Whilst many Western players sun themselves on beaches and fields, the harsh realities of war in Ukraine and the Middle East are in plain view for all the world to see, and there are few signs of hope that either war will end soon. If anything, the violence in both cases is spreading.

Amazingly, supplies of base oils and lubricant additives are getting through blenders in Ukraine and also in Israel. Business is not normal however, with governments issuing requirements and requisitions for raw materials deemed necessary for strategic reserves so that strategic supplies of finished lubricants can be made available to military units.

Crude oil prices have dipped since last week to less than $80 per barrel in the case of dated Brent. West Texas Intermediate also moved lower but by a smaller amount so that the crack between the two benchmarks is now only around $3. Dated deliveries of Brent dipped around $1 to $79.25/bbl Monday, still for October front month settlement. West Texas Intermediate was at $76.30/bbl, still for September front month, closer to flat over the past week.

Low-sulfur gasoil prices slid around $10 per metric ton to $710/t, now for September front month. All of these prices were taken from London ICE trading August 19.

Europe

A true export market remains an impossible reality for API Group I base oils in Europe, where more imports are being planned from Red Sea and now U.S. sources. A number of traders are looking for material from U.S. sources , possibly for the Nigerian market, but these same traders are retaining options to place Group I grades into Europe should there continue to be difficulties with finance and payments from buyers in Nigeria.

European Group I supplies are probably balanced now, but holidays have caused demand to be poor the past few weeks and the market to be quite quiet. Only routine deliveries are taking place. Supplies of bright stock are forecast to be tight when business resumes in September. A number of sellers of this grade are pushing prices extremely high, perhaps to put off spot buyers looking to fill tanks prior to the restart in September. In the Mediterranean, prices have been heard as high as $1,525/t, though values are mainly between $1,450/t and $1,480/t for limited supplies that are available.

Across the whole Group I category, margins are rising and the premium to distillates is high – perhaps high enough to incentivize refiners to ramp up base oil production next month. Prices are stable, though the quiet nature of the market makes it difficult to assess various reactions to prices.

Prices are unchanged for solvent neutral 150, which is at €1,085/t-€1,165/t, and SN500, which is at €1,280/t-€1,300/t, while bright stock is up to €1,450/t-€1,515/t, all on an FCA basis.

The dollar exchange rate to the euro climbed to $1.10670 on Monday. The average price differential across all Group I grades between sales within Europe and a notional export market is unchanged at €10/t-€25/t.

July and August have seen an increase in quantities of Group II base oils arriving into Europe from U.S. producers, and European stocks are at relatively high levels. Sellers are hoping demand will increase going into the fourth quarter.

Sellers are taking stock of the supply-demand picture during August, watching for new demand and potential for prices to come under pressure. European Group II prices remain relatively high compared to other regions, so the arbitrage between the U.S. and Europe is open. American refiners have finished building inventories to insure against possible disruptions from hurricanes and are keen to maximize cargoes to Europe.

The ongoing presence of multiple suppliers offering lower prices has muddied the picture of the Group II market in Europe, but prices are assessed this week are at €1,145/t-€1,185/t ($1,273/t-$1,317/t) for 110 neutral and 150N, €1,205/t-€1,245/t ($1,339/t-$1,384/t) for 220N and €1,285/t-€1,320/t ($1,428/t-$1,467/t) for 600N. The above 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.

European Group III markets are relatively quiet and calm, with only a few pockets of demand. The overall Group III market continues to experience price pressures and erosion. New lows are being established almost weekly, with one Middle East Gulf supplier for example offering 4 centiStoke material last week for €1,170/t, on an FCA basis. Such numbers are being put into place to entice buyers in the beginning of September.

More replenishment cargoes are due to be reach Europe in coming weeks, arriving from the Middle East Gulf and Asia-Pacific. Some Group III prices have now sunk below Group II levels, and there are signs to suggest that the former may have further to tumble. This development came about despite the fact that shipping costs have risen sharply due to some vessels rerouting around the Cape of Good Hope. European distributors have requested support from producers to alleviate incremental costs.

European prices for Group III oils with partial slates of finished lubricant approvals are unchanged at €1,170/t-€1,240/t for 4 and 6 cSt grades and at €1,165/t-€1,250/t for 8 cSt, all on an FCA basis ex Antwerp-Rotterdam-Amsterdam or Northwestern Europe. Prices for rerefined Group III oils, which are playing an ever larger part of the Group III market, are unchanged at €1,155/t-€1,185/t, on an FCA basis ex rerefinery in Germany.

