These two incidents may not have direct implications for base oil business, but ultimately the fallout from these events will impact trade and commerce throughout the relative regions, limiting and constricting business in the Middle East and the European arenas.

With the Houthis still targeting foreign flagged vessels passing through the Bab-al-Mandeb Strait in the southern Red Sea, and a Greek tanker set on fire by a rocket attack last week, an interesting statistic aired in the press this week: Container traffic moving across Russia by rail has risen 122% over last year, and will possibly continue to rise, reducing the need to re-route sea-going traffic around Africa’s southern tip.

Apparently containers moving westwards from Asian ports take an average of 55 days to reach European ports, whilst rail transported freight can reach Europe in around 18 days. Transport through Russia had collapsed after the Ukraine invasion but is now back to pre-war levels, the revenue from which is a major boost to Putin’s war chest. The rail movement of goods trans-Russia is permitted under EU sanctions as long as containers are kept on the move.

More generally, base oil players in Europe, the Middle East and Africa have been returning to their desks following the holiday period, which has largely come to an end. By next week, going into September, most companies will be back to full power, and the market is braced to see what will happen to base oil demand going toward the fourth quarter.

Some predict an upturn in activity, with buyers searching for sources to purchase relatively large quantities to meet increasing finished lubricants demand during the final quarter of this year. This is based on forecasts for a mini surge in economic activity in the main markets of the regions.

Producers are keen to maximize any upturn in demand, and since base oil margins and premiums to crude and other petroleum products are at relatively high levels, they will have incentive to maximize base oil output.

The most popular opinion seems to be that demand will build for API Group I and Group II oils while Group III is slower to pick up. Group II appears in line for the biggest bump as many buyers are looking for incremental quantities of the grade due to the comparative economics of using the different grades. Group I prices have remained strong over the summer on tight supply in Europe, narrowing the Group II premium over Group I to the point that some believe it exerts upward pressure on Group II values.

Buyers returned to their desks are seeking updates on the state of markets, and some discussed looking further afield for supplies of Group I base oils, since the European market is still tight.

Some traders are looking to add cargoes of Group I base oils to their slate for Europe, while others look to bring large parcels of Group II to Europe Asia-Pacific – from South Korea, for example. One such move is for a 10,000-ton parcel of Group II grades to arrive into Antwerp-Rotterdam-Amsterdam during October or early November. Other regular participants are also moving in-house quantities of API Group II grades towards Europe. These quantities will supplement material already programmed to arrive into Europe from United States sources.

Crude oil prices rallied from last week, though the reason is unclear. Dated deliveries of Brent crude reached $81.55 per barrel, still for October front month settlement, approximately $2 higher. West Texas Intermediate had a smaller increase – to

$77.55 per barrel, now for October front month.

Low-sulfur gasoil prices climbed around $20 per metric ton, to $728/t, still for September front month. All of these prices were taken from London ICE trading late Aug. 26.

Europe

An export market remains an improbable feature of the Group I scene in Europe, although one supplier – ExxonMobil – has been moving Group I base oils, along with Group II and III to African destinations such as Guinea, Cote d’Ivoire and Ghana. Your columnist is unaware of any base oils from this source entering Nigeria in the recent past.

Europe has become an importer of Group I base oils sourced from Red Sea and U.S. sources. A number of traders are looking for material from U.S. sources for the Nigerian market and at the same time exploring shipping options to take cargoes into Europe. The problem is may still be difficulties with finance and payments in Nigeria.

Assessing where demand actually lies was difficult this cycle due to the amount of vacations in August, but this week may bring clearer indications.

The Group I market in Europe has been quiet but started to pick up this week and should continue to do so as more people return from holidays. Bright stock remains tight, according to sources, as there are now only a few regular producers of this grade advertising availabilities for September. It is thought that only regular or contracted buyers will have access to this material.

Suppliers have announced extremely high prices, almost as if to put off would-be spot purchasers. In Mediterranean regions, prices have been heard as high as $1,525/t and are generally within a range of $1,450/t-$1,480/t, available in truckloads either on an FCA basis or delivered.

With margins healthy, prices for Group I sales within Europe are unchanged this week at

€1,085/t-€1,165/t for solvent neutral 150, €1,280/t-€,1300/t for SN500 and bright stock at €1,450/t-€1,515/t.

The dollar exchange rate to the euro rose again the past week to $1.1163 on Monday. The average price differential across all grades between Group I sales within Europe and notional exportsis maintained between €10/t-€25/t.

