That said, one oil major announced across-the-board increases for API Group I and II base oils in Europe, imposing hikes of €30-€40 per metric ton. These numbers were implemented a week and a half ago, and some other players announced their own increases taking effect May 1. These suppliers generally offered common explanations, saying that operating costs are rising even if feedstock costs remain flat.

Some pundits have predicted crude costs will rise in summer, which would normally cause upward pressure on prices for petroleum products. It would also be unusual, though, for those prices to rise at that time of year because they more often fall on lower demand.

There are still mutterings in Group III markets where distributors are having to accept higher costs for incoming freight due to attacks forcing vessels to detour from the Red Sea. Rerouting around the Cape of Good Hope boosts transportation costs from the Middle East and Asia-Pacific by $70/t-$80/t. These increments have to be recovered either from higher selling prices in the market or by producers lowering their prices when loading cargoes.

The current Group III market conditions around Europe are not conducive to increasing prices, however, with some suppliers determined to gain a position in the market by offering significantly lower values. Replenishment parcels have bolstered availabilities, perhaps creating downward pressure on prices.

Crude oil prices moved slightly higher the past few days, with dated deliveries of Brent crude up around $2 per barrel since last week. Those numbers could rise further, but there appears to be no real drivers for steep increases. Demand remains muted for supplies from traditional sellers such as Saudi Arabia, Kuwait, Iraq and the United Arab Emirates.

China is experiencing a downturn in economic conditions whilst still able to procure sufficient quantities of cheap crude from Russia. The same can be said of India, where large tranches of Russian crude are being refined, with some of the resultant products being exported to international buyers including Europeans. 

Dated deliveries of Brent hit $88.75/bbl, still for June front month settlement, while West Texas Intermediate was at $83.30/bbl, also for June front month.

Low-sulfur gasoil rose just $6 since the last report to $786 per ton, for May front month. All of these prices were obtained from London ICE trading late April 29.

Europe

Europe has effectively become an importer of Group I base oils after a number of cargoes arrived from Red Sea and U.S. sources. Traders have been involved with most of these shipments and presumably the cargoes will be break-bulked and resold in local European markets where demand has been considerable due to supply constraints from a number of suppliers within the region. One trader took a U.S. cargo and instead of selling into Nigeria, where the market is presently in a state of chaos, has taken the vessel into Europe.

One major continues to ship large parcels to markets in West and East Africa and South Africa, but these cargoes are not considered true exports since they are delivered to affiliates or to contracted customers.

Group I supply within Europe remains relatively tight, with supply interruptions around the continent from various events such as maintenance turnarounds and unforeseen problems such as a fire at ExxonMobil’s refinery in Port-Jerome, France. Prices remain firm, as ExxonMobil imposed hikes of €45/t-€75/t.

Mediterranean producers are struggling to meet new and increasing demand. Prices from two Spanish suppliers are moving upwards almost in line with the increases announced by ExxonMobil some ten days back.

Prices for Group I sales within Europe are now assessed at between €1,000/t and €1,055/t for solvent neutral 150, at €1,025/t-€1,080/t for SN500 and €1,265/t-€1,325/t for bright stock. The dollar exchange rate to the euro rose to $1.07050 April 29.

European Group II prices are on the rise, and some buyers are trying to lock in supplies at lower numbers. The Group II premium to diesel received a boost from the latest base oil mark-ups and are back to where it was at the end of last year.

Group II prices up this week to €1,060/t-€1,095/t ($1,145/t-$1,190/t) for 100 neutral and 150N, while 220N is at €1,100/t-€1,145/t ($1,190/t-$1,235/t) and 600N at €1,210/t-€1,275/t ($1,300/t-$1,395/t). All of these prices apply to a range of Group II oils for European, U.S. and Red Sea sources, all imported in bulk.

