Weekly EMEA Base Oil Price Report

Meanwhile economic pressures are building for countries dependent on oil and gas supplies from Middle East Gulf sources. Iran has allowed some vessels carrying cargoes for Chinese and Indian destinations to pass through Hormuz, but the majority of vessels waiting at anchor within the gulf are not moving, either due to protection and indemnity club decisions to avoid attempts at transiting the strait or because the Islamic Revolutionary Guards Corps will not permit access to the channel, having threatened attacks should vessels try to run the gauntlet.

Vessels at anchorage outside the gulf are also waiting for any chance to discharge cargoes, not just base oils but all bulk and dry cargo goods. Ports such as Fujairah, United Arab Emirates, and Muscat, Oman, are being utilized as best as possible to accommodate vessels discharging containers and bulk cargoes, but with limitations on pilotage, berthing and facilities, another waiting game is developing.

Sources in the UAE and Qatar said the past week that many finished lubricant producers have closed for the time being due to a lack of raw materials. Some companies have tried various moves to get around the lack of base oils and additives, by moving materials by road through Saudi Arabia and Muscat, but quantities are too small to maintain operations on an economic basis. Some have even tried chartering flights to bring additives in by air freight, but this is an expensive and uneconomic practice that will not continue on a long term basis.

There were rumors Monday that Iran would open Hormuz, but they did not materialize. The fragile ceasefire continues without any clear end in sight from either side, and with Israel ramping up threats against Hezbollah in Lebanon, the conflict looks to be continuing with little progress.

The Middle East Gulf war has caused base oil prices to vault into unchartered territory across the European, Middle Eastern and African regions, with all groups of base oils moving swiftly to new highs never seen previously.

Some players are commenting that prices have become untenable and not practical to meet, since prices for finished lubricants have become such that buyers of finished products will not pay the new inflated prices which reflect raw material costs. Many are somewhat hopefully predicting that prices will not remain at the new highs but will collapse as soon as signs of the war being over, but realistically, price levels reflecting current crude feedstock prices will take time to readjust, and the markets may be facing longer term effects than many are expecting or hoping for.

The dynamics of refinery production have altered across Europe and Africa, with most refiners moving to optimize distillate production to satisfy rising demand for jet fuel and diesel, imports of which are suspended from Middle East Gulf producers, and with Europe being net short of these products, base oil production has dipped and Group I availability gone shorter, and with Group III in danger of tight supplies within the next two months due to the suspension of availabilities from three Middle East Gulf sources.

There are few alternatives for lubricant producers to move to, as U.S. sources are being tapped as quickly as possible for any availabilities of Group I material, and Asia-Pacific sources are being contacted for any possibilities to source Group III grades for the future.  With huge gaps starting to appear in supply chains, the outcome for the base oil markets is not promising for the immediate future, and with no alternative sources to turn to, some companies are seriously considering their options for continuing in the lubricant business.

Some Group I refiners are considering ceasing base oil production, diverting feedstock into distillate production where markets are more or less guaranteed for the near and medium term. This cessation would come as a blow to many in the lubricant trade, with some companies dependent on producers having availability of base oils. Producers such as PK Orlen in Gdansk, Poland, have already announced that they will be unable to supply Group I base oils for the immediate future, and whether they will ultimately return to Group I production is not announced at the moment. This refinery was due to start up output of API Group II base oils later this year, and this project may now be in doubt, at least on the timing.

Your columnist is endeavoring to find out more information about the current and future status of base oil output from Gdansk refinery.

Crude and Gas Oil Prices

The closure of the Strait of Hormuz is the fundamental feature controlling prices of crude oil around the world. With no movement of crude and other products, the market is at the mercy of Iranian control of the waterway.

Prices remain volatile and are responsive to the various pieces of news emerging from negotiations between U.S. and Iran. European low-sulfur gas oil values jumped more than $200 per metric ton the past week.

