Effects on trade and commerce remain to be seen, but sanctions and embargoes are being discussed, so many scenarios are possible. Supply chains for base oil depend on continuing opportunities and open routes to markets, and when these are affected by conflicts and wars, alternative operations quickly come into action.

Around Europe, the Middle East and Africa trading is buoyant, with markets maintaining a healthy demand for all types of base oils, counter to many outlook forecasts for this time of year. A number of producers have express elated surprise at the rise in activity. Some suppliers are finding difficulty in meeting delivery requests for larger quantities.

Global base oil prices are forecast to move lower over the next few months, with crude and product prices hovering in defined ranges but expected to weaken. At the moment, however, prices appear to be holding up, with little evidence of erosion. Explanations about why are hard to find, but many commentators have suggested that a lack of downward pressure has motivated buyers to pay the current rates.

Availabilities remain adequate for all base oils, and demand for all available barrels seems positive, hence the market appears to be in balance.

Availabilities are especially plentiful for light-viscosity API Group I and Group II oils, so these are perhaps closest to feeling downward price pressure. Heavier grades seem to be shorter in supply terms but at the same time more in demand. This imbalance is not easily reconciled because high premiums are incentivizing refiners to maximize output of all grades.

Crude and Gas Oil Prices

Within a restricted range, crude prices remain stable in spite of forecasts that they willl soften in coming months due to overproduction.

Dated deliveries of Brent crude: $66.20 per barrel, November front month
West Texas Intermediate: $61.95/bbl, November front month
European low-sulfur gasoil: $684 per metric ton, October front month
Source: London ICE late Sept. 22

Europe

European Group I prices remain resistant to any significant downward movements, but refinery inventories are building, and there could come a time when sellers are forced to offer discounts to move material out of tank. That moment has not arrived yet.

Sellers continue to evaluate export sales but are being guarded in their approach, aware that to compete for business in export markets would require heavy discounts, which could affect prices for sales within the region – a sacrifice many are not prepared to make.

Based on a recent transaction and a cargo loaded from the Mediterranean, export levels would be expected to be around $725 per metric ton for solvent neutral 150, $800/t for SN500 and bright stock below $1,200/t. These levels are unacceptable to a number of Group I suppliers, who are protecting regional sales rather than having to clear inventories.

Published FCA levels remain unchanged, but some prices quoted herein are subject to individuals customer discounts.

Group I

Export, FOB basis
SN150 : $720/t-$745/t
SN500 : $785/t-$800/t
Bright stock 150: $1,175/t-$1,200/t

Northwestern Europe, FCA basis Antwerp-Rotterdam-Amsterdam
SN150: $885/t-$925/t
SN500: $965/t-$1,020/t
Bright stock 150: $1,340/t-$1,385/t

Eastern Europe, FCA
SN150: €966/t
SN500:  €1,021/t
Bright stock 150: €1,352/t

Pan-European, FOB/FCA basis
SN150: €745/t-€775/t
SN500/600: €820/t-€845/t
Bright stock 150: €1,165/t-€1,225/t

Pan-European prices are assessed on an aggregate basis from levels in Poland, France, Germany, Benelux, Iberia, Italy, Greece and the United Kingdom.

The euro/U.S. dollar exchange rate was at $1.17706 Monday.

European Group II prices remain firm, with demand steady for all grades. Buyers maintain that they can negotiate prices with suppliers, but there is little evidence that this is resulting in much lower buying levels. Sellers have confirmed that they will offer “new” prices for sales of larger quantities of light- and heavy-vis grades over the coming months. Discounts have been granted on a longer term basis, with sellers advising prices, followed by discounts that will continue to be applied.

Suppliers denied adopting posted prices, maintaining that pricing is a private matter between seller and buyer, tailored to individual customers. Buyers however, seem determined to negotiate wherever possible, citing the large differential between Group I and Group II prices, and the premiums Group II grades continue to hold compared to crude.

