The news suggests how vessels carrying cargoes of Russian base oils and other goods are being granted safe passage through the southern Red Sea. These ships are not necessarily Russian flagged, but do carry goods from the country.

Since Israel invaded Gaza after Hamas’ October 2023 terror attack, the Houthis have attacked more than seventy ships around the Bab-al-Mandeb Strait, severely damaging some and sinking one that carried a cargo of fertilizer.

Most responsible owners and operators continue to reroute vessels around the Cape of Good Hope in South Africa, thus avoiding confrontation. However, this detour has resulted in delays and extra time and costs being added to voyages moving in either direction between Asia and Europe and the Americas.

Base oil cargoes have been directly and indirectly affected by changes in voyage patterns, with some cargo destinations being omitted from liner routes. In Turkey, for example, lubricant blenders have had difficulties obtaining parcels of API Group III base oils from sources in Asia-Pacific and the Middle East Gulf. Due to complex and complicated logistics and the increased costs of transporting these grades in the Turkish market, secondary supply routes have been set up following discharges of cargoes into Antwerp-Rotterdam-Amsterdam, using alternative means of supply, such as transportation in flexi- and iso-tanks.

Group I and Group II cargoes from the U.S. and Europe to the Middle East Gulf and India have also been affected, although much of the slack from these supplies has been taken up by sources in Asia and refineries in Yanbu and Jeddah, Saudi Arabia. Vessels carrying cargoes from those northern Red Sea locations appear to receive safe passage.

Base oil values are generally showing lower levels following a run on crude and feedstock prices, which may still exert downward pricing pressure. The weakness has in some part been supported by the announcement by Saudi Arabia that it will not cut production further for the rest of this year end. This stance is likely to be carried forward into 2025, with Saudi Aramco stating it is trying to maximize sales of crude, rather than chasing higher prices – which it has not been able to achieve so far this year.

Major markets such as China are still reeling from poor economic growth, with no signs of an upturn in the near future. India is importing record levels of Russian crude and is refining Urals grades to produce record quantities of refined petroleum products, including base oils, which are being -exported to receivers in regions such as the Middle East Gulf, Europe, Africa and the Americas, apparently not in breach of sanctions imposed against Russia by the G7 and allied nations.

API Group I prices across Europe, the Middle East and Africa are seeing lower price levels due to a number of factors. In Asia-Pacific regions demand is falling, and although a number of maintenance shutdowns are planned this quarter, availability remains positive. Export quantities are finding their way to Middle East Gulf markets, and with the release of U.S. stocks, there are opportunities opening up for traders to sell into markets such as the United Arab Emirates and Qatar. Iranian exports appear to have been rather muted in recent weeks, and Israel’s recent attack on that country may cause exports to be diverted into the domestic market.

African markets are buoyant, with South Africa importing large quantities of Group I and II from Europe and from U.S. sources. West Africa remains a complex region. Receivers in Ghana, Guinea and Cote d’Ivoire are receiving regular supplies from an incumbent supplier, but Nigeria still faces problems with finance and liquidity.

Group III grades are making inroads in Southern and East Africa as blenders in those regions start looking for premium base oils to meet the latest lube specifications required by original equipment manufacturers.

Europe remains an attractive market for all types of base oils, with Group I perhaps now becoming more available as demand slows going into the final part of the year. Group II prices remain higher than in Asia-Pacific and the U.S., hence producers are targeting the region.

European API Group III prices remain under pressure from the sheer quantities of material available, but producers in the Middle East Gulf and Asia-Pacific still consider the European market attractive in terms of margins and future growth prospects.

Crude oil values dropped steeply the past few days to their lowest levels in some months. Dated deliveries of Brent slid $72.05 per barrel, for December front month settlement, while West Texas Intermediate dropped almost $3 to $67.90/bbl, for November front month.

Low-sulfur gasoil prices weakened around $40 to $646 per metric ton, for November settlement. All of these prices were obtained from London ICE trading late Oct. 28.

