Many players shared their own opinions, some of which will be reflected in this report, but many are pitching in the dark, looking for pointers as to which way the markets will turn, and more importantly, when?

The intensifying turmoil in the Middle East and Ukraine is having huge influence on various industries, including base oils, with impacts on facets such as transportation, shipping routes and associated increases in costs.

Base oil markets in Europe, the Middle East and Africa are highly interconnected and with that comes a dependence on certain supply sources which have been altered by the conflicts.

A number of commercial enterprises in those regions were dependent on certain sources for supplies of lubricants, base oils, and additives for both civilian and military activities. In some instances, organization have had to turn to find new ways of working. For example, some lube blenders in Israel that were importing base oils and additives have now turned to importing finished products, an approach that is more efficient and less risky than manufacturing during wartime. Ukraine had been heavily dependent on base oil and additive supplies from Russia and Belarus, but for obvious reasons this situation had to change. That market is still adapting to new sources for product and advice.

These occurrences go largely unnoticed in the grander scheme of things, but hostilities have enormous effects on day-to-day business.

If the start of this week is any indication, trading activity in base oil markets is ramping up as many buyers look to replenish inventories. A number of independent forecasts predict an upswing in demand for all types of finished lubricants, from automotive to industrial and process oils.

The markets may not be able to respond positively in all instances, since API Group I supplies remain relatively snug around Europe, despite injection from a number of imported cargoes. Compared to previous patterns, exports of these oils from areas such as Greece, Italy, Poland and the United Kingdom have declined drastically, leaving suppliers to rely on the regional markets where prices have remained firm. One major does continue to load a number of base oil cargoes that include Group I material for receivers in South, West and East Africa.

The European market is an anomaly insofar that it continues to show positive demand for Group I base oils, in spite of a general trend to increase use of premium base stocks.

Group II uptake has been slower so far this year than in the first half of 2023, but this could reflect the high amount of maintenance work conducted during the first two quarters this year. This year’s uptake could catch up during the second half of the year.

Group III uptake has gathered momentum as this year progressed, perhaps due to the large quantities of these base oils being available around the European markets. Demand in Africa surged, perhaps unexpectedly.

Fundamentals of the base oil market remain somewhat puzzling as crude and feedstock prices languish at relatively lowly levels, even against a backdrop of geo-political tensions that would normally have adverse effects. Some crude traders have assessed that that market is less sensitive than normal to such disruptions because demand is poor and alternative supplies are easy to find. When Libya ceased exports of various crudes last week markets hardly flinched.

Crude prices lost ground after rising last week. Dated deliveries of Brent opened the week at $76.83 per barrel, around $5 lower than a week ago, now for November front month settlement. West Texas Intermediate crude dipped to $73.50/bbl, still for October front month.

Low-sulfur gasoil prices dropped around $35 to $693 per metric ton, still for September front month. All of these prices were obtained from London ICE trading late Sept. 2.

Europe

Group I exports from European sources remain elusive except for ExxonMobil moving large parcels of mixed grades to receivers in Africa. Some of these exports are going to affiliated companies, and perhaps cannot be categorized as true exports, although the material is certainly leaving European shores and is being delivered into receivers in a number of African locations.

At the same time Europe has received a number of imported cargoes from Egypt, the Red Sea and the United States although cargoes from the were curtailed due to inventory building for hurricane season. This exercise has come to an end now, and more exports may start to flow from the U.S. Gulf and Atlantic coasts.

Group I markets in Europe reawakened this week after the August holiday month. A number of key players were filtering back to their desks towards the end of last week, but Monday saw a true resurgence, with many sellers scheduling telephone and on-line meetings for the rest of this week.

Bright stock availability remains tight, and a number of buyers are looking to take not inconsiderable quantities of this grade if they can find them. There are limitations on availabilities for September. Sellers are adopting a plan that bright stock will only be considered for sale if other Group I grades are included.

Prices heard early this week are extremely high – at $1,525/t in the Mediterranean heard at $1525/t and between $1,450/t and $1,480/t elsewhere for limited supplies available only in truckloads, on an FCA or delivered basis. However, rumors are of discounts for favored customers, although the definition of favored is not entirely clear.

Overall prices for Group I sales in Europe are unchanged at €1,085/t-€1,165/t for solvent neutral 150, €1,280/t-€1,300/t for SN500 and €1,450/t-€1,525/t for bright stock, all on an FCA basis.