In Europe’s Group III market, one trader is offering material from China into the United Kingdom at exceptionally low levels – believed to be in around $1,050/t-$1,085/t for 4 and 6 centiStoke grades. The voyage time now takes around 75 days rather than the normal 45 previously, due to deterous around South Africa. The specification and quality of these oils are not on a par with most of the other Group III base oils being offered in the European arena.

The European Group III market could end up oversupplied as one Middle East Gulf producer is actively encouraging its distributor to move extra cargoes into Europe. It is thought that some markets, Asia-Pacific for example, have become more difficult for Middle East Gulf producers to compete in, and they are now looking to place barrels into alternative markets such as Europe and the U.S. Higher prices could prove very difficult to achieve, though, with some rogue suppliers continually offering prices well below market.

European prices for Group III oils with partial slates of finished lubricant approvals or without approvals are rising slightly effective May 1 as distributors did apply small increases to recoup some of the higher shipping costs. Prices for 4 and 6 cSt grades at €1,595/t-€1,635/t and 8 cSt at €1,585/t-€1,605/t, all on an FCA basiss ex Antwerp-Rotterdam-Amsterdam and Northwestern Europe.

Two suppliers continue to offer material at lower numbers of €1,325/t-€1,385/t, but the aforementioned Chinese oils stand to undercut that.

Prices for rerefined Group III are unchanged at €1,475/t-€1,525/t, on an FCA basis ex rerefinery in Germany.

Prices for Group III oils with full slates of approvals are maintained 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 and Black Seas

The phantom cargo of Russian export barrels is still not confirmed from Vyborg or Saint Petersburg, with suggestions that this shipment may be “in the offing” but is not advised to receivers in Lagos as yet. No vessel has been seen in shipping reports as being fixed, and the size of the parcel is not known as yet. Vessels operating for Russian or Belarus charterers are often not reported in shipping lists.

This cargo could be the rumored cargo of up to 10,000 tons of Russian base oils that was said to be ready to load from either St. Petersburg or Vyborg.

Russian cargoes could move from Baltic to the United Arab Emirates and Singapore, with safe passage granted through the Bab-al-Mandeb Strait by Houthi rebels. Getting hold of an acceptable vessel can prove difficult in the Baltic, where many of the vessels available to Russian and Belarus charterers are smaller, up to around 5,000 tons deadweight, limiting the size of cargo and also making long voyages with these vessels uneconomic. More likely, however, is the possibility that non-European Union flagged vessels having discharged in northern Europe would take a return cargo to Gebze, which is what had been happening prior to the cessation of Svetly terminal in Kaliningrad.

Lotos and PK Orlen have no availability for “export” outside the Baltic, but the small parcel which moved into Klaipeda was confirmed as rerefined base oils from Kalundborg for Lithuanian blenders.

FOB prices for Russian SN 150 and SN 500 from St. Petersburg increased in line with Russian domestic base oil prices but are still at extremely low levels. The numbers are assessed higher at $650/t-$675/t for SN 150 and at $685/t-$725/t for SN 500.

Turkey maintains “economic catastrophe status,” with continuing hyper-inflation and ever higher interest rates, which may be starting to curb inflation but have a long way to go. Inflation is reported at the end of last week, falling to 68%, down from 72% one week ago.

Sources trying to enlighten this report regarding the government-to- government operation re the import of Russian petroleum products into Turkey, including base oils, has gone very quiet and is not responding to mails and calls. This report will continue to try to understand how the reciprocal arrangements to supply petroleum products in return for dollars actually works.

Turkish base oil markets almost totally rely on Russian base oil imports, which are much lower in price than any Mediterranean-sourced products. Sellers such as Motor Oil Hellas and ExxonMobil either do not have the availability to offer cargoes into Turkey, or delivered prices are too high for Turkish traders and blenders to consider. Other Mediterranean suppliers, such as Sonatrach, do not have REACH (Registration, Evaluation and Authorization of Chemicals) accreditation and hence cannot offer cargoes for Turkish imports, as was proved when a cargo arrived into Gebze that could not be used and had to be re-exported. Russian material carries REACH approval, since this material was being imported into the European Union and United Kingdom prior to the ban on all Russian hydrocarbon imports.