Europe

Once again there is no real evidence of an export market being formed from European sources. There have been one or two oddball sales of Group I grades to a trader, with one parcel going into Nigeria under spurious circumstances, and another small parcel of bright stock going into Turkey at an incredibly low price. These cargoes are not representative of an export market.

A major continues to export specific quantities of base oils to African destinations, some of which are delivered to appointed distributors, for example on South Africa and East Africa whilst other parcels are delivered to regular receivers in West Africa.

European domestic markets are seeing prices starting to dip, with demand waning during the last chapter for 2024. With declining demand, availabilities have become ‘easier’, with buyers commenting that they can access quantities of Group I base oils as and when required, and that there does not appear to be need to build stocks and inventories going forward.

In Eastern Europe, with supplies from Poland and Hungary, SN150 has come down to levels around $1110/t with SN500 at $1155/t. These prices will kick in from November 1, although some buyers have reported receiving similar numbers for deliveries taking place during this week.

Mediterranean prices are lower at around $980/t-$1,000/t for quantities of SN150, SN500 and SN600 is being offered at $1,030/t-$1,065/t, with bright stock now placed in a narrower range between $1,225/t-$1,275/t.

There are no reported incidents or shutdowns due to unscheduled maintenance, and with no further turnarounds taking place for the remainder of this year, full European production is re-estabished. This may stem the flow of imported Group I grades coming on to the European market.

Pan European domestic FCA prices are moved slightly lower going forward into November, with SN150 between €965/t-€1,010/t, SN500 and SN600 remains tight in a number of areas such as Greece and Spain, keeping selling prices firmer than in other regions such as Benelux.  SN500 and SN600 is assessed in a wider range between €975/t-€1,155/t, with bright stock coming lower between €1,265/t-€1,325/t.

The dollar exchange rate versus the euro had strengthened slightly during the week but posted at $1.08225 Monday. The average price differential across all grades, between domestic and any export market numbers, remains between €45/t-€75/t.

European Group II prices may be starting to wobarrele, with continuous pressure coming from the buying community who are countering offers for November and December purchases. Suppliers are trying to hold levels at current prices and roll over selling numbers into November, but buyers are reacting to plentiful availabilities, but appear to be loyal to suppliers and are not threatening to switch to alternative sources.

Buyers are using data from other regions to counter current price levels, citing that European rates are much higher than in other part of the globe, such as Asia and the U.S. Perhaps the time has come for European prices to come under the spotlight, and may change over the next couple of months moving towards the year end.

European Group II prices are tweaked lower this week, with a view to moving into November. Levels are reassessed at around €,1135/t-€1,155/t for 110N and 150N, €1,155/t-€1200/t for 220N and €1,230/t-€1,275/t for 600N.

The lighter vis grades are steadier, with the heavier grades showing to be more vulnerable.

Prices are in respect of a wide range of Group II base oils, including European production, with U.S., Red Sea, and AsiaPac supplies are all imported in bulk.

The European Group III market is oversupplied with a number of cargoes arriving almost together causing a build up in stocks in tank.

However, cognisance must be taken of higher costs involved in shipping these cargoes. Prices have been realigned to take account of the cost increases which have necessarily been incurred due to the Houthi attacks on shipping and the re-routing around the Cape. There has almost been a resignation from buyers who had perhaps expected to pay more for replenishment barrels when they arrived.

Whist the the new economics do suggest higher selling prices, there remains considerable pressure from the oversupply situation.

Current prices are maintained but one trader is offering substantially below the market with 4 centiStoke material offered at €1,135/t. A Korean supplier who previously offered low numbers has changed tack and has prices quoted between €1,230/t-€1,240/t FCA Antwerp-Rotterdam-Amsterdam for 4 centiStoke material, with 6 cSt around €10/t higher. Another cargo is scheduled to arrive prior to the year end, and since this supplier attends to ‘regular buyers only’, it may be necessary to top up stocks before the New Year.

European numbers for partly-approved grades 4 centiStoke and 6 cSt remain assessed between €1,135/t-€1,320/t with 8 cSt between €1,235/t-€1,345/t. Partly-approved prices are based on FCA sales ex Antwerp-Rotterdam-Amsterdam and Northwestern Europe.