Dated deliveries of Brent: $107.75/bbl, June front month
West Texas Intermediate: $96.70/bbl, June front month
European low-sulfur gas oil: $1,280/t, May front month

Source: London ICE trading late Monday, April 27

Europe

Supplies of Group I base oil in Europe has become even tighter, with refinery runs being cut by a number of producers, thereby optimizing distillate output. As already mentioned, base oil prices have moved in one direction and are being maintained at new highs, perhaps never seen previously.

Group I base oil prices have moved away from a recognizable premium to gas oil levels, with suppliers posting weekly increases, but some buyers are unwilling to accept current levels and have decided to scale back operations for the time being.

A number of blenders have confirmed that with the addition to extra costs to finished products, end users are turning down offers, advising that they will pause and wait for the war end. Some parties believe that the end will be sooner than many think and that markets will return to normality within weeks of a permanent peace in the Middle East. This scenario remains an unknown, but many are gambling on this outcome.

Demand remains high for any and all available barrels of Group I base oils, creating an auction-like environment where sellers invite bids from potential buyers to arrive at selling prices. Prices therefore remain in exceptionally wide ranges, with some sellers looking after contracted and regular buyers whilst others have pushed spot prices to new highs on the basis that buyers have little choice other than to pay the going rate.

There is no possibility for export sales at this time since all available Group I barrels are being hoovered up by buyers looking to keep producing. The supply chain continues, but some wholesale buyers of finished lubricants are announcing they cannot access sufficient quantities of material to cover market demand, even at current inflated prices.

Group I

European exports, FOB basis
Not applicable

Northwestern Europe, FCA Antwerp-Rotterdam-Amsterdam
SN150: $1,995/t-$2,135/t
SN500: $2,250/t-$2,365/t
Bright stock 150: $2,425/t-$2,575/t

Eastern Europe, FCA
No prices available from PK Orlen or Mol

Mediterranean prices, FCA Spain
SN150: $2,055/t
SN600/500: $2,250/t
Bright stock: $2,480/t

Pan-European, FOB/FCA
SN150: €1,825/t-€1,900/t
SN500/600: €1,910/t-€1,995/t
Bright stock 150: €2,325/t-€2,400/t

Pan-European prices are assessed on an aggregate basis taking prices from Scandinavia, Poland, France, Germany, Benelux, Spain, Italy, Greece, the United Kingdom, and Baltic States.

The euro’s exchange rate with the U.S. dollar was $1.17436 Monday.

European Group II base oil prices may have reached a pricing plateau, with buyers taking minimal quantities rather than laying down large inventories. Many believe that the price spike will be relatively short-lived, but fear of the unknown and what might be to come continues to weigh heavily on buyers’ minds.

Availability of Group II base stocks remains adequate compared to Group I and Group III, but with the potential removal of available Group III grades from mid-year onwards, many blenders may rely more heavily on Group II with tweaks made to additive packs. This could increase demand for Group II base oils.

No further increases were heard during last week as crude and feedstock levels settled down, but this week has seen some major crude increases, hence producers more upward pressure may be coming for base oils. The last increases added $250/t-$300/t to values two weeks ago. For now, though, levels are maintained at around €1,895/t-€1,950/t for 150 neutral and €2,010/t-€2,100/t for 600N.

Group II, FCA basis
110N: €1,875/t-€1,955/t
150N: €1,865- €1,950/t
220N: €1,825/t-€1,875/t
600N: €2,010/t-€2,155/t

These values apply to a wide range of Group II base oils that may be sourced from within Europe, the U.S., the Red Sea and Asia-Pacific.

Many Group III buyers are starting to panic as distributors advise that they will not be able to supply product as long as Hormuz remains closed, even in cases where base oil plants have not been greatly damaged. There are no more Middle East Gulf cargoes on the high seas, as any vessels that were en route have discharged in Antwerp-Rotterdam-Amsterdam. Buyers are looking for alternative suppliers, but these buyers have been advised that no new customers will be taken on by Malaysian or Korean companies, who have a full list of customers who have been buying regularly for some time.

