The development spooked markets, prompting base oil buyers to start looking to take larger quantities to rebuild inventories that were run down in recent months. The European Union’s ban of Russian imports is also starting to be felt now that stocks built up ahead of the Feb. 5 implementation are being used up.

Looming maintenance shutdowns at a number of API Group I production sites which could further tighten API Group I markets. In addition, the diesel price premium to crude remains high, incentivizing refiners to optimize output of distillates rather than diverting feedstock to produce specialties such as base oil.

API Group II demand appears to have been regenerated as a number of buying inquiries were heard for material that had been allocated to customers but had yet to be moved into blending operations.

Overall, attitudes in the base oil markets are changing quickly, and the result could be a spike in buying interest across Europe, the Middle East and Africa, with some players predicting upward pricing pressure.

With the start of Ramadan last week, Middle East Gulf markets slowed and will continue on a limited basis for the next three to four weeks, until after the Eid holiday at the end of Ramadan.

Meanwhile, back in the European arena, national strikes in France are affecting supplies and deliveries of additives from two major production facilities. This is not merely having an effect within France but more broadly across the European mainland and beyond. Blenders using Lubrizol and Oronite additives are being adversely affected, and some operations are actively seeking alternative supplies. The entrenched nature of lubricant formulations makes this easier said than done, however.

The negative against buyers launching into a spree is that interest rates are still rising, making decisions to purchase large quantities of base oil difficult at best. Buyers are treading a fine line between the possibility of prices rising against the cost of capital to be tied up in inventories which could take months rather than weeks to use. Each blender will have to decide which way to move, depending on circumstances and organisation.

Following last week’s report, crude oil prices crashed to below $76 per barrel before the group of nations known as OPEC+ announced cutbacks. Prices in Asian markets then climbed toward $86/bbl.

Dated deliveries of Brent crude has now come off the Asian highs and has gravitated to a level of $84.50/bbl for June front month settlement. West Texas Intermediate rose to $80.05/bbl, still for May front month, narrowing the crack between the benchmarks to around $4.5.

Low-sulfur gas oil prices increased around $25 per metric ton to $796 per metric ton for April front month. All these prices were obtained from London ICE trading late April 3.

Europe

Group I export prices did not change when the calendar flipped to April, although crude markets could exert pressure. An increase in demand could have the same effect, but it is not certain that will materialize since many export destinations are now unable to support large cargoes of Group I base stocks. Markets such as Nigeria, the United Arab Emirates and India could instead stagnate until they sort themselves out and establish a workable arbitrage allowing European oils to compete with alternatives from Asia-Pacific and the United States.

Turkey has run into a temporary hiatus with taking large quantities of Russian base oils. Storage facilities are reported to be at tank-tops with little ullage available to take large cargoes which would load out of the Baltic or Black Sea. Buyers have been purchasing Russian material but have not been drawing stocks from storage fast enough to allow further large cargoes to come in.

Simultaneously Mediterranean cargoes from Livorno and Sicily, Italy, and Agio, Greece, are being offered to receivers in Gebze and Derince, Turkey, with buyers looking for rock-bottom prices due to the large differential between Mediterranean numbers and Russian supplies.

Prices are heard at around $1015/t-$1030/t in respect of quantities of SN150, with SN500 at $1160/t-$1175/t CIF Turkey. Sources have confirmed this week that Russian prices are rising and are being pitched higher than the low numbers seen over the past few months. The starting point was incredibly low, hence increases have been deemed necessary to increase margins to acceptable levels.

The cargoes of Russian export barrels from Svetly in the Baltic have not loaded perhaps due to the reasons above, but indications are that at least one parcel of up to 20,000 tons may load in the next few days leaving enough time for stocks to be drawn from storage allowing discharge to take place around the end of April.

Prices for Group I exports from Europe are unchanged at between $920/t and $955/t for solvent neutral 150, $1025/t-$1075/t for SN500 and $1240/t-$1275/t for bright stock, all on an FOB basis.

European regional markets for Group I base oils may be on the cusp of a new demand cycle, with events pushing buyers to consider taking larger quantities of Group I base oils to replenish inventories which have been run down over the past few months. Buyers are still guarded about purchasing larger parcels, mainly due to high interest rates which limit borrowing driving the cost of investment capital ever higher, eating into fine margins which can crucial to the success of a blending operation.