Prices for rerefined Group III are unchanged at €1,175/t-€1,195/t for 4 and 6 cSt, on an FCA basis ex rerefinery in Germany.

Fully-approved 4 and 6 cSt grades are priced at €1,775/t-€1,810/t, and 8 cSt offered at €1,820/t-€1,835/t, all on an FCA basis ex hubs in Antwerp-Rotterdam-Amsterdam, Northwestern Europe and Spain.

Baltic & Black Seas

It has been increasingly difficult to find reliable shipping information for enquiries in the Baltic, since no European brokers now list Russian cargo enquiries for vessels, since European owners and operators and insurance agencies are forbidden to be associated with the shipment of any Russian product. There are those who flaunt the sanctions by offering vessels which are flagged out, and often have their tracking and identification devices turned off.

Is believed that another cargo of SN150 and SN500 will load out of the Baltic for Turkey later this week or perhaps just into November. Apparently a ship has been located to lift this cargo, and whilst discharging in NE Europe, the vessel will then proceed to St Petersburg to load the base oil parcel for Lukoil.

This is the cargo which should load from St Petersburg and will discharge between 5,000 tons-7,000 tons of SN150 and SN500 in Gebze, Turkey.

FOB prices in respect of 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, and also landed prices into Turkey.

FOB numbers are assessed a little higher than previously considered, at around $795/t-$820/t in respect of SN150 with SN500 between $825/t-$840/t. Blended SN900 for Nigeria is assessed at around $885/t, using SN1200 or Russian ‘bright stock’ for the blend with either SN150, SN500, or a combination of both, depending on availability of each grade.

Turkish refiner Tupras has reportedly sold a tender cargo into receivers in Nigeria. This cargo will be around 7,000 tons in total, but the split of the grades on board will be of interest. Tupras have now supplied three cargoes totalling around 20,000 tons.

Russian imports from the Baltic along with supplies from Black Sea ports continue to dominate the Turkish market, with prices CFR estimated to be around $845/t-$860/t for SN150, with SN500 between $855/t-$875/t CFR Gebze. Volga river vessels also deliver quantities of up to 3,000 tons per parcel by sailing around the Black Sea coastline.

At one time a mother ship was chartered and stationed in the Sea of Azov to store base oils for ship-to-ship transfer for deep-sea cargoes going to Middle East Gulf, Far East, and Turkey, but since the Ukraine invasion and the vulnerability of any Russian asset in the Black Sea around Crimea, this operation has ceased to function.

At the refinery at Izmir, Tupras’ local prices for the local market remain as follows, Spindle Oil -Tl 36,872/t, SN150 – Tl 32,085/t, SN500 – Tl 34,539/t, with bright stock – Tl 46,626. Prices are in lira and are offered ex rack, plus a loading charge of Tl 5,150/t. These prices may change from next week, with November numbers only moving one way, with the continuing demise of the Turkish lira against the dollar.

Group II grades, imported into Turkey, are being resold FCA with prices maintained at levels of €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 are imported from the Red Sea, the U.S. and South Korea. Russian Group II grades are reputedly being offered ex tank in Turkey with prices reported to be around €70/t-€120 lower than those from other areas. However, this report could find no evidence of any Russian Group II base oils being stored and resold ex tank in any Turkish port.

Partly-approved or non-approved Group III base oils on an FCA basis do include Russian barrels in the form of Tatneft’s 4 cSt grade. Latest prices for this product are heard at around €1,220/t. Material originally shipped from Middle East Gulf sources is no longer available, but some European distributors have sent quantities of Group III base oils to Turkish traders and blenders from main cargoes which have discharged in Antwerp-Rotterdam-Amsterdam. These base oils are supplied in flexies.

Smaller quantities of fully-approved Group III grades from Cartagena refinery in Spain continue to be delivered into Gemlik. The base oils are resold on an FCA basis to local blenders. Prices are maintained between €1,960/t-€1,995/t FCA. It has not been confirmed if the seller is SK Enmove or Repsol.