Also there are investigative plans to take U.S. barrels to Europe from new and existing production, but again how quickly these supplies can be attained remains a question. There are talks of sacrificing Group II production to max out on Group III barrels, but no decisions have yet been made on this front. Offers of FOB sales from Indian traders have been updated and new prices attached, taking the levels to around $2,500/t FOB, which would push selling levels in Europe to around $3,300/t FCA.

The Group III refinery in Cartagena, Spain, reports that planned maintenance has been delayed due to the potential supply situation in Europe, but at the same time a large cargo of Group III base oils has sailed from Cartagena for receivers in India.

Prices for Group III oils with partial or no slates of finished lubricant approvals are unchanged this week, but those for oils with full slates of approvals rose again. Prices for rerefined Group III are also unchanged, but sellers are resisting offering large quantities of these grades.

Group III

Partly approved, FCA Antwerp-Rotterdam-Amsterdam, Northwestern Europe
4 centiStoke : €2,025/t/t-€2,065/t
6 cSt : €2,035/t/t-€2,075/t
8 cSt: €1,985/t/t-€2,020/t

Fully approved, FCA Northwestern Europe
4 centiStoke: €2,435/t/t-€2,475/t
6 cSt: €2,450/t/t-€2,490/t
8 cSt: €2,495/t/t-€2,525/t

All the above products sold on a delivered basis will be subject to transportation charges, added to the prices above.

Rerefined Group III, FCA Germany
4 cSt:  €1,980/t
5 cSt: €1,985/t
6 cSt: €1,995/t

Baltic Sea

There are reports that Russian domestic base oil prices have been raised by around 30% during April, but not having a starting point price, the only comment possible is that levels will have moved upwards dramatically. In the meantime, Ukraine continues to attack Russian refineries with missiles and drones trying to cut off sales and exports of all products to third parties around the world, which would otherwise be stoking Russian President Vladimir Putin’s war chest.

There are still no reports of Russian bulk cargoes leaving Baltic ports, although that might be due in part to use of shadow fleet vessels. Base oils could be moving without the knowledge of reports such as this one. The question is where would these cargoes being going, since they are not moving into Turkey or Nigeria, and other locations are questionable if domestic markets are demanding continuing supplies of base oils.

Black Sea & Turkey

Crude prices and lack of supplies are affecting the Turkish economy, and with Turkish exports of refined products being limited going into European markets where potential shortages of diesel and jet fuel are now starting to appear. 

A shipping inquiry was on the market for a vessel to load a base oil cargo out of Turkey, to discharge in Spain. The base oil could only have been Tupras Group I, since there is no Russian base oils being imported into Turkey. Since this inquiry was first reported, the shipping list has been changed and the inquiry removed. It is thought that this was merely a flaky inquiry with no substance or reality for a cargo to load for Spanish receivers.

Turkish blenders purchased Group I base stocks from AMOC and APC in Alexandria, along with quantities of base oils from Luberef ex Yanbu. Group I and Group II base stocks were supplied into Gebze, Turkey. These supplies will have been paused due to rising base oil prices taking their toll on Turkish blenders and traders. The longstanding shortage of access to dollars continues to haunt Turkish traders.

Domestic prices for base oils from the Tupras refinery in Izmir are unchanged this week but of course face upward pressure.

Group I, ex rack Izmir
Spindle oil: Tl 66,674.00/t plus, VAT Tl 15,364.10/t
SN150: Tl 63,197.00/t plus, VAT Tl 14,668.70/t
SN500: Tl 69,437.00/t plus, VAT Tl 15,916.70
Bright stock: Tl 85,835.00/t, plus VAT Tl 19,196.30/t

Sales incur a standard loading charge of Tl 10,146.50/t which remains unchanged and should be added to the prices above.

