For example, supply of API Group I remains tight around Europe and has spurred a mini spike in demand as finished lubricant blenders lay in stocks now rather than wait until September. These buyers would rather have a definitive picture of their costs in order to price finished lubes before the end of the summer vacation season.

In other areas, such as Africa, demand is reasonably brisk. The southern half of the continent may be in the middle of winter, when agriculture and other seasonally affected businesses slow, but spring is just around the corner, so buyers are planning stocks for the third and fourth quarters.

The problem is that arbitrages are not open from Europe or the United States due to higher prices in those markets and relatively tight supply scenarios limiting movements to Africa.

In Middle East Gulf regions, blenders are actively trying to reduce stockpiles which have swelled during the first half of this year, due to so-called opportunistic offers of material from Russian, Iranian and Indian sellers. Purchases of large quantities of base oil are temporarily halted for the summer, when trade slows in high-temperature regions.

This has deterred Middle East buyers from being active in the market for Group I and II imports from South Korea, the Red Sea, Iran and India – certainly during May and June and probably for July as well.

Across all parts of Europe, the Middle East and Africa, prices for Group I and II base oils remain steady versus vacuum gasoil and low-sulfur gasoil, hence incentivizing producers to increase or maintain base oil output levels. Whether demand picks up to swallow extra production remains to be seen, but margins that are at their highest levels for some years are certainly helping base oil producers to optimize returns.

Crude oil weakened the past week, with prices dropping by around $3 per barrel for all crude types while analysts postulated that demand from major economies such as China is still faltering. There appears to be no quick fix to this situation, though central banks have embarked on programs of quantitative easing by increasing money supply.

Dated deliveries of Brent crude dipped to $81.75/bbl, for September front month settlement, while West Texas Intermediate sank to $77.75/bbl, also for September front month. Low-sulfur gasoil prices fell by almost $35 to $737 per metric ton, for August front month. All of these prices were obtained from London ICE trading late July 22.

Europe

Once again, no Group I cargoes were to be found moving out of European supply hubs to true export destinations such as West Africa, the Middle East Gulf or India. The arbs are closed due to higher Group I values in Europe. Lower prices for base oils from Russian, Iranian and Asian sources are making it impossible to compete in the Middle East Gulf and India, even if sellers had availabilities to load cargoes.

Given the situation – relatively high Group I prices in Europe, limited availabilities and lower-priced alternative supplies in traditional export destinations – the arbitrages are not likely to reopen anytime soon.

There was one major loading out of Rotterdam and Fawley, United Kingdom, for pan-African destinations, but this was for trades that are either affiliate sponsored or contracted term supplies that have been in existence for some time. There are no spot large cargoes leaving European shores.

In fact, trade is flowing in the opposite direction as imported Group I cargoes move into various European ports from a variety of sources. The arbitrage from the U.S. appears to be closed tight now – at least at current prices.

European Group I supplies remain tight, with suppliers continuing to concentrate on local markets. As was stated last week, were it not for imports of these grades, all European requirements would not be covered.

Conditions and trading activity varies considerably within the region, from areas such as Spain and Portugal where demand is higher to markets such as Germany, where the economy is not responding to government initiatives to promote growth. Buyers looking for lower prices during the last few days of July have been disappointed as sellers remain resolute. With availabilities under pressure in a number of areas, there is little discounting taking place.

Demand has seen a lift, with a number of sources indicating that blenders want to have stocks in tank, preparing for the resumption of business at the end of August or beginning of September. Blenders would rather know what their prices of raw materials will be come September, rather than rely on future prices and accessing stocks when business gets back to normal following the holiday month of August.

Prices continue to be steady or stable as buyers look for prompt supplies prior to the end of this month. The offers out of Gdansk, Poland, for quantities of 300 metric tons or more for regional markets have been snapped up by a number of buyers at $1,040 per ton for solvent neutral 150, $1,070/t for SN500 and $1,340/t for bright stock. These prices are attractive to buyers but are dependent on quantity, prompt lifting and payment.

Market sources report that production has resumed at Cepsa’s refinery in Puertollano, Spain, following a fire but that a shutdown for maintenance has been scheduled in August. Repsol continues to only offer SN150 and bright stock for July, with FCA prices quoted at $1,150/t for the former grade and $1,390/t for the latter. Given elevated demand, stocks of both these grades are in short supply.

