The war in Ukraine has taken a new direction putting Russian forces on the back foot and Ukrainian military taking the fight to the front. This could cause dramatic changes to the economies and fortunes for Europe and beyond, for example should Russia lose the war.

Base oils will only be the winner in such an outcome, which would cause demand to return in Ukraine and neighboring states where all but essential blending and manufacturing of finished lubricants has been wiped out. The sanctions imposed by Europe and allied nations will not be rescinded in the short-term, thus maintaining pressure on the Russian state and economy.

Base oil prices are seen weaker across the board this week, as API Group I oils continue on the downward slope in a steady and progressive readjustment to levels last seen around a year ago. The previous run-up was not totally due to the Russian incursion, having been caused by a number of factors such as availability and surging demand coinciding with maintenance turnarounds that pinched supply.

Group II base oils are also feeling the downward pricing pressure, perhaps in part due to the widening gap between Group I and II prices, but also because slowing economies are tamping down demand.

Group III base oils are also experiencing weaker demand, although in Europe 4 and 6 centiStoke grades are still somewhat short. Some say this scenario is changing as imports and increase and European production returns to normal after a major turnaround at Neste’s plant in Porvoo, Finland.

Crude oil and petroleum product prices are declining, in some cases retreating to pre-invasion levels. Dated deliveries of Brent crude are at $89.55 per barrel for November front month settlement, some $7 lower than last reported two weeks ago. West Texas Intermediate has fallen a similar amount to $83.10/bbl, still for October front month.

Low-sulfur gas oil has plummeted more than $200 per metric ton since the previous report as demand crumbled and availability improved after the ban on Russian imports. Prices are at $944/t for October front month. All of these prices were obtained from London ICE trading late Sept. 19.

Europe

Prices for Group l exports from Europe continue to weaken on increased availability and declining demand due to the state of several of the largest economies around the world. Major consumers of base oil and finished lubricants are looking at lower forecasts and major downturns in industrial activity – trends that could last some years rather than months given the dearth of positive economic signs.

Demand in export markets such as the Middle East Gulf, West Africa and India has slowed and is showing no real signs of improving in the short term. The one exception appears to be South Africa, but this is largely controlled by oil majors and is a market only partly open to traders and third-party activity.

Refiners are moving to reduce base oil run rates in favor of higher margin distillates, though dynamics are in flux given that availabilities of diesel and jet kerosene are rising across the regions.

Prices for solvent neutral 150 dropped again to between $1,195/t and $1,260/t on an FOB basis, while SN500 is down to $1,265/t-$1,295/t. Bright stock is also on the move as sellers have been able to move large parcels by offering incentives on price. Values are now at $1,360/t-$1,390/t.

Group I trade within the region is still in the doldrums, with few buyers rallying to buy anything other than the bare necessities to keep blending operations moving. The exchange rate continues to defy sellers aims as the euro is now valued at less than parity against the U.S. dollar.

The price differential between exports and sales within Europe increased this week since the former fell faster than the latter. The differential is now assessed at €85/t-€175/t, export values being lower.

Group II sellers had managed to prolong higher prices, but now cracks are beginning to appear and erosion has set in here, too. Many buyers were unhappy with offered prices for the month of September, and sellers have now come back with much lower offers. Some have tried to postpone markdowns until October, but lower feedstock and crude levels are causing downward pressure to build. At least some sellers have amended September prices during the month rather than wait until October, lest they lose sales and, potentially, market share. Preserving market share is seen to be paramount at the moment.

Prices are now assessed at $1,645/t-$1,700/t (€1,643/t-€1,698/t) for 100 neutral, 150N and 220N, while 600N is at $1,785/t-$1,835/t (€1,783/t-€1,833/t). These levels apply to a range of Group II from Europe, the U.S. and Asia-Pacific and possibly from a Middle East source.

Group III prices are steady, but there is an undercurrent of weakness creeping into discussions between sellers and buyers for the fourth quarter. Sellers appear to want to prevent a deterioration in sales, but this may be more difficult than perceived as buyers argue that demand is falling in line with global economic activity. 

The Porvoo turnaround will finish toward the end of this month and production is slated to resume in the next week or so. The resulting perceived increase in availabilities may strengthen buyers demands for lower prices.

Among oils with partial slates of finished lubricant approvals, values for 8 cSt oils has dipped below those for 4 and 6 cSt grades, purely due to demand for the former waning in Europe.

Prices for partly-approved Group III oils slid slightly lower due to small changes in sellers pricing for September and are now at €1,865/t-€1,895/t for 4 cSt and at €1,870/t-€1,900/t for 6 and 8 cSt, all on an FCA basis ex Amterdam-Rotterdam-Antwerp and Northwestern Europe. Prices for Group III oils with full slates of approvals have also fallen, to €1,895/t-€1,925/t for 4 cSt and €1,900/t-€1,955/t for 6 and 8 cSt.

Baltic and Black Seas

Baltic Sea activity dwindled to almost zero, with only one vessel reported lifting a part-cargo out of Liepaja, en route to the west coast of the United Kingdom and Antwerp-Rotterdam-Amsterdam. The additional cargo, believed to be the mainstay quantity of the total parcel, loaded out of Gdansk. No reported cargoes are coming out of Svetly terminal in Kaliningrad, which is rather surprising since Lukoil trains are still passing through Lithuania en route to the terminal at Svetly. There are no shipping enquiries for future vessels to load out of Kaliningrad either, perhaps indicating the reluctance of European receivers to take Russian export barrels, even under designated contract, which is permitted to run until next February.