Local supplier of Group I base oils, Tupras at Izmir refinery, maintains prices, with levels ex-refinery as follows. Spindle oil is priced at $965/t (Tl 31,116), SN 150 at $907/t (Tl 29,269), SN 500 at $861/t (Tl 27,784) and bright stock at $1,028/t (Tl 33,167). Prices in Turkish lira are ex-rack plus a loading charge of Tl 5,150/t.

Group II ex-tank prices are raised, with levels at €1,265/t-€1,300/t for the three lower vis grades – 100N, 150N and 220N – with 600N now at €1,425/t-€1,495/t. The recent 600N cargo from Korea was priced out of this range at $1,260/t but was sold as one parcel of 2,000 tons to one buyer. That was the CIF price and not an ex-tank price.

Group II grades may be sourced from the Red Sea, the United States, South Korea or Rotterdam, although supplies from South Korea may currently be restricted due to the Houthi problems in the Red Sea.

Partly-approved Group III base oils on an FCA basis includes Russian Tatneft 4 centiStoke grade, which is priced around €1,460/t. Supplies that previously arrived from the U.A.E., Bahrain and Asia-Pacific remain at €1,575/t-€1,620/t FCA but supplies from the Middle East Gulf and the Far East may be badly affected, with it becoming uneconomic for cargoes to be re-routed via the Cape. The material would have to be taken through the Mediterranean before finally discharging in Turkey.

Fully-approved Group III grades from Cartagena refinery in Spain being delivered into Gemlik and resold by traders on an FCA basis to local blenders have prices maintained at €1,960/t-€1,995/t FCA. These grades are used by blenders requiring fully-approved base oils for finished lubricants.

Middle East

A lack of suitable vessels and shipping continues to be a major problem for Luberef in Yanbu and Jeddah. Vessels’ owners are not prepared to risk running the gauntlet through Houthi territory in the Bab-al-Mandeb Strait in the southern Red Sea. From sources in the U.A.E. this report was told that Saudi representation has been made to Yemeni government, to allow vessels safe passage through the Strait. Confirmation of this occurrence has not been gleaned from any available source, hence we are in the dark as to what exactly is going on.

According to receivers in Mumbai and the U.A.E., deliveries of base oils have been expedited from Yanbu and Jeddah, but it is not clear how.

Northbound traffic transiting the Suez Canal is not a problem, only in that there are not many vessels prepared to make the Suez transit and then return going north. Cargoes are loading, but these are smaller and fewer than the large 18,000-20,000-ton parcels that traditionally load out of the Saudi ports for receivers in the west coast of India and the U.A.E.

Middle East Gulf regions are calm, but most in the region are living day-to-day in fear and trepidation on the basis that the situation between Israel and Iran could flare up at any time, whether on a direct basis, or perhaps through one of the Iranian proxies such as Hezbollah. Then last week, tensions remain high in and around the Middle East Gulf, with many players trying to get back to normal working. At every turn, there are barriers and problems, whether it is getting supplies of additives and base oils to be able to blend finished lubricants or finding containers and vessels to load these to make deliveries to customers in East Africa that have been waiting for more than two months for supplies of finished lubes. 

There were further reports that Iran is in a critical state economically and certainly cannot afford to embark on a full-scale confrontation with Israel. Inflation is running at above 35%, and prices for goods have leapt by more than 300% for lamb, for example. Sanctions have effectively lost oil revenues. This in turn has wiped out middle class wealth, which was a cornerstone of Iran and its economy. Government debt is enormous, and unemployment and corruption are at an all time high.

The Iranian currency, the Rial, continues to devalue against all major currencies making poverty a real issue in the cities and towns.

