Meanwhile base oils continue to face supply issues in many regions, including Europe, the Middle East and Africa, with an absence of any Group l grades for export destinations such as West Africa. Traders have been able to access material for sales into these markets, but demand is generally outstripping availability at this time.

Group II markets around the regions have tightened up, with a number of buyers looking for additional material, though without much success. Imports into Europe from the United States have decreased due to heavier demand in the latter market. At the same time, shipping has impeded cargoes that would be coming from Asia-Pacific.

Group III has seen large cargoes moving into the European market from sources in the Middle East Gulf and the Far East, whilst domestic production of Group III base oils continues to run at optimum rates. Prices have remained bullish, as market sources suggest higher crude values could translate into upward pressure on Group III levels.

Dated Brent crude has risen more than $10 per barrel since the last report to $120.25/bbl for July front month settlement. West Texas Intermediate is also up but by a smaller amount, to $115.75/bbl, also for July front month. As a result, the crack between the two benchmarks widened.

Low-sulfur gas oil followed crude upward, rising some $100 per metric ton since the previous report to $1,182/t, still for June front month. These prices were obtained from ICE London trading May 30.

Europe

There was no return to action for the European Group l export market, with few, if any, sellers indicating availability of grades which can be put together as an export cargo. Smaller parcels are offered, going into markets such as Turkey, which cannot be designated as a true export destination. Nowhere is there sufficient product to build cargoes for West Africa, India or Middle East Gulf destinations

Intra-affiliate trades account for most of the larger base oil movements, with the majors well represented in the shipping markets, with material moving from refineries into distribution hubs in locations such as Spain and South Africa.

Prices are increasingly difficult to report, because without physical cargoes loading and being sold out with the region, the exercise becomes somewhat hypothetical, with numbers only produced as indications should any material become available. There are some signs that this situation may start to improve, with a major Mediterranean producer programmed to come back on-stream during June, with availability of material for sale during the beginning of July. This may happen sooner, but until production gets underway, availability of Group l base oils for export sales remains a major problem.

Other producers are starting to come out of turnaround and may lend a helping hand to supply some material for this market, but realistically it may be into August or September when European exports return to the fold.

For the moment and as indications only, prices are established relative to domestic trades and a number of smaller cargoes moving within the European confines.

SN 150 levels are higher, with FOB prices at $1,500/t-$1,575/t. SN 500 prices are estimated at $1,700/t-$1,795/t, with bright stock prices pitched in a range at $1,895/t-$1,965/t.

These levels can be expected to go higher when product becomes available, since there may be bidding wars to access suitable cargoes for specific destinations and receivers. Also, should crude and feedstocks maintain their current levels, Group l base oil prices may be revised upwards to take account of the increase in raw material costs.

Domestic price levels around Europe are poised to increase with effect from June 1. Buyers have been given notice that even prior to the surge in crude values, prices were to be revised upwards, reflecting past increases to feedstocks. The increases vary from refiner to refiner but some are rather more draconian than others. The largest increases announced at €100/t-€150/t, although some buyers countered these new levels, saying that their end-users cannot afford to pay the rates for finished lubricants, which in some cases has been found to be correct. Sellers are adopting the attitude of “take or leave it,” with alternative buyers queuing up to take advantage of any spare material that becomes available. Regular contracted buyers are conceding to increases to maintain blending operations on a continuous basis.

Buyers who have the option are purchasing on a “hand-to-mouth” existence, with stocks only bought to cover immediate requirements rather than longer term, larger inventories.

Some blenders are also carping about the shortage of additives, which in some circumstance is curbing the quantities of finished lubricant grades produced. This in turn is down to additive manufacturers being unable to access required quantities of base oils, which are used in the production of additives.

This week the differential between domestic prices and the indicative export numbers is assessed at €70/t-€155/t, due to the price increases which will take effect on June 1. Domestic prices remain higher.

Group ll base oil price levels are about to move upwards, since as with domestic Group l prices, numbers will be reviewed from June 1. Buyers were already expecting steep increases to be applied, this being the resignation prior to crude leaping higher at the end of last week. Some suppliers are reserving the right to push original prices through from June 1, but also to be able to advise further increments during the month as the increasing feedstock prices start to affect base oil production.

Producers are also trying to minimize the time between crude and feedstocks rising and base oil prices responding to these moves. Some producers have made comments to the effect that “for too long the industry has accepted the ‘base oil time lag’ as a matter of course.” Other petroleum products do not enjoy this flexibility, so refiners are now saying that base oils should follow suit.

Being a seller’s market at the moment, buyers are almost being instructed as to what is taking place in the market, the shots being called by the seller.