No deep-sea cargoes are reported, such as those previously loaded for Singapore, South America and Mexico.

FOB Baltic prices relative to the one identified part-cargo are given as indications only. SN 150 is indicated lower this week, at $1,200/t-$1,245/t, with SN 500 indicated at $1,275-$1,330/t. Indications for SN 900 may be around $1,340/t-$1,375/t.

The Black Sea and East Mediterranean regions report a large Russian base oil cargo which loaded last week for receivers in Hamriyah, in the United Arab Emirates. The cargo of some 11,000 tons of Russian grades loaded out of Limas terminal in Turkey after the material coming down the Volga River system in smaller river vessels, bridging the larger quantity into storage in Limas. Loaded numbers on FOB Limas basis would have been in the $1,195-$1,220/t rage for SN 150, with SN 500 at $1,255/t-$1,310/t.

In Turkey receivers, buyers and blenders are dealing with the problems of rampant inflation, which has reached incredible levels. Food and energy are the main elements, contributing to an estimated figure of something around 200% year on year inflation. These levels are unsustainable in any economy and cannot continue. Base oils are being sold for export, along with finished lubricants that are going into markets such as Central and South America.

Turkish blenders continue to buy Iranian and Uzbek base oils, which are being trucked cross border into Turkey. There are no letters of credit opened to facilitate these purchases, with the trade carried out by way of cash payments made in advance for each truck load of base oil.

Tupras, the Turkish refiner, has not restarted base oil production at the Izmir plant. However, Tupras is still offering products out of storage at inflated prices which are remaining unsold.

A major loading out of Rotterdam will discharge between 1,800 and 2,200 tons of base oils into Gebze during September and October. Cargoes from Livorno and Aghio have been offered to buyers in Turkey, but these cargoes were turned down as they were considered too expensive. Another explanation was heard – that letters of credit were impossible to open due to the banking limitations in Turkey at this time. Offered prices for SN150 and SN 500/600 were around $1,335/t for SN 150, with SN 500 around $1,420/t CIF Gebze.

Imported Group II base oils sold FCA storage in Turkish ports by traders or distributors are maintained, with September pricing considered more competitive, with some quantities of Group II grades arriving into Gebze from Yanbu refinery. Prices ex-tank are assessed at €1,910/t-€1,955/t for the three lower vis products, with 600N at €2,025/t-€2,095/t.

Group III base oils sold on the same FCA basis, for partly approved grades, remain at €2,135/t-€2,175/t. Fully approved Group III grades from Cartagena in Spain are to be sold FCA at around €2,200/t-€2,275/t.

Middle East

Red Sea reports indicate cargoes for Sudan and Egypt in addition to another large 10,000-ton parcel for three ports in the U.A.E. Another smaller cargo of around 2,000 tons is sold to receivers in Singapore.

Middle East Gulf receivers are awaiting the 11,000-ton cargo from Limas in Turkey, which should arrive into Hamriyah in Sharjah around the second half of September. This is a follow-up cargo from Lukoil. The large parcel of Iranian SN 150 and SN 500 that loaded out of Hamriyah for La Plata was confirmed as Iranian in origin, although the certificate of origin on board the vessel apparently states U.A.E. as the origin.

An 8,500-ton Group III base oil cargo for the west coast and east coast of India has loaded out of Al Ruwais. In addition, a smaller parcel of 3,500 tons will load from Bahrain, Sitra terminal, for Houston. This will replenish distributor stocks in the United States. A Sitra cargo has loaded for distribution in the U.A.E. and will probably be discharged into Jebel Ali.

Netbacks for Group III base oils out of Al Ruwais and Sitra are maintained. The netbacks are assessed at $1,755/t-$1,795/t, for the range of 4 centiStoke, 6 cSt and 8 cSt partly approved Group III base oils.

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

Group II base oils resold on the basis of FCA U.A.E. – sourced from European, U.S, Asia-Pacific and Red Sea suppliers – are being resold ex-tank, or on a truck-delivered basis within the Middle East Gulf, with most of the material remaining in the U.A.E. Prices are maintained at $1,825/t-$1,865/t for the light vis grades, with 500N and 600N at $1,955/t-$1,995/t.

Africa

South African shipping sources have confirmed a cargo of 10,400 tons loaded from Rotterdam and Fawley and will sail to Durban and then onwards to Mombasa.

West Africa is generally quiet with only the part-cargo from Yanbu going into Lome being news this week. There are also two cargoes being worked, one from Hamriyah and another from Korea. The first is a possibility because another cargo of some 12,000 tons loaded out of Hamriyah for La Plata a few weeks back. The Korean cargo may not work because of the high freight rates applicable.

In Nigeria problems are reported with the local banking system. A number of blending operations are going very short of base stocks to manufacture finished lubricants.

CIF/CFR levels for base oils offered into Apapa are maintained and are indicated at around $1,575/t-$1,620/t for quantities of SN 150, SN 500 is priced at around $1,685/t-$1,725/t, and SN 900 is assessed at $1,720/t-$1,755/t. As an indication only bright stock may be landed at around $1,795/t C&F Apapa.

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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