In Iran, airplane flights were cancelled during the early hours of Monday, anticipating an Israeli counterattack following Tehran’s missile barrage at Tel Aviv last week.

Now that Iran has taken a more direct role in the conflict, tensions are heightened across all the Middle East regions, as expectations run high that Israel will seek revenge for the missile attack. Targets, including oil installations and nuclear development sites, are being considered by Israeli forces to counter the attack on Tel Aviv. It is said that it is a question of when, rather than if, this counterattack takes place.

Western leaders are trying to placate the Israeli government by putting forward ideas to de-escalate the situation. Meanwhile

Israeli strikes against Hezbollah in Lebanon are increasing and the war against Hamas in Gaza rages on, inflicting fearful damage to infrastructure and facilities. Hamas and Hezbollah both continue to fire missiles and drones into northern Israel, and prospects for a ceasefire seem scant.

This scenario does not bode well for trade in the Middle East as all the usual complications come to bear, from problems with communications to supply chain interruptions and transportation of goods in and out of the region. Insurance premiums are moving ever higher, even for businesses not directly involved in the war zones.

Base oil and additive prices have escalated with many suppliers considering whether to remain in the market. This is having a hugely detrimental effect on areas such as the United Arab Emirates, Qatar, Bahrain and Kuwait. Meanwhile, Saudi Arabia is analyzing possible effects of Iran blocking the Straits of Hormuz. Twenty percent of all global crude and petroleum product movements go through this busy shipping lane.

Many traders who were looking have base oil cargoes shipped to Middle East Gulf regions from the United States and Europe are taking a step back, prompting an increase in trade with Asia-Pacific suppliers, who are more than happy to accommodate given sluggish activity in Japan, Korea and China.

The market situation for base oils varies from region to region. In Europe, downward pricing pressure is building due to a downward turn in demand for all grades of product. API Group I prices are moving lower from highs achieved during summer. It is not yet clear whether values will fall enough to entice a resumption of exports from the region.

Group II base oils in Europe are also coming under a modicum of price pressure, though not as much as in the Group I segment.

The picture for Group III prices in Europe is mixed as some replenishment cargoes have arrived with higher numbers than the same supplier was previously issuing. This may be reassuring for other distributors who are expecting a raft of cargoes to arrive over the next few weeks. Costs have obviously risen for Far Eastern and Middle East Gulf shipments detouring around South Africa’s Cape of Good Hope to avoid Houthi strikes on shipping in the Red Sea.

A Panamanian flagged tanker was hit some ten days ago in the Bab-al-Mandeb Strait and was severely damaged. The cargo on board was reputed to be owned by a the United Kingdom trader.

Crude oils prices rose sharply after Iran’s attack on Tel Aviv. Dated deliveries of Brent crude hit $79.40 per barrel, for December front month settlement, around $9 higher than last reported. West Texas Intermediate was at $75.90/bbl for November front month, around $7 higher.

Low-sulfur gasoil prices climbed around $60 to $720 per metric ton, still for October front month. All of these prices were obtained from London ICE trading at the close of business Oct. 7.

Europe

Reports from Greece are that the fire at Motor Oil Hellas’ refinery in Agio Theodoroi has damaged one crude distillation unit and will that it will require replacement. Availabilities of vacuum gasoil reportedly will be badly affected. This may limit base oil production at the refinery, tightening supplies in the Greek markets and around the Mediterranean.

Other players are stepping in to fill the shortfall in Greece, and there are talks of Group I supplies from Turkey being considered by some blenders in the Greek mainland. Supplies from Luberef, provided by S-Oil, may also come into the markets, but it will take some time to organize shipping, storage and handling in that area, since the seller does not have local representation.

Traders taking Group I grades from the United States East Coast are moving cargoes into the European market, but comments received last week suggested that the margins may not be quite as attractive as the quantities that were placed into Rotterdam during the summer months.

ExxonMobil accounts for the major part of any European export market by continuing to move large parcels of various base oils to various parts of Africa. The company has also shipped Group II base oils to Singapore, to cover for a major refinery maintenance turnaround that has now been completed. 

Bright stock remains high up the list for buyers looking for Group I base oils; supplies of this grade are tight around Europe.

Prices are again down and continue to weaken, although numbers are still attractive for producers. Availability constraints would seem to provide some push back against the downward pressure. Some blenders are saying that availabilities are plentiful and that there is no pressure to buy large parcels. In Eastern Europe, prices are steady at $1,160 per ton for solvent neutral 150 and at $1,255/t for SN500.

In the Mediterranean, prices dipped as of Oct. 1, to between $1,025/t/t and $1,055/t for SN150, to offers of $1,125/t for SN500 or SN600 and to $1,345/t for bright stock.

A temporary shutdown for maintenance started on time last week at the Repsol installation at Cartagena, Spain. Base oil production will be affected, but sufficient inventories have been stored to cover all requirements.

