Some players still hope for an upturn during the second half of this year, but when the war in Ukraine is built into the equation, and high inflation continues to haunt almost every major global economy, the possibilities for a reversal in fortunes seems remote.

Group I markets are still re-engaging after the European Union’s ban on Russian imports. Some traders and blenders are scratching around for alternative supplies, but many producers are short of suitable material to fill the void, prompting some lube producers to replace Group I barrels with Group II. Group II producers are more than happy to accommodate since prices remain at acceptable levels.

Group III supply is beginning to turn long in the European arena thanks to the arrival of more Asia-Pacific suppliers eager to breach this high-margin market. The result is more and more Group III oils being seen around the market, and so price erosion is starting to set into what was previously a platinum-plated market.

Crude oil prices have steadied the past few weeks. It now appears that major producers such as Saudi Arabia and Russia have not followed through on pledges to reduce output, continuing to place barrels into a challenging market still trying to recover from the coronavirus pandemic even as inflation curbs demand for crude. Major economies such as China and India are still not firing on all cylinders, although significant quantities of discounted Russian crude are supporting both nations.  

Dated deliveries of Brent crude and West Texas Intermediate crude are hovering around the same levels as last reported. Brent is at $75.80 per barrel, still for July front month settlement, whilst WTI is $71.90/bbl, now for July front month.

Low-sulfur gas oil rose around $5 per metric ton since last week to $684 per metric ton, now for June front month. All of these prices were gathered from London ICE trading at the close of May 22.

Europe

European Group I exports are non-existent now for two main reasons. First, few suppliers have quantities available to meet demand going into areas such as West Africa and the Middle East Gulf. Second, any parcels that do become available are priced too high as sellers can find enough business in the European market, where prices are higher.

Many export destinations have become targets for oil majors, a shift that became noticeable the past couple years. Previously they would have left West African markets such as Nigeria, Ghana, Cote d’Ivoire and Guinea to traders, but now supplies into those regions are commonplace.

The Turkish market remains dull ahead of an election run-off scheduled for May 28. Whether its result will stimulate the local base oil market is a matter for conjecture. Rampant inflation and weakness of the Turkish lira could continue if Recep Tayyip Erdogan is re-elected president.

In the interest of reporting some numbers, prices for European Group I exports are unchanged at between $1,020/t and $1,055/t for solvent neutral 150 and $1,085/t-$1,140/t for SN500 and SN600, all on an FOB basis. No offers have been heard for export-sized parcels of bright stock, so prices for that grade are notionally left at $1,295/t-$1,345/t.

Group I trade within Europe appears steady without signs of upward or downward pressure on values. Even with a few Group I refineries closed temporarily for maintenance, supply of these grades remain ample, and the lack of competing demand from export markets means that buyers know they can access Group I with relative ease.

Group I imports are coming into Europe from a number of areas, including the United S. and Red Sea. Cargoes are being discharged into storage and then sold on an FCA basis in Antwerp-Rotterdam-Amsterdam and Northwestern Europe.

Prices for Group I sales within the region are assessed as stable at €1,050/t-€1,080/t for SN150, at €1,155/t-€1,185/t for SN500 and around €1390/t for bright stock.

The euro’s exchange rate with the U.S. dollar barely changed the past week and is at $1.08076. The price differential between Group I exports and sales within the region is maintained at €125/t-€185/t, exports being lower.

The European Group II market is described as balanced, with reasonable demand coming from a rather depleted market. It is not clear whether this demand stems owes to the unpredictability of Group I supply or mostly from lube blenders switch from Group I for technical reasons. Some blenders have said they planned to switch when scaling up operations post pandemic, while others are saying they need more Group II because of upgrades to lube specifications.

Given the large price gap between Group II and Group III, there has been a resistance to move heartily toward the latter category, and lube additive package suppliers are helping some blenders to meet new specs while sticking with Group II.

Group II prices are unchanged at €1,090/t-€1,175/t ($1,196/t-$1,289/t) for 100 neutral, 150N and 220N and at €1,295/t-€1,360/t ($1,421/t-$1,492/t) for 600N. These values apply to a broad range of Group II oils from Europe, the U.S., Asia-Pacific and Red Sea sources, imported in bulk or flexi-tanks. Note that the light grades do not all occupy the same part of the range listed for them; 100N and 150N are priced above 220N.

The Group III scene changed significantly. A market that was featuring allocations and limited supplies is now encouraging buyers to lift more than their monthly contracted quantities. The attraction of a high-price, high-margin market to sellers has lured more Asia-Pacific suppliers and spurred Middle East Gulf suppliers to increase their exports to the region. More cargoes from Sitra, Bahrain, and Al Ruwais, United Arab Emirates, are scheduled to load for Europe during June and July. A large cargo of gas-to-liquids Group III+ will load out of Qatar for Shell and will come into Europe, probably during July.