Currently additive supply can be problematic with strikes affecting transportation from plants to blending locations. This may be a short term difficulty. although current news is that French drivers are continuing to strike and show few signs of capitulation and a return to normal working.

Availability is reported as adequate with Group I stocks available for local markets. Upcoming maintenance could affect Group I availabilities, but refineries are capable of covering any supply interruption by laying in stocks prior to the start of a turnaround.

Prices for Group I sales within the region are at €1,000/t-€1,050/t for SN150, €1,145/t-€1,175/t for SN500 and around €1,295/t for bright stock.

The euro has moved marginally upwards in value against the U.S. dollar to $1.0863 on April 3. The differential between prices for Group I exports and sales within the region remains in the same band as previously reported at €120/t-€210/t, exports being lower.

Group II base oil markets around Europe have settled down following the adjustments made by a pincipal supplier of these grades. The market is back in balance, with sellers adopting similar ideas on pricing for the range of Group II base oils.

Prices are at $1,145/t-$1,183/t (€1,060/t-€1,095/t) for 100 neutral, 150N and 220N and at $1,300/t-$1,363/t (€1,200/t-€1,255/t) for 600N. These prices apply to a broad range of Group II base oils from Europe, the U.S., Asia-Pacific and Red Sea sources, imported either in bulk or in flexi-tanks.

Demand seems to be improving with reported increases in activity where buyers are becoming more active and are looking to take considerable quantities of Group II grades.

European Group III markets are reporting more availabilities. The market can still be considered as tight, but new supplies of material have arrived or are arriving into Europe from the Middle East Gulf, Malaysia and South Korea, in addition to regional production in Finland and Spain. Allocation programs remain in place for grades with full slates of finished lubricant approvals.

Large trans-shipments from Cartagena, Spain, continue to move into Rotterdam, including a 17,000 ton parcel loading mid-April. Additional storage for this seller has been added in Antwerp, perhaps due to a containment situation in the refinery at Cartagena.

The large cargo of around 34,000 tons loaded out of Malaysia, consisting mostly of 4 and 6 centiStoke oils plus a small quantity of 8 cSt that is barely used in European markets except in some specialized metalworking lubricants. The cargo will discharge in Genoa around mid-May.

This quantity will give a tremendous boost to availabilities of Group III base oils around Europe and particularly in the Mediterranean regions. Ultimately this could start to erode prices at the top of the market, as this material has a partial slate of approvals.

Prices for partly-approved Group III base oils remain high in most cases, although there are reports of a Korean seller, who will gain full approvals sometime next year, offering material at prices distinctly below the market average. Offers have been heard at around €1,700/t for 4 cSt product.

Price ranges are therefore altered to take this level into account and are assessed at €1,700/t-€1,850/t for 4 and 6 cSt and at €1,765/t-€1,785/t for 8 cSt, all on an FCA basis ex Antwerp-Rotterdam-Amsterdam for Norrthwestern Europe.

Fully-approved Group III base oils from Cartagena are at €2,050/t-€2,100/t for 4 and 6 cSt and at €1,955-€2,005 for 8 cSt, again on an FCA basis from hubs in Antwerp-Rotterdam-Amsterdam, Northwestern Europe and Spain.

Baltic and Black Seas

Baltic trades are coming out of Svetly terminal in Kaliningrad and Riga, and this week an additional cargo is being looked at loading out of St Petersburg. This cargo for receivers in Hamriyah, in the United Arab Emirates, may move to load in Riga, depending on how the quantity of 7,000-7,500 tons is to be delivered into shore storage. The two large cargoes earmarked for Turkey which were to load at the end of March are still to be fixed, perhaps due to congestion in the Turkish port of Gebze, where storage tanks are reported full and cannot accept further quantities of Russian export barrels.

The Nigerian cargo also remains unloaded, with 5,000 tons planned for Apapa. How Russian sellers handle and confirm letters of credit is unknown because no prime European banks will be involved with Russian traders, and the situation with how Russian banks can add confirmation is not at all clear.