Russian base oils are being delivered into the U.A.E. but have had prices raised again with indications CFR now at around $755/t for SN 150 and $775/t for SN 500. A parcel of around 5,000 tons loaded from Limas terminal in Turkey for receivers in Hamriyah. The vessel that was used to deliver the cargo apparently has expressed an interest to take a Group III cargo back to Turkey, but negotiations are still proceeding. Presumably, this vessel would propose to sail through the Houthi strait in the Red Sea, but it is unknown how safe passage would be guaranteed.

An international trader, based in the U.A.E., offered a base oil cargo into Nigeria, with what is thought to be Russian base oils on board. The cargo would be imported into the U.A.E. and then re-exported accompanied by a U.A.E. certificate of origin. Prices offered are low and are pulling the Nigerian market down to levels where other traders cannot compete.

Netbacks for Group III exports from the Middle East Gulf for partly-approved base oils from Adnoc in Al Ruwais and Bapco in Manama may be set to take a hit. Distributors are requesting lower FOB prices from producers to be able to absorb the increases in shipping costs that have come about due to Houthi attacks in the Red Sea.

The situation will be monitored to assess any possible changes, but at the moment, netbacks remain indicated at $1,485/t-$1,525/t, for the 4 centiStoke, 6 cSt and 8 cSt partly-proved Group III grades.

Netbacks for gas-to-liquid Group III+ base oils from Ras Laffan in Qatar are also maintained at around $1,500/t-$1,560/t, mainly due to larger cargo sizes of up to 25,000 tons per parcel. That contributes to lower freight rates than the 8,000-10,000 ton-sized vessels used by distributors from Bahrain and the U.A.E.

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

Group II base oils continue to sell ex-tank in the U.A.E., or on a truck-delivered basis in the U.A.E. and Oman. Prices are maintained. Less material is available from Luberef, with fewer cargoes arriving from Yanbu, leaving a tight market. Buyers are also examining alternative sources, such as South Korea and Singapore, to cover this market. Selling levels are maintained at $1,685/t-$1,725/t for 100N, 150N and 220N, with 600N at $1,775/t-$1,825/t. The high ends of the ranges refer to road tank wagon deliveries to buyers in the U.A.E. and Oman.

Africa

There are no further reports from South African shipping agency sources in Durban regarding any further cargoes being organized from Europe. Information is that another large cargo will be dispatched towards the end of June. Confirmation was received of the large European base oil cargo that loaded. The parcel is comprised of around 18,000 tons of three types of base oil plus a small quantity of easy chemicals.

The 8,000-10,000 tons Russian cargo is believed not to have loaded as yet out of the Baltic with three Russian base oil grades. It was suggested that there may be shipping problems in arranging a vessel to take the quantity. The sellers have some irons in the fire to put together another cargo and have offered or indicated prices to a couple of receivers in Lagos. The cargo will load out of either Vyborg or St Petersburg in the Baltic, with SN 150, SN 500 and SN 900. A Minsk-based trader will eventually charter a vessel and deliver to two receivers in Lagos. 

The usual problems are haunting sellers trying to do business in Nigeria, with the usual list of problem areas. The naira exchange rate is unpredictable and having to receive naira in payment for all or part of the cargo becomes an absolute nightmare. The banking system is broken and just doesn’t work, with little access to dollars. Receivers are paying when they can, with no guarantees of all payments being made. Demurrage is common and hardly ever gets paid, adding extra costs that cannot be calculated in advance.

No further cargoes are being arranged by a regular trader, who informs this report that Nigeria is in chaos mode at the moment, with certain sellers still waiting for full payment of cargoes that were discharged some time ago. So at the moment, no further trade from cargoes from the United States, because the prices would have to be a lot higher than any of the receivers in Apapa are willing to pay. Traders elected to take a cargo to Europe rather than fuss around with multiple receivers that are unable to remit full funds for the parcel.

CFR Apapa future prices are indicated in ranges at around $1,045/t-$1,075/t for SN 150, $1,095/t-$1,125/t for SN 500 and SN 900 at around $1,155/t-$1,170/t. Prices moved higher, reflecting higher FOB levels and increased freight and finance costs.

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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