential future trades, for example from U.S. sources, arriving perhaps during September, are indicated at around $1,155/t-$1,180/t for SN150, $1,225/t-$1,245/t for SN500 and $1,300/t-$1,335/t for SN900. These prices are for illustration only and will only become relevant when the banking and finance gets sorted out in Nigeria.

Russian offers continue to be heard much lower. Last levels heard are indicated at $975/t for SN150, $1,020/t for SN500 and $1,065/t for SN900.

Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly at pumacrown@email.com.

Lubes’n’Greases shall not be liable for commercial decisions based on the contents of this report.

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