European Group II prices are under upward pressure even after a smattering of small hikes during August, including main suppliers lifting rates around €20/t. Suppliers in the U.S. are nearly finished building inventories as insurance against hurricane season, so increased quantities will likely find their way to Europe ahead of the anticipated rise in demand.

Prices are assessed this week at €1,175/t-€1,200 for 110 neutral and 150N, €1,225/t-€1,255/t for 220N and €1,325/t-€1,355/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 was some confusion in last week’s report which included a set of prices from one specific importer that were much lower than typical market numbers. Markups eliminated that situation this week.

European Group III markets are still quiet but sources expect a return of demand for these grades beginning this week. Sellers and distributors are confident that popularity for this category will grow between now and the end of the year thanks to a number of new finished lubricant specifications that will require formulation upgrades.

Low prices still abound in the market, but the seller that was offering 4 centiStoke material for €1,170/t on an FCA basis boosted that price to €1,255/t.

More cargoes are due to arrive into Europe during September from Middle East Gulf sources.

European numbers for Group III grades with partial slates of finished lubricant approvals or without approvals are up this week to €1,225/t-€1,270/t for 4 and 6 cSt and to €1,225/t-€1,245/t for 8 cSt, all on an FCA basis ex Antwerp-Rotterdam-Amsterdam and Northwestern Europe. Prices for rerefined Group III are unchanged at €1,155/t-€1,185/t, on an FCA basis ex rerefinery in Germany.

Values for Group III grades with full slates of approvals remain steady at €1,785/t-€1,820/t for 4 and 6 cSt and at €1,825/t-€1,835/t for 8 cSt, basis FCA ex hubs in Antwerp-Rotterdam-Amsterdam, Northwestern Europe and Spain.

Baltic & Black Seas

One large base oil cargo has apparently loaded out of St. Petersburg and is expected to discharge into Gebze, Turkey. The quantity may be around 7,000 tons in total, larger than the usual 5,000 tons cargoes that have previously loaded for Turkey. This may be a function of the size of the vessel chartered for this voyage.

South American trade remains a possibility for a couple of traders working out of the Baltic, but there was word last week suggesting receivers are not keen for both technical and political reasons.

Lukoil has sold and delivered more than 97,000 tons of base oils into the Indian market during the first seven months of the year. That practice may become more difficult in the future, but sellers appear to have flexibility to tempt buyers by reducing prices to levels that offset extra additive costs.

Third parties have suggested that levels below $750/t CIF are feasible and possible for Russian cargoes of SN150 and SN500.

Traders are offering Russian base oils from Baltic ports to a couple Nigerian receivers, but the transactions are complicated and complex due to ongoing problems with finance and also the politics of accepting Russian material. Some blenders in Lagos have said that they do not want to purchase Russian barrels from the Nigeria traders that would be receiving these shipments.

FOB prices for base oils ex St. Petersburg or Vyborg, Russia, are assessed or estimated from the latest prices offered into Nigeria subtracting for freight and margins. Prices could 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 a10,000-ton parcel of Russian export grades that would include a major quantity of SN900, perhaps around 6,000 tons.

In the Black Sea regions, tensions have been running high following the Ukrainian attacks on Russian bases and bridges which are used to supply Crimea with arms and necessary provisions and supplies. Ukraine has been capable of inflicting severe damage to naval depots and vessels at anchor in Sevastopol port. Russian naval ships have now been withdrawn to ports such as Novo in order to reduce the risk of damage. The Russian Black Sea fleet is no longer the fighting force it once was.

Base oil blending operations in Turkey have been quiet the past month, but producers are resuming production now. A few blenders were closed for the whole month of August. A number of prime European banks continue to exert pressure on Turkish banks that openly do business with Russian banks, and some based in mainland European centers have now cut ties, succumbing to pressure from European Union officials pushing to adopt new terms of business.

Russian imports of base oil continue to flood the Turkish market, with latest prices estimated to be around $845/t-$860/t for SN150 and $855/t-$875/t for SN500, basis CFR Gebze.

Tupras has set the following prices for base oil sales within the local market: 35,356 lira per ton for spindle oil; Tl 30,5971/t for SN150; Tl 32,875/t for SN500; and Tl 45,164/t for bright stock. Prices in lira are offered ex rack with a loading charge of Tl 5,150/t added.

Prices for Group II imports into Turkey moved slightly higher to €1,385/t-€1,425/t for 100N, 150N and 220N and €1,555/t-€1,575/t for 600N, basis FCA. Such oils have primarily come from the Red Sea, the U.S. and South Korea, but now Russian Group II grades have emerged onto the scene and are reportedly being offered at around €100/t- €150/t less.

