Sanctions such as those being taken by Western governments and alliances could cripple the Russian economy and would leave a massive void in the economic-political sphere, not just in the immediate region but far and wide.

So far Western leaders have failed to achieve any breakthrough with Russian President Vladimir Putin, and now Russian troops have made extensive inroads into Ukraine, and the world is trying to determine what happens next.

The situation has spurred crude oil prices to new highs, adding to inflationary pressure that is damaging economies that are starting to recover from the COVID-19 pandemic.  

Base oil markets are starting to react to the run-up in crude and feedstock costs, with some producers trying to impose mark-ups. Some buyers are arguing that since base oil prices and margins are already high that hikes should be small or are not even justified.

Crude prices had begun to ease from a Feb. 13 peak but firmed again in recent days. Dated deliveries of Brent crude hit $96.84 per barrel, now April front month settlement. West Texas Intermediate crude also shows strength, moving to $91.91/bbl, also for April front month.

Meanwhile European ICE low-sulfur gas oil remains firm at $834.29 per metric ton, now moving on to March front month These prices were obtained from London ICE trading late Feb. 21.

Europe

Prices for API Group I exports from Europe have remained relatively static, perhaps due to the lack of material available for export destinations. The loss of production from the refinery in Livorno, Italy, has caused a gap in the market not plugged by other producers along the Mediterranean or in Northwestern Europe, so traders are looking for alternative sources.

The Livorno plant may not restart until May, according to sources, and since other suppliers can only offer smaller quantities for cargoes, a buying spree could cause substantial upward pressure on values. Suppliers are prioritizing domestic sales where margins are higher and uptake is prompt and relatively secure.

Solvent neutral 150 prices are stable this week between $755 per ton and $770/t, while SN500 is unchanged at $905/t-$925/t, both on an FOB basis. There have been few inquiries for large parcels of bright stock, which is still at $1,175/t-$1,225/t.

Group I sales within Europe are lackluster with no signs of the usual spring uptick. Blenders across Europe describe poor demand for finished lubes within all sectors thanks to general malaise from the coronavirus pandemic. Now there are real fears for the Ukrainian situation, and many players are loath for now to commit to new capital projects.

Prices for intra-regional sales have risen since the start of February, so differential from exports has widened to €150/t-€185/t, exports being lower.

Group II base oil prices around Europe are stable and indeed may have already regained some of the lost when discounting was introduced in early January. Demand has picked up a little according to some sources

Group II prices are unchanged at $1,240/t-$1,275/t (€1,095/t-€1,138/t) for 100 neutral, 150N and 220N, while 600N is at $1,470/t-$1,520/t (€1,295/t-€1,340/t). These prices apply to oils from a range of sources including Europe, the United States, the Middle East and Asia-Pacific.

European Group III markets are buzzing with excellent demand and a relatively secure supply chain from various sources from within Europe, the Middle East Gulf and the Far East. Prices are stable and in some cases have been agreed for as far forward as May and June.

A shortfall of additives is having a detrimental effect on the Group III market, as some blenders find it tough to lay hands on sufficient quantities of additives from their approved suppliers. Alternative sources are said to have sold out on any spare capacity. One source predicted the shortage will start to abate during the second quarter.

Prices for Group III oils with partial slates of finished lubricant approvals are generally unchanged at €1,580/t-€1,600/t for 6 and 8 centiStoke grades and €1,485/t-€1,500/t for 4 cSt, all on an FCA basis ex Antwerp-Rotterdam-Amsterdam. Group III oils with full slates of approvals from European original equipment manufacturers carry premiums at €1,545/t-€1,595/t for 4 cSt and €1,620/t-€1,725/t for 6 and 8 cSt.

Baltic and Black Seas

Baltic Sea traders are using Russian base oil exports to fill the void of exports from mainstream Group I producers in Europe. The previously mentioned 9,000-ton parcel for Nigeria was finally loaded out of two ports, Kaliningrad and Riga. Meanwhile, there have been other relatively large parcels for Antwerp-Rotterdam-Amsterdam, including one 6,000-ton cargo moving out at mid-month. The La Plata fixture has been confirmed and consisted of around 4,000 tons of two grades loading out of Kaliningrad.

No additional cargoes of rerefined base oils have been reported during the past couple weeks, although one large blender in the United Kingdom started looking for a parcel to load out of Kalundborg, Norway for the U.K.’s east coast in early March.