Prices for Group I sales within Europe are maintained at last week’s levels: 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. There are few signs or instances of discounting.

The dollar exchange rate to the euro remained relatively static during last week, posting at $1.08801 July 22. The average price differential across all grades between Group I sales within the region and notional export prices is still reported here and is unchanged at €10/t-€25/t.

The supply and availability of Group II base oils within Europe is set to improve for two reasons. First, more product is arriving from the U.S. Secondly, demand is weakening slightly due to a strange phenomenon. Group II prices are remaining relatively high, but Group III prices have been under constant pressure for some months, and the differential between the grades has narrowed, encouraging blenders to lean towards larger quantities of Group III.

This limits any expansion of the Group II slate. This scenario could turn around at any point if Group III prices rally – as some distributors in the European market have postulated.

Market sources have confirmed that some sellers work with wide price ranges applied depending on the customer. Payment records, regular quantities purchased and the position in the European lubricants industry are all part of the general assessment. Hence larger operations may be able to negotiate lower prices.

New prices from one U.S. importer had been pushed higher but are unchanged this week at €1,090/t for 110 neutral, €1,120/t for 220N and €1,220/t for 600N, all on an FCA basis ex Antwerp-Rotterdam-Amsterdam.

Overall, Group II prices are unchanged this week at €1,140/t-€1,165/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 oils from European, U.S., Red Sea and Asia-Pacific sources, all imported in bulk.

Group III demand has received an unlikely boost from a number of blending operations that have begun to evaluate taking extra quantities of Group III grades instead of totally relying on Group II base oils. There are viscosity limitations to this strategy, but prices for Group III oils with partial slates of finished lubricant approvals are now only marginally above Group II prices, so there is an economic case for increasing Group III in certain blends.

Very aggressive offers from South Korean and Chinese sources have put pressure on longer standing suppliers. However, there are quality and specification issues with the very low priced material, which has been offered and sold to a selective number of blenders in Northwestern Europe and the United Kingdom.

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

A couple South Korean suppliers continue to offer lower numbers of €1,230/t-€1,270/t for 4 cSt on an FCA basis. According to contacts, these prices are only offered to regular customers. Prices for rerefined Group III oils are unchanged at €1,225/t-€1,320/t for 4 and 6 cSt, on an FCA basis ex rerefinery in Germany.

European prices for Group III oils with full slates of approvals are unchanged at €1,785/t-€1,820/t for 4 and 6 cSt and at €1,825/t-€1,835/t for 8 cSt, all on an FCA basis ex hubs in Antwerp-Rotterdam-Amsterdam, Northwestern Europe and Spain.

Baltic & Black Seas

As discussed last week, a lack of regular contacts in Russia or Belarus has made it complicated the collection and collating of news and reports of cargoes from the Baltic, forcing your reporter to rely on second-hand information, often from dubious sources that can be out of date. Last week was almost bereft of information, with many sources unwilling to talk about prices and availabilities of base oils available for export from either country.

With a tight Group I market around Europe, there has been renewed interest in Russian barrels for export destinations, the problems being of course that no European traders can become involved in the buying and selling of Russian material and European flagged vessels cannot be used to carry cargoes loading out of the Baltic.

Some traders perhaps with Russian connections have used base oils from Russia to put together cargoes for Nigeria, for example, but these parcels have been assembled outside European jurisdiction and will have had various certificates of origin, such as Egypt.

Russian cargoes from the Baltic regions continue to move to Gebze, Turkey, Singapore, India and the United Arab Emirates, but these cargoes are only reported on arrival at the discharge port. Information can be obtained from blenders in Lithuania, who often buy parcels of Group I material from Avista’s rerefinery in Kalundborg, Denmark, and from Lotos in Gdansk. Most of these cargoes are delivered on a CFR or CIF basis by either a trader or the principal suppliers.

Lukoil is the main contractor loading base oil cargoes out of St. Petersburg, now that the terminal at Svetly, Russia, has ceased operations. This may have occurred due to base oils having to transit through Lithuania by train, before entering the Russian enclave of Kaliningrad. This exercise was an awkward exercise and was not approved by the European Commission, but was given leeway under sanctions for a limited period of time, after which alternative arrangements had to be put into place to supply the terminal at Svetly. It turned out there were no alternatives, hence the closure. The terminal possibly could have been an abridging point, fed from St. Petersburg by sea. This was obviously deemed uneconomic, so cargoes are direct loaded on occasion from St. Petersburg or Vyborg, Russia.