The dollar exchange rate to the euro was nearly flat the past week, residing at $1.10601 Monday. The average price differential across all grades, between Group I sales within Europe and a notional export market is unchanged at €10/t-€25/t, which is small.

Group II base oils underwent price hikes in August, but they were small. Buyers and sellers largely agree that upward pressure exists now, but no changes have yet been announced.

Inventory building is complete in the U.S., so it is expected that further large quantities will move from producers in that country to the European market.

Prices are unchanged this week at €1,175/t-€1,200/t for 110 neutral and 150N, at €1,225/t-€1,255/t for 220N and at €1,325/t-€1,355/t for 600N. These values apply to a wide range of Group II oils from European, U.S., Red Sea and Asia-Pacific sources, all imported in bulk.

European Group III markets are back with prices that appear even lower than previously heard. A couple suppliers are offering 4 centiStoke material for around €1,160/t.

Demand is forecast to grow over the next few months, but the segment currently is over-supplied, and multiple producers who have been absent for months are now returning to the European market.

As of Monday, prices for Group III oils with partial slates of finished lubricant approvals were at €1,260/t-€1,355/t for 4 and 6 cSt and to €1,235/t-€1,275/t for 8 cSt, all on an FCA basis ex Antwerp-Rotterdam-Amsterdam or Northwestern Europe. Prices for rerefined Group III oils are unchanged at €1,155/t-€1,185/t for 4 and 6 cSt, on on FCA basis ex rerefinery in Germany.

Prices for Group III oils with full slates of approvals are 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

Nigerian sources confirmed that Russian base oils are being held in tank at Apapa port in Lagos. This begs the question of whether cargoes arrived recently, but it is not known if they did.

Another cargo loaded out of the Baltic for Turkey, delivering around 5,000 tons of two grades into tank in Gebze. This voyage was completed toward the end of August, hence the cargo possibly loaded during July.

South American trade remains a possibility for a couple of traders working out of the Baltic, but news received during last week suggests receivers are not keen to take Russian base oils for technical and political reasons.

Russian refiner Lukoil delivered more than 100,000 tons of base oil into India during the first eight months of this year. Selling base oils into the Indian market may be becoming more difficult, but sellers appear to have flexibility to reduce and massage prices to suit their own purposes, cutting local prices in order that receivers have little choice to take these grades.

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

Prices for base oils exported from St. Petersburg or Vyborg, Russia, are assessed from the latest prices offered into Nigeria, after taking account of freight and margins. FOB numbers would 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, including perhaps around 6,000 tons of SN900.

Turkish reports are that blending operations have reopened after being closed for maintenance and repairs during August. A couple of firms contacted Monday announced that they are looking forward to the later part of the year, when trade is forecast to pick up for export business and domestic demand to return.

The Turkish economy remains in a parlous state however, with a couple of blenders opening up today, saying that they are still incurring problems with accessing foreign currency, i.e. dollars, with which to buy European standard base oils, which will be used to toll blend for recognised brands of finished lubricants.

However, Russian imports continue to flood the Turkish market with latest prices CFR Turkish ports estimated to be around $845/t-$860/t for SN150, with SN500 between $855/t-$875/t CFR Gebze. European levels, on the basis that sellers are prepared to consider selling into Turkey, cannot compete with Russian prices, so the fight continues to ensure that quality lubricants are available from major Turkish blending operations.

Tupras have re-issued prices for the local market as follows: 35,957 lira/t for spindle oil; Tl 31,329/t for SN150; Tl 33,432/t for SN500; and Tl 45,791 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 into Turkey are unchanged this week at €1,385/t-€1,425/t for 100N, 150N and 220N and €1,555/t-€1,575/t for 600N.

Group II base oils have been imported from the Red Sea, the U.S. and South Korea, but now Russian Group II grades have emerged on to the scene. The latter are reportedly priced around €100- €150 lower than the others. GS Caltex from South Korea delivered another Group II parcel into Aliaga in flexi-tanks. The quantity is reported to be around 2,500 tons in total.

Tatneft’s 4 cSt oil is now among the Group III oils available in Turkey with partial approvals or without approvals. The latest price for that product is around €1290/t, lower than previously noted. Partially approved oils from other sources had been priced at €1625/t-€1670/t, on an FCA basis, but most of these stocks have been depleted with replenishment appears impractical amidst the current shipping disruptions.