Middle East

With the news that Russian satellite data is being horse traded across the Middle East from the Kremlin to the IRGC to Houtis in Yemen, controlling and advising which ships the Houthis should attack, just adds another level of intrigue as to how the whole ‘safe passage process’ is managed. Up until now, it would appear that Luberef have been chartering vessels which are flagged under U.A.E., India or Pakistan owners, but this may not be the case.

There have been reports a substantial increase in the numbers of cargoes of base oils loading out of Yanbu and Jeddah, most of which have been primed for the west coast of India or U.A.E.. But there have other destinations such as Singapore, Durban and Dar-es-Salaam.

European Group I and Group II cargoes are being examined with S-Oil undertaking these parcels since they have the infrastructure and organisation in Rotterdam to store and resell quantities of Group I base oils. These may not be as viable as in previous times with the availability of European produced Group I base oils having improved.

With the Israeli strike against Iranian military sites have taken place last week, the regional war could either go one way or another. If the Iranians send further missiles against Israel, then the whole region could erupt, with Israel hitting oil terminals and nuclear development locations within Iran.

Iran is now caught between a rock and a hard place, with no response being construed as a sign of weakness, but at the same time, Iran is economically broken and cannot afford to fight an open conflict against Israel, particularly if the U.S. became directly involved if Iran or any of it’s proxies attacked U.S. bases in Iraq. The Iran leadership the theocracy are aware of these facts and may decide to hold fire, at least for the moment.

Iranian proxies in Lebanon, Gaza and Yemen continue to wage war against Israel, with drone and rockets constantly crossing into northern Israel. Israel have said that they are at war on a number of fronts, Lebanon, Gaza, Yemen and the West Bank, and now directly with Iran.

Sources in the U.A.E. have commented following the Israeli raid into Iran and are convinced to carry on trade and business as normally as possible. Certainly some of the ties between Iranian base oil producers and importers in U.A.E. are being questioned, with some players deciding not to become involved with importing Iranian base oils or rubber process oils, which were staple imports and exports for companies based in the U.A.E., in Hamriyah and Ras Al Khaimah.

What the longe- term situation will be is anyone’s guess right now, but with rumors spreading of discontent within Iran, there could be civil unrest which would put a strain on the Iranian leadership, and could ultimately lead to a change of government. But this is for the future, not for the present.

Base oil trade is being adversely affected by the conflict with P&I clubs for vessels plying trade in Middle East Gulf considering declaring Middle East Gulf a war zone, with all that that implies for insurance costs for vessels entering the Gulf. A number of owners may decide to forego trading in and out of the Middle East Gulf, limiting the tonnage available for traders and resellers to take cargoes of base oils in and out of the region.

Prices for imported Group I base oils arriving into Middle East Gulf ports, predominantly into U.A.E., are taken lower at around $1,020/t-$1,055/t for SN150. SN500 is currently being assessed at between $1,045/t-$1,100/t and bright stock at $1,155/t-$1,200/t. All basis CIF/CFR U.A.E. ports. These prices refer to imports from Thailand, Indonesia, India and Singapore.

Russian base oils continue to arrive into Hamriyah port in U.A.E., with reports of a vessel carrying around 15,000 tons of Russian grades. This quantity has been loaded on a ship-to-ship basis at anchorage off Hamriyah. The vessel, ‘FPMC 35’ has sailed from Middle East Gulf and is now en route to Apapa, Lagos. There is no other port of call listed for the voyage, hence the call to Al Jubail in Saudi Arabia may have been for bunkering for the long voyage and ballasting following discharge of the cargo.

This cargo has been sold by an international trader to Nigerian receivers, with the cargo arriving towards the end of November, or even beginning of December, depending on weather en route.

Russian prices on basis Hamriyah anchorage, are assessed only for this cargo and are put at around $785/t in respect of SN150 and $795/t for SN500. It is assumed that there will be a large quantity of SN900 included in the cargo, which could be priced at around $845/t. It is also assumed that the cargo was pre-blended to order, with the SN900 grade ready to be loaded.