Sources in Lithuania have reported that further imports of rerefined base oils from Kalundborg in Denmark will be taken into Klaipeda port. 

FOB prices from Svetly for SN 150 are believed to have moved upwards, taking information from selling prices for the material entering the Turkish market. Levels are now indicated at $790/t-$825/t, with SN 500 at $830/t-$870/t. However, each deal is different and offers for delivered prices which can still be heavily discounted, hence the nominal FOB levels will depend on destination and receivers and also terms of payment which can vary from one receiver to another.  

FOB prices for Group I material from Gdansk refinery are reported on the basis that material may start to become available around mid-April. Prices are included in the European mainstream pricing, with SN 150 assessed at $930/t-$965/t, SN 500 at $1,040/t-$1,085/t, depending on destination. Bright stock is at $1,260/t-$1,300/t.

Black Sea and Eastern Mediterranean reports contain news that Turkish storage in Gebze may be full, with buyers not withdrawing paid-for stocks from storage tanks until 20 days after purchase. This practice may be more economical than hiring additional storage to take loads out of stock. Due to this problem, no further supplies of Russian barrels of base oil can take place until ullage is freed up to discharge additional quantities.

The Turkish base oil market is totally saturated with imported Russian SN 150 and SN 500 from Lukoil, and the market cannot accept any further in quantities.

At the same time, Group I cargoes are offered out of Livorno and Aghio. A parcel of 5,000 tons is being considered loading out of Aghio, but supplies from Livorno and Aghio appear to have declined because prices versus Russian imports are still much higher. There are reports that Russian prices have increased but starting from a very low level. It is not thought that these numbers will be close to the mainstream supplies from Italy and Greece.

Imports from Livorno and Aghio had recent delivered prices offered at $1,015/t for quantities of SN 150, with SN 500 and SN 600 at $1,160/t on a CIF basis. Bright stock may be included from Livorno at a price tag of around $1,325/t CIF Gebze or Derince. 

Tupras has availability of spindle oil, SN 150, SN 500 and bright stock. Prices remain as per last month in Turkish lira, with dollar equivalents at $915/t for spindle, $1,060/t for SN 500 and bright stock at $1,270/t. Prices are based on FCA sales. Petrol Ofisi have called for a base oil tender, the details of which are still to be revealed.

Group II sold ex-tank prices are maintained and assessed at €1,135/t-€1,200/t for the three lower vis products – 100N, 150N and 220N – with 600N at €1,325/t-€1,420/t. Supplies of Group II grades can be dispatched from the Red Sea, the United States, South Korea and Rotterdam or Valencia.

Group III partly-approved base oils, sold by distributors on an FCA basis or on a road tank wagon-delivered basis, are assessed at €1,865/t-€1,900/t. Fully-approved Group III grades delivered into Gemlik from Cartagena in Spain are priced at around €2,250/t-€2,300/t FCA.

Middle East

Red Sea news reports a large cargo of 17,000 tons, which will load from Yanbu and Jeddah and will discharge in Mumbai anchorage in the west coast of India. The Group I cargo loaded out of Jeddah and Yanbu for Durban has sailed and will discharge into Durban during the second half of April. The cargo consists of 10,000 tons of Group I and Group II grades of base oil.

The 15,000-ton cargo from the Red Sea being imported into three U.A.E. ports will have Group II and Group I base oils on board – this being the second parcel to discharge at least partly into storage in Hamriyah in Sharjah. The other cargo of 17,000 tons has already discharged.

Rayong in Thailand has seen two cargoes – one of 2,000 tons and another of 3,5000 tons – of Group I base stocks loading for the U.A.E. The parcels will discharge into Ras al Khaimah, where more and more cargoes appear to be headed for discharging. New storage was built in this port, but the size and number of tanks is not yet known. 

North Korean, Singapore and Thailand have offers from Lukoil for a cargo to load out of Svetly in the Baltic with 10,000 tons of Russian export barrels. The U.A.E has imported many cargoes from sources in India and mainland China, with quantities of Group I and Group II base stocks.