Traders in Turkey have advised that no offers will be forthcoming for material which has recently arrived from Taiwan. Traders are holding on to stocks, but prices ex tank have been elevated to European levels for Group II, with traders netting a margin of around €1,000/t-€1,250/t. Due to volatility of prices, the trader will not offer any availabilities for export.

Group II, ex-works
110N and 220N: no offer.
350N: no offer
150N: unavailable.
500N/600N, ex Taiwan: No offers currently due to price volatility and the fact that the Taiwan cargo was purchased at pre-Iran war prices.

Group III

Partly approved
Tatneft 4 cSt: no availability

Fully approved
Repsol, CIF Gemlik: €2,525/t/t-€2,570/t (estimated)

The latter Group III are supplied by Repsol in small shipments of 800 to 1,200 tons. It is not confirmed if these cargoes are continuing due to reported issues with supplies out of Cartagena or price hikes.

Middle East

Luberef loaded a large cargo in excess of 25,000 tons of Group I and II for the West Coast of India. The cargo will discharge for more than one receiver in Mumbai anchorage before the end of April.

Other cargoes have been loading for Indian receivers in Mumbai and Chennai but also for buyers in Fujairah, where some of the material may be loaded into trucks and bridged across to blending plants in Sharjah and Dubai to maintain stocks during the period when Hormuz is closed.

Some UAE blenders are operating on a part-time basis, and some have closed down until supplies of base oils and additives arrive into ports such as Jebel Ali and Hamriyah. Some companies have been trying to arrange to access base oils from storage in Fujairah or Muscat. Base oils would be loaded in trucks and the loads would be driven across to Sharjah and Jebel Ali.

With Luberef delivering into Fujairah, the bridging of supplies of Group I and Group II is a feasible option to keep operations ticking over, but these supplies are in no way a substitute for cargoes waiting outside the gulf. Some vessels have now been at anchor for eight weeks and may have to wait longer if they are to discharge cargoes into Middle East Gulf ports. Crews remain onboard, but launches have been used to rotate members, maintaining crew numbers for safety reasons. Water, victuals and fuel have been delivered to vessels waiting at anchorage. A number of receivers in the UAE have cargoes waiting at Khorfakkan and Fujairah.

A specialty oils producer, normally blending transformer oils and white oils, has suspended operations due to a lack of base oils, additives and packaging for finished lubricants.

A looming problem is facing receivers in the UAE: When Hormuz reopens, there will be major congestion in UAE ports. Ships’ agents in Sharjah have commented that it may take weeks following the opening of Hormuz before all cargoes can be discharged. Vessels will be allocated times and berths from port authorities as and when the strait reopens to normal traffic.

Base oil prices in the UAE have risen, but with little product left in storage FCA sales are few. Latest prices are shown below since these have been confirmed, but product may not be available.

Group I, CIF/CFR UAE ports
SN150: $1,860/t-$1,895/t
SN500: $1,925/t-$1,975/t
Bright stock 150: $2,385/t-$2,425/t

Group II base oils are basis FCA or on an RTW delivered basis in the UAE and Oman. Supplies of Group II in storage are mostly depleted, and prices have been suspended until new cargoes are discharged. Some buyers are investigating trucking Group II base oils from Yanbu, across Saudi Arabia, but this is a very expensive operation. Estimates are that such an exercise could add $500/t to each grade on a delivered basis, UAE. Small quantities have been arriving from Fujairah by truck, but stocks are not sufficient for blenders to operate fully.

Group II
110N, 150N and 220N: Prices suspended
600N: Price suspended

Group II base oils were/will be imported into the UAE and other Middle East Gulf ports in Qatar, Bahrain and Kuwait and are normally supplied from a number of  sources in the Red Sea, the U.S., South Korea, Singapore and Europe. Cargoes are discharged into storage in the UAE, then smaller parcels can be transshipped to ports around Middle East Gulf, or delivered by RTW.