Prices are heard to be higher from June 1; therefore, this report has taken these future moves into account when assessing prices forwards. Levels will rise and from notices already issued to contracted buyers, prices will be at $1,870/t-$1,925/t (€1,748/t-€1,799/t) for the three light vis grades (100N, 150N and 220N), with the higher vis grade, 600N, at $2,075/t-$2,145/t (€1,938/t-€2,005/t). As mentioned, these prices will take effect after June 1.

Prices are for a range of Group ll base oils, including European and some U.S. grades, in addition to potential imports from Middle East and Asia-Pacific.

Group lll prices around Europe marked time during May, but according to sources in distributors and agents, producers are looking to increase selling prices to take account of feedstock increases which have been occuring on a regular basis over the past few weeks. Buyers are being made aware of increments to be applied from June 1. Although quantities and volumes are to be guaranteed under contract arrangements, pricing will be regularly reviewed to reflect raw material cost increases and decreases.

Quarterly prices were the tool for selling Group lll base oils up until present, but suppliers are commenting that they must be able to reflect changing market situations on a more prompt basis than currently, which could affect the prices for Group lll base stocks in both directions, This point is made clear to buyers, who may only see the market going one way.

Large parcels of fully-approved Group lll base stocks are moving to distribution hubs around Europe, although one cargo of some 10,000 tons is moving from Spain to Mumbai anchorage for Indian receivers. This parcel would normally be delivered from South Korea, but for whatever reason this supply will come from Europe.

The European market for Group lll base oil is balanced right now with little concern as to availability of all grades. This is the case even against the background of the loss of 4 centiStoke material from Tatneft that slowed, and then stopped after the Russian invasion of Ukraine. There is, however, a larger number of cargoes coming into Europe from the Far East and the Middle East Gulf, which may be taking up the missing Tatneft barrels.

Prices for partly approved Group lll base oils moved higher, given increasing feedstock values. Prices from June 1 will be at €1,925/t-€1,985/t. The 6 cSt and 8 cSt grades at €1,945/t-€1,985/t, with 4 cSt base oils at €1,925/t-€1,945/t. Prices are for FCA supplies from Antwerp-Rotterdam-Amsterdam and northwest Europe.

Fully approved Group lll base oil prices are also maintained with 4 cSt grades steady in a range at €2,025/t-€2,055/t, with 6 cSt and 8 cSt oils at €2,075/t-€2,125/t. There have been cases where fully-approved Group lll base stocks competed with partly-approved products, and some cases where partly-approved products claimed to be Group lll+ quality, showing the relevant higher specifications.

Baltic and Black Seas

Apart from base oils loading out of Kaliningrad there are still some cargoes loading out of Riga for contracted receivers in Antwerp-Rotterdam-Amsterdam. These movements appear to be continuing even against the withdrawal of much of the Russian export barrels which previously were bridged through the Baltic ports. However, at the beginning of this month 7,000 tons of Russian base oils loaded out of Liepaja and Riga for receivers in Turkey, and another inquiry is on the table for June for further quantities to be supplied to the same buyers. This is unusual in that the freight from Baltic to Marmara will be expensive, unless the vessel concerned is repositioned for future cargoes.

An unusual loading took place earlier in May from St Petersburg, then topping-off in Riga, before sailing to Rotterdam where the cargo would have been discharged. St Petersburg does not normally stock base oils, and this may have been a situation where material bridged into Riga before taking the balance of the cargo to Rotterdam.

An exceptionally small quantity of 950 tons of Russian exports was sold to buyers in the east coast of the United Kingdom, perhaps reflecting availabilities, or the lack thereof.

Another possibility for June is a quantity of 7,000 tons of Group l grades to be loaded from Svetly for receivers in Lagos. This cargo was not sold into Nigeria as yet and may be expected to complete later this week or next. Rumors are that Nigerian buyers are less keen to take Russian barrels these days, therefore this cargo may or may not load for that destination. However, there may not be too many other alternatives for buyers in Apapa since other sources are hard to come by.

Base oils are still moving through the Baltic ports, although not in anything like the quantities seen prior to the Ukrainian war. Where the few parcels were noted, FOB price levels are assessed with SN 150 at $1,465/t-$1,525/t. SN 500 as an indication is at $1,655/t-$1,725/t. Indications for SN 900 would be at $1,720/t-$1,745/t.

In Turkey, the refinery at Izmir is rumored to have suspended production again, echoing the stop-start operation that has dogged this refinery for almost two years. The reason behind this latest shutdown is not yet known and it is also understood that no sales of base oils from stocks are processed at the current time. This will mean that blenders in Turkey will once again become dependent on imported Group l base oils coming into the market.