Group II prices, FCA basis
110N/150N: €920/t-€955/t
220N: €945/t-€975/t
600N: €1,085/t-€1,110/t

Prices refer to a wide range of Group II base oils that can be sourced from Europe, the U.S., the Red Sea and Asia-Pacific. Ranges refer to bulk shipments, but smaller quantities are imported in flexi-tanks.

Group III demand runs high, with 4 centiStoke grades most wanted by blenders around Europe. Six cSt is also making waves as some buyers are not able to access enough quantities of 4 cSt and so are opting to take additional quantities of 6 cSt.

The Group III market in Europe is taking off, with demand currently exceeding availability. This is happening at a time when many economies are suffering from low growth, and should this period come to an end, supplies of Group III base oils could come under greater pressure. An increase in European demand was forecasted before the coronavirus pandemic and appears imminent.

One major supplier continues to experience shipping problems for Group III cargoes coming from South Korea. The supplier negotiated contracts at extremely low prices and is still bound for them a while longer.

Prices are maintained this week and are due to be revisted at the end of this month.

Group III

Oils with partial slates of finished lubricant approvals, FCA Antwerp-Rotterdam-Amsterdam and Northwestern Europe
4 and 6 cSt: €1,070/t-€1,100/t
8 cSt: €1,125/t-€1,145/t

Fully-approved, FCA Antwerp-Rotterdam-Amsterdam, Northwestern Europe, Spain
4 and 6 cSt: €1,675/t-€1,715/t
8 cSt: €1,725/t-€1,740/t

Where product is sold on a delivered basis, a premium covering transport costs will be added to the above prices.

Rerefined Group III, FCA Germany
4 and 6 cSt: $995/t-$1,045/t

Baltic Sea

Group l, II and III oils from Europe and the U.S. are being delivered into Baltic States by road tanker. Small bulk cargoes are also appearing in shipping reports with material loading ex Northwestern Europe and discharging in ports such as Riga and Liepaja, Latvia. From shore tank storage, traders are selling to blenders in Latvia, Lithuania and Estonia.

This report has on good authority that Russian base oils are being made available in the Baltic states, coming in by road across borders from Russia and Belarus. This practice is in breach of European Union sanctions.

Cargoes of Lukoil barrels continue to load out of the Baltic, from St. Petersburg, but the frequency of these movements is far less than previously logged. Most of the cargoes out of the Baltic go into Turkey, with vessels calling at Gebze to discharge SN150 and SN500 grades.

Baltic prices for Russian Group I export cargoes are difficult to establish from local sources. Cargoes discharging in Turkey or Nigeria will provide CIF/CFR prices released by importers, customs officials or shipping agents. Adding freight rates indicated from shipbrokers, approximate FOB prices can be established.

Notional prices for Russian exports, FOB St. Petersburg
SN150: $625/t-$655/t
SN500: $660/t-$685/t.

Black Sea & Turkey

Turkey lurches from one bad spell to another, and its economy is again in tatters. Were it not for Russian imports of petroleum products, including base oils, all of which are at least being recorded at exceptionally low prices, the country would have come to a standstill months or even years ago.

Payments for products, including base oils, appear to be transacted on a government-to-government basis, presumably in dollars, with suppliers recompensed internally from Russian banks. 

There do not appear to be any dealings between Turkish buyers or traders and Russian suppliers such as Lukoil, Rosneft and Bashneft. It is assumed that some form of accounting stems back to the producers eventually. This may be why prices are reported artificially low, seemingly at levels that seem below cost.

Turkish banks are still unable to fund lending, particularly on foreign currencies such as the dollar, and this limits importation of goods – for example, base oils from suppliers such as Motor Oil Hellas, ExxonMobil, Repsol or Cepsa. Buyers find it difficult to open letters of credit due to restrictions on foreign currency availability.

Rosneft CIF/CFR price levels are heard at $590/t for SN150 and $655/t for SN500. Normal economics would certainly put these levels below feedstock cost.