Following drone and missile strikes from Iran on the Pearl gas-to-liquids refinery in Ras Laffan, Qatar, base oil production has ceased, and some reports suggest operation of one two production trains may not return to normal levels for one to two years, due to fire and structural damage to the refinery complex.

Sources in UAE have suggested Bahrain Lube Base Oil Co. in Sitra, Bahrain, could be idled for six months to a year. The base oil plant at the Adnoc refineries at Al Ruwais is said to not be damaged, and Group III base oils could be available, but it is not known whether production is actually taking place, since no cargoes can leave the Gulf with Hormuz being closed, and there should be severe difficulty in chartering a suitable vessel once the Strait is reopened.

Group III base oils are no longer available at Hamriyah or Sharjah ports and are no longer being distributed in the UAE or Oman due to the shutdown at Sitra and the confused picture emerging from Al Ruwais.

The distributor in the UAE has ceased selling product and will only restart as and when material is forthcoming from either Adnoc and Bapco. With the news that Adnoc base oil plant is unaffected by the Iranian strikes, supplies may be reinstated sooner than was estimated last week. As a result, reporting here of UAE Group III prices is suspended for the moment., as are netbacks for the three Group III sources in the gulf.

Africa

The Moroccan requirement has been covered by a cargo of Group I base oils loaded out of the U.S. and is believed to have arrived in Mohamedia, comprised of SN150, SN500 and bright stock.

Another bright stock cargo discharged in Alexandria for EGPC under the supply contract with Luberef in Yanbu. Prices are linked to a weekly published pricing report that lists very high bright stock values, in the range of $2,625/t.

A large cargo of Group I and Group II base oils loaded out of the U.S. Gulf Coast for delivery to South Africa. The total cargo will be discharged in Durban, restocking inventory for representatives of a U.S. major, and the cargo is believed to have arrived and to currently be discharging in the port.

A European major loaded a 10,000-ton Group I cargo comprising three grades out of Fawley, United Kingdom, for receivers in Conakry, Guinea; Abidjan, Cote d’Ivoire; and Tema, Ghana. With 5,000 tons going into Tema, the remainder will be split between the other two ports, but each port will receive SN150, SN500 and bright stock.

With three cargoes arriving into Apapa from the U.S. Gulf of Mexico and East coasts and South Korea, the Nigerian market is well stocked for the next few weeks, but it will be very difficult negotiating with receivers to take further barrels, when they will have to pay around three times the prices of the latest cargoes to arrive.

There will be no way for buyers to contemplate accepting these numbers, so the Nigerian market is less than interesting right now, with traders moving away from Nigeria since there is little point in trying to sell material at inflated prices that will never be accepted. This could mean no further supplies for Nigeria for some time.

Nigerian buyers would have pay around $3,000/t for quantities of SN900 delivered into Apapa, and that will never happen. Resellers will walk away from the base oil scene until prices return to what they consider competitive.

The 18,000-ton cargo out of the U.S. Gulf arrived in Lagos, with another trader lifting 10,000 tons from other East Coast sources. With the Korean cargo, around 48,000 tons of base oils will discharge in Apapa, during March and April.

Nigerian resellers have increased prices locally in line with other international numbers reported in reports such as this one. Bearing in mind that all recent arrivals will have been fixed and contracts issued before the Iran war, traders and resellers in Lagos will be making considerable margins on new sales, where they can.

The black market exchange rate for the Nigerian naira was NGN 1,390 to the dollar Monday.

Nigerian Group I prices, CFR Apapa remain valid, since no new offers have been made or received since the Iran war. All cargoes recently arrived into Apapa, will have been sold at prices valid prior to the Iranian war. These levels will be around the following prices.

Group I, CFR Apapa
SN150: $885/t
SN500: $925/t
SN900: $1,035/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.

Historic and current base oil pricing data are available for purchase in Excel format.