Prices for Russian Russian Group I oils ex St Petersburg or Vyborg are estimated on a netback basis from prices offered into Nigeria, taking freight and margins into consideration. FOB numbers may be between $710/t-$735/t for SN150 and $740/t-$765/t for SN500. Blended SN900 would be priced at around $795/t using SN1200 or Russian bright stock, plus quantities of SN150 or SN500, depending on the cargo required.

In the Black Sea region, European traders are looking to take more quantities of Group I base oils out of Turkmenistan and Uzbekistan. These base oils will not come up to European mainstream standards on quality, although the material from Turkmenbashi is close. The Uzbek grades come in a variety of viscosities not predominantly used in European blending, but these can have uses for certain blends, and will be priced accordingly.

Some blending operations in Turkey are trying to survive a situation where commercial borrowing from domestic banks is almost impossible. Some smaller companies have closed their doors and have released staff. Turkish banks are under pressure from international banks because of trade links with Russian banks or companies to provide the payment structure to Russia for imported goods coming into Turkey.

An introduction of a system of sanctions or rules may have to be initiated if the Turkish banking system is to continue having international trade with prime European and international banks based in outside the country. The list of foreign banks with concerns includes BNP Paribas, Credit Agricole, Creditanstalt and Deutsche Bank.

The latest prices for Russian base oils imported into Turkey are estimated to be around $825/t-$850/t for SN150 and $835/t-$865/t for SN500, both CFR Gebze.

No further information has been found regarding the Tupras “export” tender for around 7,000 tons of Group I grades. The tender terms are FOB Aliaga, Turkey, the material having been trucked from Izmir, which is a costly and time consuming operation. Exact dates have not yet been discovered, but the assumption is that the loading will happen in August. This will be the second or third tender Tupras have held on this basis, the rationale being probably to obtain a dollar payment, rather than selling the material locally in Turkish lira.

It is not known if any base oil from Tupras is actually available for the local market, since it is presumed that first priority will be to deliver as much volume to Aliaga as quickly as possible, but domestic prices are confirmed at

Tl 34,326/t for spindle oil, Tl 29,745/t for SN150, Tl 31,829/t for SN500 and Tl 43,036 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 then resold on an FCA basis, are unchanged this week at €1,290/t-€1,345/t for 100N, 150N and 220N and at €1,475/t-€1,525/t for 600N.

Group II base oils are imported from Red Sea, U.S. and South Korean sources, but recently Russian Group II grades were being offered in Turkey at much lower rates than those recognized for Western grades.

Partly-approved or non-approved Group III base oils, including 4 cSt from Tatneft in Russia, is now being priced at around €1425/t, on an FCA basis. Grades imported from the U.A.E., Bahrain and Asia-Pacific were priced at

€1,625/t-€1,670/t, also on an FCA basis, but most of these stocks have been depleted and are now gone.

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

Middle East

In the Red Sea a number of large cargoes are reported coming out of Yanbu and Jeddah, Saudi Arabia, for receivers on the West Coast of India, although the quantities moving into U.A.E. ports such as Fujairah, Hamriyah and Jebel Ali have declined perhaps due to Middle East Gulf blenders running down inventories.

Luberef is able to continue sailing vessels through the Bab-al Mandeb Strait without trouble from Houthi rebels, and Indian and Pakistani flagged vessels are also given safe passage. Trading relationships are still intact between the U.A.E., Pakistan, India and Iran, so it is to be assumed that Iran is controlling which vessels can be targeted.

S-Oil is part of the Saudi Aramco consortium, and the previously mentioned S-Oil cargo of Group I grades for Northwestern Europe has loaded and is en route through the Mediterranean to Rotterdam. The cargo is heard to be around 5,000-6,000 tons in total with three Group I grades on board.

After a drone attack on Tel Aviv blamed on Houthis, Israeli launched an air strike on the port of Hodeidah in Yemen, incinerating an oil terminal used by Houthi forces to fuel weapons launchers and attack-boats. The fire still burned Monday, and Israel warned that more strikes would be launched if it is again targeted by drones or missiles.

Israel and Hezbollah continue to exchange rocket fire, but Iran has been strangely quiet. These events will have direct and indirect effects on base oil trade in and around Middle East regions. With Iran keeping quiet, Sepahan continues to supply quantities of SN500 and SN150 though the ports of Bandar Bushehr and Bander Khomeini.