FCA prices for Group I sales within Europe are at €1,010/t/t-€1,065/t for SN150, while SN500 is in a wide range of €1,010/t/t-€1,225/t and bright stock at €1,325/t-€1,420/t.

The dollar exchange rate versus the euro dipped to $1.09763 Monday. The average price differential across all grades between Group I sales within the region and notional exports widened to €20/t-€55/t.

Group II prices appear to be holding steady although some suppliers are offering small discounts to appease buyers not looking to take large quantities. Buyers are concerned about the cash flow implications of building larger quantities than required, so many are waiting to see what happens to prices.

The rally in crude and feedstocks last week may have dashed such thinking, and some buyers were reported to be looking for extra quantities at existing prices towards the end of last week.

Group II prices are still providing a decent premium against distillates, even after diesel rose the past week. Group II prices are unchanged this week at €1,160/t/t-€1,185/t for 110 neutral and 150N, €1,195/t/t-€1,225/t for 220N and €1,285/t-€1,320/t for 600N. These prices apply to a wide range of Group II base oils from Europe, the U.S., the Red Sea and Asia-Pacific, all imported in bulk.

European Group III prices appear to have been boosted by the higher costs associated with replenishment cargoes that are arriving into the markets. This seems to have resulted in some sellers raising prices to their regular buyers.

Reactions have been varied, with some buyers commenting that they may be prepared to move to alternative suppliers but sellers then stating that customers jumping ship will no longer be prioritized if shortages develop.

It is hard to see when a shortage would occur given the increasing quantities of Group III base oils finding their way into the European arena. One trader trying to develop market share is now offering 4 centiStoke material at €1,135/t. The trader has procured another tender quantity from a Middle East Gulf producer, and will take this material into Europe in due course.

With replenishment barrels having arrived in tank in Rotterdam, S-Oil’s prices are quoted between €1,230/t-€1,240/t for 4 cSt and 6 cSt at a marginally higher price, on an FCA basis ex Antwerp-Rotterdam-Amsterdam. Overall European numbers for Group III grades with partial slates of finished lubricant approvals are at €1,135/t-€1,355/t for 4 and 6 cSt and at €1,235/t-€1275/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 for 4 and 6 cSt, basis FCA ex rerefinery in Germany.

Prices for Group III grades with full slates of approvals are at €1,775/t-€1,810/t for 4 and 6 cSt and at €1,820/t-€1,835/t for 8 cSt, on an FCA basis ex hubs in Antwerp-Rotterdam-Amsterdam, Northwestern Europe and Spain.

Baltic & Black Seas

There have been no further reports of cargoes loading out of the Baltic for receivers in Nigeria. Apparently the payment issues for preceding cargoes have dissuaded traders and other direct sellers. Russian companies are still under pressure to sell into any available market, but presumably payment is still a consideration.

A large cargo was loaded for receivers in Singapore, and it was reported that it consisted of two grades making up a quantity of around 12,000 tons. Another cargo loaded in September from St. Petersburg for Turkey, discharging around 5,000 tons SN150 and SN500 in Gebze.

South American trade appears to be off the table for traders and direct suppliers such as Lukoil. There were too many hurdles to overcome to make this trade work, including shipping problems, accounting issues, quality concerns from some buyers, and political pressures from incumbent suppliers from alternative Group I sources such as the U.S.

FOB prices for Russian SN150 and SN500 ex St. Petersburg or Vyborg are assessed from prices offered into Nigeria, after taking account of typical freight and predicted margins. Those prices are assessed slightly higher at around $765/t-$785/t for SN150 and $790/t-$800/t for SN500. Blended SN900 for Nigeria may be priced at around $855/t if made with SN1200 or Russian bright stock.

These prices are based on typical freight costs of around $185/t-$200/t for a parcel of 7,000-10,000 tons that includes a high proportion of SN900, now the main grade utilized in Nigeria.

Other traders offering cargoes from the U.S. must use bright stock, which is more expensive, to produce SN900. This makes U.S. imports unacceptable to Nigerian buyers looking for prices like those offered for Russian oils.

Russian imports from the Baltic and from Volgograd refinery continue to swamp the Turkish market and are priced around $845/t-$860/t for SN150 and $855/t-$875/t for SN500, on a CFR basis ex Gebze.

Tupras prices for the local market remain as follows: 36,465 lira/t for spindle oil; Tl 31,739/t for SN150; Tl 34,258/t for SN500; and Tl 46,246/t for bright stock. Prices are in lira and are offered ex rack, plus a loading charge of Tl 5,150/t.

Group II grades, imported into Turkey, are being resold at €1,425/t-€1,465/t for 100N, 150N and 220N and at €1,595/t-€1,625/t for 600N. Group II base oils have been imported from the Red Sea, the U.S., and South Korea. Russian Group II grades are now being offered ex tank in Turkey, reportedly around €100/t-€150/t below those from other sources. It is surprising that Russian Group II base oils are being offered into Turkey, since domestic demand for premium base oils is rumored to be at an all-time high, due to sanctions preventing imports from Western suppliers.