Group III base oils are the backbone of the exports from the Middle East Gulf, with base oils from Sitra in Bahrain and Al Ruwais in the U.A.E. the two hubs with regular cargoes moving to China, India, Europe and the U.S. A smaller cargo from Sitra will discharge in a U.A.E. port for local distribution to blenders in that region. Sales are made on an FCA basis out of storage in Hamriyah. The cargo of 2,500 tons that will be sold ex tank or often on a road tank wagon-delivered basis to blenders in the U.A.E. and Oman. A cargo of 6,500 tons will load from Adnoc in Al Ruwais for distributors in Mumbai anchorage in India.

The large parcel of 24,500 tons of gas-to-liquids-based Group III+ base oils has loaded from Ras Laffan in Qatar. The cargo will go into Mumbai, Jawaharlal Nehru Port Trust port for the Shell system in India. 

Group III netbacks for partly-approved and non-approved base oils loaded out of Al Ruwais and Sitra are maintained as per last report with resale prices in the regions reported as stable. Netback returns are assessed at $1,745/t-$1,795/t for the range of 4 centiStoke, 6 cSt and 8 cSt partly-approved Group III base oils. Price pressure may be building on Group III levels in markets such as Europe, where prices have remained high, but with increasing quantities of material from various sources such as Malaysia and South Korea moving into this lucrative market, there may be scope for adjusting netbacks lower following new prices being touted around that market.

Netback levels are based on local FCA prices in markets such as Europe, India, the U.S. and China. Netback levels are derived from regional selling prices, less marketing, margins, handling and estimated freight costs.

Group II base oils sold on an FCA basis in the U.A.E. are sourced out of European, U.S, Asia-Pacific and Red Sea producers. These grades are available ex tank U.A.E., or on a truck-delivered basis within the U.A.E. and Oman. Prices remain unchanged, with levels currently at $1,420/t-$1,465/t for the light vis grades, with 600N at $1,495/t-$1,535/t. The high ends of the ranges refer to road tank wagon-delivered base oils.

Africa

South African shipping sources confirmed yet another large cargo loading out of Rotterdam and Fawley, discharging in Durban, with the bulk of the cargo. Thereafter, it will sail to Mombasa, with the balance of the parcel that will total around 22,000 tons of base oils. The cargo will start to load mid-April in the first port, Rotterdam.

In Nigeria, financial difficulties continue, with coordinating a number of buyers for one cargo remaining a nightmare. Receivers have very different views as to where prices should lie, with counters received by traders that are impossible to countenance. Foreign currency – U.S. dollars especially –  continues to be a problem for the Central Bank of Nigeria, with local banks unable to open letters of credit on time, with potential delays to vessels loading without proper documentation being in place before sailing. All these factors are heaping pressure on traders to act properly and responsibly and to avoid taking risks unnecessarily.

One cargo will load in the next few days from U.S. Gulf Coast, with a relatively large quantity of Group I base oils on board. The cargo will discharge in Onne port because of draft restrictions in Apapa port.

Another cargo may load during May for the same trader, although the problems are not expected to be any less at that time. Some traders appear to have taken a back seat when dealing in Nigeria and are missing from the market. 

Lukoil is trying to fix a 5,000-ton cargo of Russian export barrels out of Svetly terminal to go into Apapa, but this parcel has apparently not loaded yet. With the processing of letters of credit – which are necessary for import licenses to be granted for base oil cargoes – it is unclear how a Russian entity such as Lukoil or Litasco can have confirmation added to the letters of credit.

CFR prices for European material sourced from the Mediterranean were put at around $910/t for SN 150, SN 500 at around $990/t, and SN 900 is priced at around $1,050/t. These levels are deemed too low and will not be achievable.

Realistic levels for current cargoes loading imminently have CFR levels as indications only. Levels are confirmed at $1,010/t-$1,020/t for SN 150, SN 500 at $1,050/t-$1,060/t, and SN 900 at $1,130/t-$1,145/t. Bright stock is estimated at around $1,320/t CFR Apapa on cargoes from Rotterdam and Fawley.

Future offers for cargoes further down the line – arriving perhaps during June – will have higher prices, particularly for SN 900, which now requires quantities of bright stock to blend this grade. CFR price levels are assessed as SN 150 at around $1,025/t-$1,040/t, with SN 500 at $1,075/t-$1,095/t and SN 900 at $1,155/t-$1,175/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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