Group III oils with partial approvals or no approvals include 4 cSt material from Tatneft in Russia, last heard to be priced around €1335/t. Material from other sources is not currently available because replenishment shipments have been deterred by threat of attack by Houthi rebels in the Red Sea. Prices for those products was €1625/t-€1670/t.

Smaller quantities of fully-approved Group III grades from Cartagena, Spain, are still being delivered into Gemlik and for resale on an FCA basis. Prices are unchanged at €1,960/t-€1,995/t.

Middle East

July loading from Yanbu and Jeddah started to slow, possibly due to United Arab Emirates blenders running down inventories and also Indian receivers taking large quantities of low-priced Russian base oils and increased domestic production.

Ships sailing under Indian, Pakistani and U.A.E. flags appear to be free from Houthi harassment, but a Greek vessel was attacked last week by a missile that set the ship ablaze. Costs for insurance to transit the Red Sea route are now sky high.

More emphasis appears to be placed on moving Group I and Group II cargoes toward Europe. New cargoes of Group I are being aimed at Northwestern Europe, whilst deliveries of Group II barrels are going into Greek and Italian receivers.

Base oil players in the Middle East and further abroad remain worried over fighting between Israel and Hamas and its allies, which continues to escalate. Negotiations for a ceasefire continue, but U.S. Secretary of State Anthony Blinkin said the current proposal is possibly the last chance to halt the fighting. Industry sources in the U.A.E. suggested that the unpredictability of the situation continues to weigh heavily on trade and commerce in Middle East Gulf regions.

Iranian base oil producers Sepahan and Iranol are exporting small quantities of SN500 and SN150 through the southern ports of Bandar Bushehr and Bander Khomeini. These exports are moving to the U.A.E. and Pakistan.

Middle East Gulf operations are shunning Western arbitrages that are currently closed from the U.S. and Europe, turning instead to Asia-Pacific and the Red Sea for Group I and II support. Thailand and Indonesia are being targeted as potential supply points for the future along with Singapore, where a plant is temporarily closed for maintenance.

Prices for Russian base oils offered on a CFR basis in the U.A.E. are unchanged at $845/t for SN150 and $855/t for SN500. Parcels of around 5,000 tons, mainly load out of Limas terminal in Turkey, with larger cargoes of up to 12,000 tons loading out of St. Petersburg in the Baltic.

Netbacks for partially approved Group III exports from Al Ruwais, U.A.E., and Sitra, Bahrain, are maintained this week at $1,275/t-$1,300/t for 4, 6 and 8 cSt. Upward pressure could begin to build if demand in Europe and the U.S. starts to build.

Netbacks for gas-to-liquids Group III+ from the Shell-Qatar Petroleum joint venture in Ras Laffan, Qatar, are also unchanged at around $1,410/t-$1,445/t. These levels are estimates since Shell cargo economics and cost allocation are not disclosed. Netback levels are assessed from distributor selling prices minus estimated marketing, margins, handling and freight costs.

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

Africa

This report has heard from sources in Durban, South Africa, that a large cargo of base oils discharged during June had loaded out of Rotterdam and Fawley, U.K. This cargo contained a parcel of base oils, thought to be both Group I and Group II, for receivers in Mombasa, Kenya. Another cargo may be in the process of loading, but it will be solely for South Africa, delivering and discharging in Durban.

West Africa remains quiet. As stated here previously, there have been suggestions that European Group I base oils had been delivered into Lagos in July or August, but this is simply untrue. ExxonMobil delivered Group I parcels into receivers in Guinea, Cote d’Ivoire and Ghana as part of a “milk run” of deliveries undertaken every couple of months. The cargoes are generally loaded out of one port, Fawley, and sailed to ports in Conakry, Guinea, Abidjan, Cote d’Ivoire and Tema, Ghana.

Nigeria is coming towards the end of the rainy season, but finance and banking are still major issues for doing business in this country.  The drier weather will possibly have little effect on cargoes of base oils arriving into Apapa port in Lagos as traders are still sitting on the fence, waiting for news on how the cargo will be paid for and settled.

There are rumors of offers being prepared for a Russian cargo to move into Nigeria, but just how this will be accounted for is up for discussion. Without payment guarantees – which in the past consisted of letters of credit issued locally and confirmed by a prime European bank – trading in this environment is nigh impossible. One trader is reportedly still awaiting full recompense for a cargo delivered in February. There may be scope for a large cargo sourced out of the U.S., perhaps loading in September, but finance will remain an issue.

Prices for potential future trades of base oils that could arrive in September or October, are estimated 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, basis CFR Apapa. These prices are offered here only as indications. Russian offers are heard much lower, most recently 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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