The conflict between Russia and Ukraine has raised questions about the availability of Russian base oil exports should Western governments impose sanctions, but Baltic traders were are not commenting this week. If Russian exports are halted, European producers could have real problems supplying buyers within the region and overseas. It is believed that some buyers in Antwerp-Rotterdam-Amsterdam are building stocks in anticipation such a situation, thus limiting the availability of Group I oils from Russian sources such as Rosneft, Gazprom and Lukoil.

Baltic prices are unchanged this week at $745/t-$775/t for SN150 and $850/t-$895/t for SN500, both on an FOB basis. Quantities of SN900 are estimated at around $975/t.

Black Sea sources say the state of the economy in Turkey is limiting the banking system and hence ability to purchase required imported goods, which of course includes base oils since the Tupras refinery in Izmir cannot quench local demand. The loss of availabilities from Livorno also hurts the Turkish scene because it leaves Greece as the only option, and Greece does not have a great deal of material available for traders in Turkey.

Only one cargo was noted going into Gebze, Turkey, this week – 4,000 tons from Greek suppliers containing indications of $835/t for SN150 or SN100 and $980/t for SN600 on a CIF basis.

Group II grades imported by agents and sold through distributors on an FCA basis are priced at €1,255/t-€1,295/t for 100N, 150N and 220N and €1,425/t-€1,460/t for 600N. Group III base oils being resold on the same ex-tank basis have FCA levels at around €1,565/t-€1,685/t for partly approved grades and €1,620/t-€1,675/t for fully approved oils from Spain.

Middle East Gulf

Red Sea activity shows a number of cargoes moving to the West Coast of India, Pakistan and the Middle East Gulf, along with another movement of bright stock into EGPC in Egypt. The Durban cargo is still on the table but has been delayed either by receivers holding back or sellers working to obtain the right vessel to perform the voyage. The West African cargo – 7,000-8,000 tons of Group I to load from Yanbu’al Bahr, Saudi Arabia, for discharge into multiple ports not including Nigeria – does not appear to have been confirmed as yet.

Middle East Gulf notes show cargoes of Group I and Group II base stocks from Saudi Arabia and other smaller parcels of Group I arriving from Thailand and Singapore. Exports of Iranian rubber process oils are confirmed loading out of Ras al-Kaimah, United Arab Emirates. This product will have been exported from Iran and then stocked in the U.A.E. awaiting re-shipment to Hazira on the West Coast of India.

Group III exports from Al Ruwais, U.A.E., Sitra, Bahrain, and Ras Laffan, Qatar, are prominent and include a large 25,000-ton cargo of gas-to-liquids Group III+ loading out of the latter location for discharge into Singapore or China. Other cargoes are loading from Al Ruwais for European distribution and from Sitra for receivers in China, Pakistan and India’s West Coast.

Netbacks for partly approved Group III base oils exported from Al Ruwais and Sitra are unchanged this week, assessed at $1,900/t-$1,950/t for 4, 6 and 8 cSt Fully-approved grades from Sitra, still being marketed by Neste, bring higher selling prices at therefore higher netbacks of $1,925/t-$1,975/t.

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

Group II base oils imported into the Middle East Gulf are being resold within the region on an FCA ex-tank basis. Prices are unchanged since the previous report at $1,425/t-$1,535/t 100N, 150N and 220N, 500N and 600N are at $1,515/t-$1,545/t. These oils are sourced from South Korea, Saudi Arabia, Singapore, the U.S. and occasionally from Europe.

Africa

South African news confirms that two large cargoes of almost 30,000 tons of Group l, II and III oils to discharge in Durban after loading out of Rotterdam, Netherlands, and Fawley, U.K.

Nigerian receivers and traders are finding problems covering requirements from the usual sources in Europe. With Livorno out of the frame at the moment, reliance of Greek and Spanish suppliers to sell on an FOB basis has to take place. The problem is that these refiners do not have the requisite quantities of base oil to supply into Nigeria, and alternative sources such as the U.S. may be the only solution. This is perhaps where the Saudi Arabian supply from Yanbu comes in.

In Europe the only viable supply source is the Baltic, but if Western sanctions are applied to Russian interests it could endanger supplies from that region. Hence, Nigerian receivers are keen to purchase large quantities of Group I base stocks right now.

The previously mentioned 18,000-ton cargo from the U.S. Gulf Coast has loaded and will discharge into two Nigerian ports – Apapa and Port Harcourt. The Baltic cargo has also loaded with 9,000 tons of Russian export barrels. Other cargoes ex Baltic are being worked by traders, and confirmation may be in place later this week. CIF/CFR prices at Nigerian ports are unchanged at $935/t-$950/t for SN150, while larger quantities of SN500 are offered at $1,050/t-$1,065/t, and SN900 is being priced at $1,125/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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