Lukoil prices from the Baltic are around $100/t-$150/t higher, but freight is higher from the Baltic, and that element of the price must be paid to the shipowner/operator on a timely basis.

Turkish buyers are still holding out hope to buy quantities of U.S. Group I and II through traders, but no cargoes have been reported. No records are available of vessels being chartered out of the U.S. Gulf of Mexico or East coasts.

Turkish Base Oil Prices

Group I from Lukoil, CIF/CFR Gebze
SN150: around $835/t
SN500: around $850/t

Group I from Rosneft or Bashneft CIF/CFR Gebze
SN150: $590/t
SN500: $655/t

Tupras Group I, ex rack Izmir refinery
Spindle oil: Tl 35,035/t plus VAT Tl 8,904.44/t
SN150: Tl 29,849/t plus VAT Tl 7,867.24/t
SN500: Tl 32,969/t plus VAT Tl 8,491.24/t
Bright stock: Tl 52,094/t plus VAT Tl 12,316.24/t

Sales incur a standard loading charge of Tl 9,487.20/t.

Group II, ex-works
110N and 220N, Russian origin: $990/t
350N, blended or from alternative source: $1,150/t
150N, from Taiwan or Saudi Arabia: $1,025/t
500N/600N, from Taiwan or Saudi Arabia: $1,265/t

Partly-approved Group III
4 cSt from Tatneft, FCA: €916/t
Fully-approved Group III from Spain, CIF Gemlik
€1,825/t-€1,855/t.

Middle East

September appears to have been a very busy month for cargoes loading from Yanbu and Jeddah, Saudi Arabia. Destinations have been wide and varied, with cargoes moving to usual discharge ports in India and the United Arab Emirates but also to Thailand, South Africa and Europe.

A 3,500-ton parcel of bright stock loaded out of Yanbu bound for Alexandria under the EGPC contract.

Iranian cargoes remain elusive and are missing from shipping reports, with sources in the UAE commenting that Iranian sellers have not been in the market during the last few months. Most of the production of Group I base oils is going into the domestic market or Iraq, and imported Group II and Group III base oils are being moved into Iran by traders based in the UAE and India.

Group I and Group II base oils are arriving in the UAE from sources in the U.S., and European traders are also looking to place cargoes into that market, sometimes combining cargoes for receivers in Mumbai. The fundamental problem with cargoes from Europe is that the voyage time is extended due to sailing around Africa’s southern tip in order to avoid the Red Sea, where the Houthi militants continue to attack international ships.

Shipping from Europe also incurs higher freight rates, which pushes FOB prices exceptionally low – too low for many suppliers in Europe. U.S. cargoes are the preferred option for Group and Group II base oils moving into the UAE and India, even for traders based in Europe.

Demand is healthy within the UAE, with traders scouring markets for opportunities to purchase Group I and Group II  base oils. Many cargoes are negotiated directly with producers, especially when it comes to sourcing from South Korea and Singapore, but when sourcing from U.S. most cargoes are arranged through traders.

Group I, CIF/CFR UAE ports
SN150: $895/t-$935/t
SN500: $965/t-$1,000/t
Bright stock: $1,245/t-$1,275/t

Group I cargoes are purchased from traders based in the U.S. and Europe, some of whom have representation in the UAE.

Group II, FCA or on an RTW basis UAE and Oman
110N, 150N and 220N: $1,375/t-$1,410/t
600N: $1,455/t-$1,500/t

The high ends of the ranges refer to material being delivered by RTW around the UAE and into northern Oman.

Group II base oils are imported into the UAE from the Red Sea, the U.S., South Korea, Europe and Singapore and are resold ex tank the UAE, or on a truck-delivered basis throughout the UAE and northern Oman.

Deliveries are made by distributors who purchase base oils directly from Luberef in Saudi Arabia and from U.S. and European majors and traders.