The market for Group III oils with partial slates of approvals or no approvals includes Tatneft’s 4 cSt grade, heard last month to be priced around €1,255/t. Material from Middle East Gulf sources is no longer available.

Quantities of fully-approved Group III grades from Cartagena, Spain, continue to be delivered into Gemlik and are priced for resale at €1,960/t-€1,995/t, on an FCA basis.

Middle East

There have been many reported cargoes of base oils loading out of Yanbu and Jeddah, Saudi Arabia, with various Group I and Group II grades for the U.A.E. and the West Coast of India. Receivers have been taking large parcels up to 20,000 tons shipped in vessels displaying flags of India, Pakistan and the U.A.E. owners, which provide safe passage from Houthi rebels in Yemen.

Sunday brought Israel’s largest bombardment yet of targets in Beirut, with Israel saying its jets hit precise locations known to house Hezbollah terrorists.

Following the assassination of Hassan Nasrallah, the Hezbollah leader in Lebanon, his brother is rumored to be taking over the organization. Israel has targeted this person in Beirut, and some reports say they may have succeeded.

The region is still watching to see if and how Israel responds to Iran’s Oct. 1 missile attack on Tel Aviv.

The arbitrage between the U.S. and the Middle East Gulf may remain closed with news of another hurricane approaching the U.S. across the Gulf of Mexico. This storm comes on the back of Hurricane Helene, which struck the country’s southeast last week. The hurricane season opened early and appears to be finishing late.

Russian base oil prices on a CFR basis ex Hamriyah, U.A.E., are maintained at around $845/t for SN150 and $855/t for SN500. It is not confirmed how much Russian material is going into the U.A.E., but sources in Dubai have confirmed that a number of vessels carrying Russian barrels have discharged in Hamriyah since the beginning of June.

Netbacks for Group III base oils being exported from Al Ruwais, U.A.E. and Sitra, Bahrain, are unchanged this week, indicated at $1,145/t-$1,220/t for 4, 6 and 8 cSt grades.

Netbacks for gas-to-liquids Group III+ base oils ex Ras Laffan, Qatar, are also unchanged and assessed at $1,325/t-$1,365/t. Cargo economics and cost allocation are not disclosed for these oils so netbacks are on an indication only basis. Netback levels are assessed from distributor selling prices minuse estimated marketing, margins, handling and freight costs.

Group II base oils being imported and then resold ex tank in U.A.E., or often on a truck-delivered basis around the U.A.E. and Oman. Prices for these oils are unchanged this week at $1,685/t-$1,725/t for 100N, 150N and 220N and at $1,775/t/t-$1,825/t for 600N. These grades tend to be sold in U.A.E. dirhams since that currency is pegged to the U.S. dollar. The high ends of the ranges refer to RTW deliveries to buyers in remote locations in U.A.E. and northern Oman.

Africa

Shipping agency sources in Durban, South Africa, say yet another large cargo of base oils will load from Europe for discharge into Durban before the close of this year. The cargo will possibly load toward the end of this month and may have additional barrels on board for extra locations. These other ports are not yet revealed.

There is little good news emanating from Nigeria. The problems highlighted here every week continue to exist and may be growing. Our source has reported a number of concerning points. The exchange rate between the naira and the U.S. dollar has moved as high as 1,720, raising costs to acquire dollars through banks or on the black market. Openers for a letter of credit normally have to deposit 125% of the dollar value in naira, so the cost of the deposit has increased.

Local banks apparently have been accepting deposits for issuance of a letter but have not been bidding for CBN dollars and instead have been using the customer’s naira deposits for their own ends.

One of the major problems lies with the Russian barrels which a number of traders and companies have supplied into Nigeria, basically because there are few other places to place large quantities of Russian base oils. Receivers in Nigeria literally have sellers over a barrel when it comes to prices, but the unfortunate aspect is that the low Russian prices soon become the norm, and any offers for first class Group I material from the U.S., for example, cannot compete with Russian prices.

Russian suppliers have many large outstanding debts with buyers, who have been enjoying extended credit – sometimes with extensions to the extended period. Suppliers may get their money eventually but may have to wait months for full payment.

Some buyers want to have access to the better quality material, so there is still an opening for cargoes from U.S. (and maybe even Europe) to come into the Nigerian market, but the prices will have to be as close as possible to Russian levels, making supply of SN900 exceptionally difficult due to the inclusion of bright stock in the blend. Bright stock is priced much higher than an equivalent Russian high-viscosity blendstock.

Prices for potential future trades, may have to be lower to get close to the Russian numbers. This report provides them as indications only in the hope that some receivers will understand the problems facing some of the more respected traders.

Those prices are around $1,185/t-$1,200/t for SN150, $1,260/t-$1,285/t for SN500 and $1,335/t-$1,365/t for SN900, all on a CFR basis ex Apapa port in Lagos. Russian delivered prices are much lower, with last levels indicated at $995/t for SN150, $1,035/t for SN500 and $1,075/t for SN900, basis CFR Apapa.