Group III oils with full slates of approvals continue to sell at a premium over partly-approved grades, 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

Once again, no base oil cargoes have been spotted loading out of the ports of St. Petersburg and Vyborg, Russia, in the Baltic. There was rumor of Russian or Belarusian traders looking to direct cargoes to South American receivers, but for whatever reasons these inquiries have been shelved for now. Potential Soth American buyers were interested to look at a Russian parcel of SN150 and SN500 but would not accept quality guarantees.

Russian base oil sellers, such as Lukoil, have sold and delivered more than 75,000 tons of Russian export barrels into the Indian market during the first half of this year. Selling base oils into the Indian market is becoming more difficult as buyers can use local production that is higher in quality than Russian exports. India is fast becoming long in Group I due to huge quantities of cheap Russian Urals crude oil being dumped into Indian refineries.

Traders are again offering Russian base oil cargoes out of the Baltic Sea to a number of Nigerian receivers but with little success due to continuing problems with finance and payment, along with quality issues.

Baltic cargoes continue to load for discharge into Gebze, Turkey, and Singapore, but are only reported following discharge. Shipping inquiries are not listed in brokers reports, so shipping information for Russian cargoes is only obtained from local shipping agencies in discharge ports.

FOB prices for Russian SN150 and SN500 ex St Petersburg or Vyborg are estimated on a netback basis from the latest prices offered into Nigeria, after taking freight and margins into consideration. FOB numbers could possibly be around $745/t-$775/t for SN150 and $785/t-$795/t for SN500. Blended SN900 could be priced at around $840/t using SN1200 or Russian bright stock. This is based on a typical freight cost of around $175/t-$200/t for a parcel of 7,000-10,000 tons of Russian export grades including a large quantity of SN900.

Traders find it difficult to find vessels to operate into Nigeria, since vessels delivering base oil cargoes into that region cannot easily find cargoes of CPP/molasses/palm oil moving from West Africa to European or other African ports. This means that vessels delivering base oil cargoes into Apapa often have to price in ballasting back to the Mediterranean to find a suitable cargo to load.

Blending operations in Turkey have gone exceptionally quiet over the past week, with a number of operations closing for the whole month of August. Some of the main blenders are performing maintenance on machinery and production lines. Sources in Istanbul say a number of companies offered staff members relatively large lump sum payments to do the work involved.

Prime European banks continue to pressure Turkish banks in trading relationships with Russian banks and suppliers.  Some international banks based in mainland European centers have decided to cut ties with certain Turkish banks, concerned that those European banks could otherwise be found in breach of European Union rules and sanctions.

Russian imports continue to dominate the Turkish base oil market with latest prices around $825/t-$850/t for SN150 and $835/t-$865/t for SN500, basis CFR Gebze. Strangely, most of the Russian base oil going into Turkey is sourced from the Baltic rather than from Volgagrad.

The Tupras “export” tender for around 7,000 tons of Group I grades appears to have been cancelled abandoned due to little buying interest from any third parties. A possible deal in Nigeria failed because the grade split did not allow for a large quantity of SN900 to be blended, along with SN500 and small quantity of SN150. Tupras reduced prices for the local market due to the Turkish lira’s declining value versus the U.S. dollar. Those prices are now Tl 35,356/t for spindle oil; Tl 30,5971/t for SN150; Tl 32,875/t for SN500; and Tl 45,164 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 unchanged this week at €1,325/t-€1,375/t for 100N, 150N and 220N and €1,520/t-€1,555/t for 600N. Group II base oils are mostly imported from the Red Sea, the U.S. and South Korea, but now Russian Group II grades have emerged on to the scene and are being offered in Turkey. Prices are reported to be around €100-€150 lower than the incumbent products.

The market in Turkey for Group III with partial slates of approvals or without approvals includes 4 cSt oil from Tatneft in Russia, which is priced around €1,325/t according to the latest information. Grades previously imported from the U.A.E., Bahrain and Asia-Pacific had been priced at €1,625/t-€1,670/t, but stocks have been depleted because of the near impossibility of bringing shipments through the Red Sea and the cost delays involved with detouring around the southern tip of Africa.

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

Middle East

The record pace of base oil shipments loading out of Yanbu and Jeddah, Saudi Arabia, appears to have continued through July but started to slow in August for two principal reasons. First, blenders in the U.A.E. continue to run down inventories that were built up during the first half of this year because of concerns for supplies from the Red Sea. Houthi attacks threatened to block deliveries from Saudi Arabia, but the problem has been averted by chartering vessels operating under Indian, Pakistani or U.A.E. flags, which appear acceptable to the Houthis. Perhaps permission came from Iran, which has trading relationships with all those nations.