Group III, FCA Hamriyah or delivery by RTW in UAE and Oman
4 cSt: $1,275/t
6 cSt: $1,285/t
8 cSt: $1,310/t

Group III prices above include a reseller margin of around $75/t to cover storage, handling and margin. RTW deliveries incur a further charge of $20/t-$55/t.

Middle East Gulf Group III base oils sourced from Al Ruwais, UAE, and Sitra, Bahrain, are delivered by sea into Sharjah, UAE. These base oils are then offered for resale through an appointed distributor rather than directly from Bapco or Adnoc.

Group III cargoes loading from Al Ruwais and Sitra also supply distributors in the U.S., Europe, India and China. Receivers in Thailand have bought a cargo from Al Ruwais. The largest market for Group III from the UAE and Bahrain is India, where record quantities have been delivered this year to date. Exact quantities are difficult to pinpoint, but reckoning is that around 88,000 tons of Group III base oils have been delivered into India this year. Cargoes are sold FOB to distributors who have the responsibility for shipping, storing and reselling in the various markets.

Group III netbacks from Al Ruwais and Sitra are considered to be on a par, with almost identical refinery economics in both production facilities.

Netbacks continue to be assessed between $1,030/t-$1,055/t for 4, 6 and 8 cSt Group III grades. Netback levels may also indicate FOB prices from producers.

Netbacks for gas-to-liquids Group III+ base oils loading ex Ras Laffan, Qatar, are assessed between $1,085/t-$1,100/t. Numbers are given as indications only.

Group III netbacks are calculated using selling prices in known markets minus estimated marketing costs, margins, handling, storage and freight.

Africa

Another bright stock cargo will be delivered into Alexandria in Egypt. Cargoes of around 3,000-3,500 tons of bright stock load from Yanbu.

Cargoes and truck loads of Group I base oils are sold from Algeirs by Naftec/Sonatrach to buyers in Tunisia and Morocco.

It appears the next large Durban cargo will load from Rotterdam and Fawley, U.K., during October. The cargo will comprise of around 20,000 tons of various base oils and a small parcel of easy chemicals.

This report has inquired as to the introduction of Chevron Group II base oils in Nigeria, and the operation will start in earnest from next year, with provisional work being undertaken to allocate storage and distribution vehicles from Apapa.

Group II base oils will initially be considered a niche market in Nigeria, and will only primarily be used by major blenders, or toll blenders for prime branded finished lubricants meeting U.S. and European standards. The transition from Group I to Group II base oil will be a major step for Nigeria, with currently buyers and receivers in Lagos arguing and beating down offers from traders to get to prices which are considered to be in line and competitive with Russian products.

Receivers routinely will refuse to pay higher numbers for U.S. or European base oils. It will be interesting to see where the Group II prices will be pitched, since there will be considerable costs in freight, storage and managing supplies of these grades.

Nigerian base oil buyers are looking to replenish Group I stocks at extremely low prices. SN900 is scarce, and buyers are hesitant to purchase this grade at what they perceive to be at exceptionally high prices. When bright stock is being used in the blend the price moves higher – too high for some receivers to consider.

Receivers then have difficulty selling on this grade to blenders around the country, who are unwilling, or unable, to pay for this constituent part of the blend.In years past, SN900 was unheard of, and bright stock was used as a blend stock. The use of SN900 came later in response to the high prices of bright stock.

Buyers are currently bidding around $880/t for SN150, $930/t for SN500 and $1,075/t for SN900. Deals are not being consummated.

Levels requested are at $900/t-$930/t for SN500 and $1,000/t- $1,025/t for SN900, on a CFR basis Apapa port in Lagos Traders cannot entertain these numbers and telling receivers that they will not do business at these levels.

The Nigerian naira black market exchange rate is lower this week at NGN 1,493 to the dollar Monday.

Nigeria Group I prices, CFR Apapa

U.S. quality base oils
SN150: $880/t-$910/t
SN500: $920/t-$940/t
SN900: $1,075/t

Russian origin base oils
SN150: $880/t
SN500: $930/t
SN900: $995/t

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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