Smaller quantities of fully-approved Group III grades from Cartagena, Spain, continue to be delivered into Gemlik. Prices for those are unchanged this week at €1,960/t-€1,995/t, basis FCA.

Middle East

August base oil loading from Yanbu and Jeddah, Saudi Arabia, has slowed again, probably due to United Arab Emirates blenders closing down for the summer recess and also because of running down inventories. Indian receivers were also quiet perhaps due to taking large quantities of low-priced Russian base oils.

Vessels flying Indian, Pakistani and U.A.E. flags appear to be accepted by the Houthis, but two weeks ago a Greek vessel was attacked by missile fire and ended in flames. Owners had issued a statement intimating that if the vessel could not be salvaged, then an oil spill greater than the ‘Exxon Valdez’ could occur, endangering marine life in the Red Sea. Reports are that the fire is still burning on board, with salvage crews unable to access the hull. An investigation is underway to discover why this ship was sailing through the Bab-al-Mandeb Strait carrying a cargo of crude.

Luberef is looking to move more Group I and II cargoes towards Europe. Group I is being aimed at the Northwestern European market and Group I and II to Greek and Italian receivers.

Iranian base oil producers Sepahan and Iranol continue to export relatively small quantities of SN500 and SN150 through Bandar Bushehr and Bander Khomeini. These exports are moving into U.A.E. and Pakistan.

On opening up again following the summer break, Middle East Gulf blending operations are not reliant on arbitrages from the U.S. and Europe. These arbs are currently closed due to higher FOB prices in the source markets. Buyers are searching for support for Group I and Group II supplies from Asia-Pacific and the Red Sea. Thailand and Indonesia are targeted as potential supply points for the future, and Singapore is also being considered for supplies of Group I and Group II base oils.

U.A.E. prices for Russian base oils are unchanged at $845/t for SN150 and $855/t for SN500, both on a CFR basis. Updated information will be sought this week to get the latest numbers from receivers in Hamriyah.

Netbacks for exports of partly-approved Group III oils from Al Ruwais, U.A.E., and Sitra, Bahrain, are lowered this week as prices in Europe and the U.S. come under renewed pressure. Those netbacks are indicated at $1,185/t-$1,240/t for 4, 6 and 8 cSt. Netbacks for Group III+ gas-to-liquids base oils ex Ras Laffan, Qatar, are also taken lower to $1,365/t-$1,395/t. These levels are given as 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.

Prices are unchanged for Group II base oils being resold ex tank in the U.A.E. or on a truck-delivered basis around the U.A.E. and Oman. Those prices are $1,685/t-$1,725/t for 100N, 150N and 220N, while 600N is at $1,775/t-$1,825/t. These grades are mostly 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

From shipping agency sources in Durban, this report has heard that another large cargo of base oils will be dispatched during September from European ports Rotterdam and Fawley. When shopping details are confirmed following the vessel fixture, more details regarding quantities and dates should become available.

West Africa remains quiet amid suggestions that European Group I base oils had been delivered into Apapa some time during July or August. The only base oils delivered into Nigeria would have been Russian barrels but who was responsible, and the quantity delivered has not been disclosed.

Additionally, ExxonMobil made a delivery of Group I base oils into receivers in Conakry, Guinea, Abidjan, Cote d’Ivoire and Tema, Ghana. Such cargoes usually load out of Fawley, U.K.

Nigeria remains mired in problems related to exchange rates and lack of access to U.S. dollars, and these are limiting the ability of traders to transact base oil business. There is low-cost Russian oil in tank, but many blenders will not use it.

According to sources, potential buyers are looking for prices that are unattainable, in addition to the problems and issues with finance and payments. Nigerian buyers only see the Russian barrels and the prices attached to these purchases and want the same prices or lower for base oils to be supplied form Europe or the U.S. It is impossible for traders to compete with Russian prices, and the finance problems in the country are not enticing them to try.

Speculative prices for potential future trades of base oil in Nigeria are estimated at $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, all on a CFR basis ex Apapa. These prices are given as indications only.

Russian offers are heard much lower, most recently at $995/t for SN150, $1035/t for SN500 and $1,075/t for SN900, basis CFR 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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