India is moving toward having surplus Group I production, so opportunities for Luberef to supply this market may diminish. If so, the Saudi company may focus on moving Group I and Group II cargoes to Turkey and Europe, which could fit in with future requirements from Ukraine.

Israel’s war with Hamas may be at a crossroads between a peace deal that the U.S., Qatar and other nations are trying to broker and all-out fighting between Israel and Iran and its proxies – Hezbollah, Hamas and the Houthis. The Middle East is carefully watching the developing situation; base oil buyers and sellers who have left the region for the summer are maintaining daily contact to stay abreast.

The region is on tenterhooks over reports that Iran has prepared a massive drone and missile strike on Israel. Expectations are running high that a Hezbollah strike will lead the attack, followed by a launch from Iran. Israel is on full alert, steeling for aggressive counters from any direction.

An escalation in fighting could cause breakdowns in base oil supply to and from the Middle East regions, which could greatly impact the broader industry.

Iranian base oil producers Sepahan and Iranol continue to export quantities of SN500 and SN150 through the southern ports of Bandar Bushehr and Bander Khomeini. Exports move to the U.A.E. and Pakistan. Indian buyers formerly took considerable quantities from Sepahan, but those purchases are shifting toward local production.

Middle East Gulf operations are turning away from Western arbitrages, which are currently closed between the U.S. and Europe, and are looking for Group I and II supplies from Asia-Pacific and Red Sea sources. Thailand and Indonesia and being targeted as potential supply points for the future. Singapore facilities that would be another option are currently in the midst of a maintenance turnaround.

Russian base oils offered on a CFR basis in the U.A.E. were heard to be priced at $845/t for SN150 and $855/t for SN500. Parcels of around 5,000 tons load from Limas, Turkey, while larger cargoes of up to 12,000 tons load out of St. Petersburg.

Netbacks for partly approved Group III exports from Al Ruwais, U.A.E., and Sitra, Bahrain, are maintained following recent adjustments, prices in Europe and the U.S. being artificially stable due to reduced demand during the holiday season. These netbacks are assessed at $1,275/t-$1,300/t for 4, 6 and 8 cSt Group III grades.

Netbacks for gas-to-liquids Group III+ ex Shell’s joint venture in Ras Laffan, Qatar, are unchanged at around $1,410/t-$1,445/t – estimates since Shell cargo economics and cost allocation are not disclosed.

All of these netbacks are assessed from distributor selling prices less estimated marketing, margins, handling and freight costs.

Prices are steady this week for Group II base oils sold ex tank in the U.A.E or on a truck-delivered basis in the U.A.E. and Oman: $1,685/t-$1,725/t for 100N, 150N and 220N and $1,775/t-$1,825/t for 600N. Some of these grades are sold in local U.A.E. dirhams, since that currency is linked to the U.S. dollar. The high ends of the ranges refer to RTW deliveries to buyers in remote locations.

Africa

This report has heard from sources in Durban that the previously mentioned large cargo of base oils from two European ports has loaded and is enroute to South Africa. It would seem the cargo may include allocated to receivers in Mombasa. This parcel is so far unconfirmed, but more information is being sought.

Business remains subdued in West Africa where receivers in Guinea, Cote d’Ivoire and Ghana are topped up with Group I base oils from ExxonMobil. Nigeria still has the rains, which are limiting transportation of goods to more remote parts of the country.

No more confirmed news has been heard regarding potential Russian cargoes for Nigeria. Finance and payment procedures are still problems to be overcome before sales are possible. Without payment guarantees – which used come in the form of letters of credit issued locally and confirmed by prime European banks – trading in this environment could amount to financial suicide, with buyers in control of payments. One trader is reputedly still awaiting full recompense for a cargo delivered and discharged in February.

There may be scope for a large cargo to be sourced out of the U.S., perhaps loading in September when inventories are no longer being built for the hurricane season. But finance remains an issue, and until this is sorted no supply will be confirmed by traders.

Prices for sales in Lagos’ port of Apapa refer to potential future trades of base oils that could arrive during September or October and are indicated at $1,155/t-$1,180/t for SN150, $1,225/t-$1,245/t for SN500 and at $1,300/t-$1,335/t for SN900. Russian offers may no longer be on the table but were last heard at $995/t for SN150, $1,035/t for SN500 and $1,075/t for SN900, all on a CFR basis ex Apapa.

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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