There was one 4,000-ton cargo from a Greek source, and in addition to the Baltic supply there will be a modicum of availability open to Turkish blenders. These quantities will in no way compensate for the lack of availabilities from the Tupras operation, where purchases could be made in truckloads and payment could be accomplished in Turkish lira. Sources informed this report that they are in contact with Livorno to ensure that as soon as available material is coming out of that refinery, they will be in the market to buy cargo quantities of Group l base oils.

Prices for the Greek barrels were heard to be on the basis of the highs of published prices, plus a substantial premium. This would effectively mean that CIF levels for SN150 and SN 600 would come in at about $1,725/t for the SN 150, with the SN 500 and 600 at around $1,885/t FOB.

Imported Group ll grades sold FCA are priced higher, since replacement costs have risen. Prices ex-tank are hiked to new levels at €1,875/t-€1,925/t for the three lower vis products, with 600N falling at €2,000/t-€2,120/t. Group lll base oils sold on the same FCA basis, for partly-approved grades, are now priced at €2,125/t-€2,165/t. Fully approved Group lll grades from Spain are assessed at around €2,195/t-€2,225/t.

Middle East

During May a number of large cargoes loaded out of Yanbu and Jeddah in the Red Sea. A total of almost 52,000 tons of Group l and Group ll base oils was moved to Mumbai in two instances, and a third cargo supplied 19,000 tons of base stocks into Fujairah, Hamriyah and Jebel Ali in the United Arab Emirates. Later, a parcel of 6,000 tons of Group l base oils was delivered into Port Suakhin.

The last report mentioned a cargo loading out of Hamriyah and discharging into Hazira in the west coast of India. This time the route was reversed, with 3,000 tons – same size as the cargo headed eastwards last time – coming out of Hazira and going into Hamriyah. On investigation it appears that the cargo may have been refused but for whatever reason has not yet been established. Sources in the U.A.E. and India suggested that the cargo was badly off-spec and the quality could not be accepted by receivers. This news is unsubstantiated at the moment, and further clarity is sought.

The original 3,000 tons of product was Group l base oils, which would have originated from Iran.

In the U.A.E., the arrival is awaited of the large 19,000-ton parcel loaded out of Yanbu and Jeddah that will discharge into three U.A.E. ports. Group l and Group ll grades constitute this parcel, with various quantities of each type of base oil going into storage. The Group ll could be for resale in the Middle East Gulf and the U.A.E.

Large quantities of Group lll base stocks are being loaded out of Sitra and Al Ruwais in addition to large slugs moving from Ras Laffan in Qatar. Adnoc is loading three cargoes, to the east coast and west coast of India, Pakistan and also a replenishment parcel for Europe, whilst Bapco is loading smaller parcels for discharge into the U.A.E.

Netbacks for the Group lll base oils loading out of Al Ruwais in the U.A.E. and Sitra in Bahrain are tweaked higher as producers attempt to maximize returns and also to cover recent increases in production costs through feedstock price increases. Netbacks are assessed at $2,225/t-$2,295/t, for the range of 4 centiStoke, 6 cSt and 8 cSt partly-approved Group lll base oils.

Netback levels are based on prices derived and informally assessed from regional selling levels, less marketing, handling and estimated freight costs.

Group ll base oils sold on an FCA basis in the U.A.E. are supplied from European, U.S, Far Eastern and Red Sea producers. These grades are resold ex-tank, or often on a delivered basis within the Middle East Gulf. These base oils find their way into locations such as Qatar and Kuwait, in addition to catering for blenders located in the U.A.E. Prices are assessed higher and are now at $1,825/t-$1,865/t for the light vis grades, with 500N and 600N at $1,955/t-$1,995/t.

Africa

In West Africa, news is concentrated on Nigeria where a number of options are laid out for the supply of various quantities of base oils. There are two cargoes reported as possibilities to load from the Baltic. One of 7,000 tons is from Kaliningrad, and the other is a smaller parcel of 5,000 tons to be loaded out of Vyborg, a Russian port in the Gulf of Finland.

Another large cargo loaded out of the U.S. will discharge imminently for traders. There is still concern that no European availabilities are currently being worked, with little or no availability of Group l grades in sufficient quantity anywhere around the European circuit.

It is interesting that Russian export barrels are still considered by Nigerian receivers, given that they prefer to shy away from those purchases if possible. It may be that buyers in Lagos have little choice other than to accept Baltic supplies.

CIF/CFR prices were updated this week and are offered at the following levels for present and future cargoes going into Apapa. Levels are around $1,695/t-$1,725/t for quantities of SN 150, SN 500 is priced at around $1,750/t-$1,785/t and SN 900 is at $1,800/t-$1,855/t.

Any available premium quality bright stock could be priced at $2,150/t-$2,250/t, but currently there is no availability other than a lower spec cargo that was recently discharged into Apapa, having loaded out of Egypt some weeks back.

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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