Interestingly, traders appear able to purchase quantities of the same oil from the same source from Far East sources, a practice banned until now under the Shell umbrella.

Group III prices are beginning to erode as a number of distributors and suppliers offer steep discounts for purchases of extra volumes. Values for Group III with partial slates of finished lubricant approvals or with no approvals are at €1,675/t-€1,795/t for 4 and 6 centiStoke and at €1,700/t-€1,725/t for 8 cSt, where available, all on an FCA basis ex Antwerp-Rotterdam-Amsterdam or Northwestern Europe.

Prices for Group III oils with full slates of approvals, currently supplied from the refinery in Cartagena, Spain, are unchanged at €2,020/t-€2,060/t for 4 and 6 cSt, on an FCA basis ex hubs in Antwerp-Rotterdam-Amsterdam, Northwestern Europe and Spain. Volumes of fully approved 8 cSt supplied in Europe are too low for reliable price reporting, but small volumes are being sold into destinations such as India and Turkey for around €1920/t, on an FOB basis.

Baltic and Black Seas

Outgoing Baltic cargoes almost disappeared from the radar, with only a number of shipping inquiries listed that show potential cargoes to be moved out of Svetly terminal in Kaliningrad for Lukoil. There are repeated cargo quantities each week to come out of that location, but whether receivers have not committed to the quantities, or whether there are problems finding suitable vessels to carry these cargoes is an unknown factor.

There are other small inquiries for material to be moved out of Riga, but mostly these inquiries never convert into actual cargoes. A Singapore parcel is to be loaded as soon as shipping is found to take this cargo, but there could be difficulty in finding suitable vessels that will be acceptable to receivers. European Union and other allied countries owners are not permitted to offer vessels to Russian charterers, particularly to load from a Russian port. Therefore, there are a limited number of owners who can offer to load from the Baltic to take deep-sea cargoes of base oil to ports such as Singapore and Hamriyah in the U.A.E.

Offers are continually made to receivers in the U.A.E., but the long voyage time and also the uncertainty of possible load dates makes firming these cargoes a forlorn hope.

Base oil parcels are seen moving into the Baltic from northwest European sources, and additionally another re-refined parcel will move into a Lithuanian port during the next couple of weeks. 

Sellers from Gdansk have indicated that they may have avails in July, with a number of receivers looking to take material from this source. The United Kingdom buyer looking to take Gdansk material opted to take a parcel of Group I base oils from Algeciras, but when this will load is not known as yet. The cargo quantity will be up to 4,500 tons.

FOB prices from Svetly are established by taking CIF prices delivered into Gebze discounted by estimated freight rates. As an indication only, SN 150 levels are put at $825/t-$875/t, with SN 500 at $845/t-$890/t.

FOB prices for Group I material from Gdansk refinery will eventually be in line with European mainstream pricing. Without any material available until July, prices are currently indications only, with SN 150 assessed at $1,025/t-$1,070/t and SN 500 at $1,095/t-$1,140/t, depending on destination. Bright stock may come in at $1,300/t-$1,355/t.

Turkish base oil markets appear to have shut up shop until the election is decided, following the run-off between the two leading contenders on May 28. Indications and polls suggest that the present incumbent president will be returned to power, leaving the same policies in place as previously decreed. The soaring inflation rate is set to remain along with the ever-weakening currency valuation of the Turkish lira versus the US dollar.

Russian base oil imports are still arriving into the main ports, flooding the Turkish base oil market with substandard base stocks for local blending. The current Baltic cargo should be arriving into Gebze in the next few days. A cargo from Aghio will also discharge in Derince with 4,400 tons of Group I neutrals, probably SN 150 and SN 600. These imports are necessary to manufacture some of the toll-blended finished lubricants that are produced in Turkey. Because these lubricants are formulated under license and must use approved blend stocks, receivers pay a much higher price than the Russian imports.

Existing offers from Greek sellers in Aghio had been very low, but the latest prices were hiked to higher levels. Latest offers are reckoned to be around $1,085/t for SN 150, with SN 600 at around $1,095/t.

Tupras availabilities from Izmir refinery have not changed during this week and in Turkish lira are as follows: spindle oil Tl 20,725/t ($1,057/t), SN 150 Tl 17,269/t ($881/t), SN 500 Tl 19,999/t ($1,020/t), with bright stock at Tl 24,767/t ($1,263/t). Prices are for ex-rack truck sales.