Assuming a freight cost of around $200/t from Hamriyah to Apapa, and a margin for the trader involved, prices delivered into Nigeria could be around $995/t in respect of the SN150, $1,025/t for the SN500, and $1,080/t for the SN900, numbers which are line with Russian indications from Baltic.

Group III base oil netbacks in respect of material exported from Al Ruwais in U.A.E. and Sitra in Bahrain are currently maintained, since the higher selling prices being achieved in Europe, merely cover the extra costs of shipping.

Indication netbacks are assessed in a range between $1,145/t-$1,220/t for 4, 6 and 8 cSt Group III grades.

Netbacks for gas-to-liquids Group III+ base oils ex Ras Laffan in Qatar are maintained between $1,295/t-$1,325/t. Shell cargo economics and cost allocation are not disclosed, hence netbacks are on an indication only basis. All Shell chartered vessels are sailing around the Cape, hence extra costs will apply to these cargoes when arriving into Europe.

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

Group II base oils being imported and resold ex tank in U.A.E., or often on a truck delivered basis around U.A.E. and Oman, have prices maintained with levels between $1,685/t-$1,725/t for 100N, 150N and 220N, with 600N between $1,775/t-$1,825/t. These grades will be sold in local U.A.E. dirhams, since the U.A.E. currency is pegged to the U.S. dollar. The highs of the ranges refer to RTW deliveries to buyers in locations in U.A.E. and northern Oman.

Africa

The vessel which loaded and sailed from the USG with around 8,000 tons of Group II base oils on board, loaded out of Pascagoula for Chevron and will discharge the cargo into storage in Durban. The base oils will be distributed across South Africa to blenders through the appointed distributorship.

Still no news reported regarding the large cargo of mixed base oils loading from Europe before the end of this year. The cargo may possibly load in early November, although no vessel has been fixed as yet according to shipping lists received by this report.

In West Africa a cargo of around 9,000-10,000 tons loaded from Fawley for discharging in Guinea, Cote d’Ivoire and Ghana. The cargo split will be 5,000 tons of three grades into Tema, with the balance of the parcel being divided between the other two ports, Abidjan and Conakry.

In Nigeria the exchange rate with the naira/dollar remains volatile causing problems for traders trying to sell base il cargoes into this market with the rate at 1,644 naira to one dollar this week.

There remain questions as to how the Greek cargo managed to compete with Russian prices for material sitting in tank. There are complex and complicated reports about how this cargo was accounted for and how payments may have been affected.

Russian supplies continue to impinge on the base oil market in Nigeria, the pricing becoming the ‘norm’ with international traders offering barrels from Europe and the U.S. expected to compete with the lower price levels.

One international trader has been unable to find a suitable cargo from the U.S. which would have probably been uncompetitive anyway versus Russian numbers. The trader is now moving a 15,000 tons cargo on board the ‘FPMC 35’ which loaded ship-to-ship at Hamriyah anchorage in U.A.E., and is now sailing en route to Apapa, Lagos, and is currently in the Gulf of Oman. The base oils are Russian origin, but the economics remain shrouded in mystery, with exceptionally low delivered prices into U.A.E.

It is assumed that the original Russian cargo would have loaded out of the Black Sea, perhaps Novo, before proceeding to U.A.E.. The cargo could not have loaded out of the Baltic, since the freight would have been too high to allow, the transhipment and the freight cost for the voyage to Apapa.

The economics of the whole cargo operation are still intriguing and some research will be made into the operation.

Prices CFR Apapa in respect of potential future trades are going to have to be more competitive compete with the Russain prices. With the edge on quality and specifications, traders may not have to descend to the Russian levels but will have to justify the higher prices.

Prices have therefore been adjusted to take account of probable/possible FOB numbers plus margins, to get to prices which may be acceptable to receivers in respect of premium quality Group I base oils.

Levels are put at around $1,095/t-$1,125/t in respect of SN150, $1,175/t-$1,220/t for SN500 with SN900 at around $1,255/t-$1,275/t.

Russian and U.A.E. delivered prices in respect of Russian barrels have levels indicated at $995/t in respect of SN150, $1,025/t for SN500, with SN900 at $1,080/t, basis CFR Apapa.