Most of these exported quantities are making their way into the U.A.E. and Pakistan. India previously imported large quantities from Iran but currently is not doing so because a surplus of Group I base oils is building in the country due to the large quantities of cheap Russian crude being run through Indian refineries.

In the U.A.E. Group I imports are also arriving into Hamriyah and Ras al Khaimah from Thailand, Russia and Saudi Arabia, the latter having shipped record quantities of base oil during May and June. However, U.A.E.-based blenders have been trying to run down inventories that were built up when the Red Sea attacks on shipping began. Many operations want to deplete stocks in tank before starting to replenish them, and this probably will not happen until after summer. The situation has dented the quantities of base oils being imported into the country.

With the arbitrages from the U.S. and Europe firmly closed, Middle East Gulf buyers are no longer dependent on base oils from those sources. Luberef is supplying base oils of Western quality from its refineries in Yanbu and Jeddah. The latter location may cease production of Group I solvent neutrals next year or in 2026, but the former was built using an Exxon blueprint by the same contractors used by ExxonMobil the world over. The base oil plant there produces the full range of Group I and Group II oils.

Russian base oil cargoes have been scaled back by receivers in Hamriyah due to high stocking levels. Prices were last heard at around $835/t for SN150 and $845/t for SN500, basis CFR. Parcels of 5,000-12,000 tons had loaded from Limas, Turkey, and St. Petersburg in the Baltic.

After falling last week, netbacks for partly approved Group III exports from Middle East Gulf sources in Al Ruwais, U.A.E., and Sitra, Bahrain, are unchanged this week at $1,275/t-$1,300/t for 4, 6 and 8 cSt. Netbacks for gas-to-liquids Group III+ grades ex Ras Laffan, Qatar, are unchanged at around $1,410/t-$1,445/t. These levels are estimates only since economics and cost allocations from Shell cargoes are not disclosed.

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

Prices for Group II base oils being sold ex tank in the U.A.E. or on a truck-delivered basis in the U.A.E. and Oman are unchanged at $1,685/t-$1,725/t for 100N, 150N and 220N and at $1,775/t-$1,825/t for 600N. These rates are relatively high compared to other regions, and the high ends of ranges applies to RTW deliveries to remote locations. Some of these grades are sold in U.A.E. dirhams since the currency is linked to the U.S. dollar and therefore presents little risk.

Africa

As discussed here previously, a large cargo is being planned to load from Rotterdam and Fawley to carry Group l, II and III base oils plus a small quantity of easy chemicals – possibly polyalphaolefins or esters – to Durban, South Africa. News is still awaited about whether the vessel will sail on to Mombasa, Kenya, to deliver a partial cargo into that port. The total quantity of the cargo could be up to 25,000 tons. There is no reported vessel fixture as yet.

Reports from other news sources that several Group I cargoes had loaded out of Northwestern Europe for discharge in Nigeria are definitely false. There are no Group I availabilities large enough to consider for export into Nigeria at this time, and timely payments are not possible there now. In addition, prices would be quite high compared to those being discussed around Lagos for Russian grades.

The cargo that eventually loaded out of El Dekheila, Egypt, arrived into Lagos’ Apapa port last week and commenced discharging. A quantity of 5,000-6,000 tons of bright stock was purchased from a U.S. East Coast refinery, and shipped to Egypt. The bright stock was blended on board whilst loading with other base oils to produce a quantity of SN900. Since part of the original quantity of bright stock was shipped in another cargo to U.K., the ultimate quantity of SN900 is calculated to be around 7,000-8,000 tons. The balance of the cargo was made up of SN150 and SN500, and the total was estimated to be around 12,000 tons.

Part of this cargo was allocated to Nigerian state-owned NNPC, so payment for that part of the parcel will be guaranteed, but it is unknown how the trader involved would receive payment for the balance. This is the first base oil cargo to arrive into Nigeria for some time.

This report is awaiting news on the prices for the Egyptian cargo, but in the meantime prices for potential future trades, for example from U.S. sources, continue to be indicated at $1,125/t-$1,165/t for SN150, $1,195/t-$1,225/t for SN500 and $1,275/t-$1,300/t for SN900, all on a CFR basis. 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 been heard much lower – most recently at $930/t for SN150, $970/t for SN500 and $1,020/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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