Limas terminal in Turkey may see further Lukoil cargoes destined for receivers in the U.A.E. The two cargoes to Singapore may have been a substitute quantity for the planned movement out of the Baltic, which may have been impossible due to shipping and other logistical problems. One parcel of 4,000 tons, with another cargo of 6,500 tons of Russian export barrels will load next week. The base oils will have been sourced out of Volgograd refinery.

Group II ex-tank prices are maintained, with levels assessed at €1,210/t-€1,245/t for the three lower vis products – 100N, 150N and 220N – with 600N at €1,390/t-€1,485/t. Supplies of Group II grades may be sourced from Red Sea, the U.S., South Korea and Rotterdam or hub storage in Valencia.

Partly-approved Group III base oils resold by distributors on an FCA basis or on a truck-delivered basis are again adjusted lower and are assessed at €1,825/t-€1,855/t. Fully-approved Group III grades delivered into Gemlik from Cartagena remain priced at €2,250/t-€2,300/t FCA.

Middle East

There appear to be supply interruptions from Yanbu refinery at the moment with a number of cargoes to the west coast of India and the United Arab Emirates being postponed and delayed. The nature of the problem is not known at this time, but there may be a feedstock issue that has interrupted the operation of the base oil train curtailing production. How long this supply issue will last is not released, and it is not known if it is feasible for some of the solvent neutrals to be supplied from Jeddah refinery to compensate for the loss of material coming out of Yanbu. Luberef should have loaded a number of large cargoes for the U.A.E., India and Pakistan, with a further parcel going into both Ras Al Khaimah in the U.A.E. and Mumbai anchorage.

An update on the present situation is being sought, and more information may be available later this week.

There are reported cargoes of coming into the U.A.E. ports Hamriyah, Ras al Khaimah and Jebel Ali. Additionally, cargoes were to load for Fujairah and Jebel Ali, but these cargoes may have been delayed due to the problems at Yanbu, comprised of Group I and Group II base oils. The parcel en route from Augusta and Valencia to the U.A.E. should arrive within the next couple of weeks, perhaps alleviating the shortages caused by delays from Yanbu.

Middle East Gulf regional demand is higher for premium base oils, with Group II going into blending operations that are now producing higher spec passenger car motor oil and heavy-duty motor oil lubricants. More state of the art European and United States vehicles are being purchased by owners in the U.A.E. and other Middle East Gulf states. Oddly, there have been few moves to introduce electric vehicles into the Middle East Gulf states, possibly due to the low prices of motor gasoline and diesel in those areas. Group II base oils are taking the place of existing Group I that was formerly used in blending. Group II cargoes are arriving in the U.A.E. from Red Sea, South Korea, the U.S. and Europe.

However, Group I base oils are still utilized in many local blending operations in the Middle East Gulf, with a stream of material supplied from Rayong in Thailand. Other supplies of Group I base oils are coming out of Indian refineries in Haldia and Chennai. That’s because, with imported cheap Russian crude apparently being purchased by Indian oil companies at around $40 per barrel, Indian base oil producers are able to provide larger quantities of Group I base oils that have excellent margins when sold into receivers in the U.A.E., Singapore and Southeast Asia.

The offer for a cargo of Group I base oils to be imported into the U.A.E. from Lukoil will probably not go ahead, due to logistical and shipping problems. Prices are believed to be very low, but the voyage time from the Baltic and the finance outlay are unacceptable. Receivers are requesting if they can look at a parcel coming out of Limas terminal in Turkey as a replacement.

Group III exports coming out of the Middle East Gulf have parcels loading out of Sitra in Bahrain and Al Ruwais in the U.A.E. The additional Stasco cargo from Sitra has loaded with around 8,200 tons of Group III grades. The cargo will discharge in Rotterdam.

A further Adnoc cargo will load from Al Ruwais for distributors in Nantong, China. The vessel will load around 7,000 tons of three Group III grades. The European replenishment cargo should load this week or next for European distributor Chemlube. The parcel will be made up of around 8,000 tons of three Group III grades – 4 CentiStoke, 6 cSt and a smaller quantity of 8 cSt material.

Netbacks for partly-approved loading out of Al Ruwais and non-approved Group III base oils loading from Sitra refinery are adjusted due to lower selling prices in Europe and India. Netback returns are now assessed at $1,700/t-$1,750/t for the range of 4 cSt, 6 cSt and 8 cSt partly-approved and non-approved Group III base oils.

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

Group II base oils resold by distributors and traders on an FCA basis in the U.A.E. are sourced from European, U.S., Asia-Pacific and Red Sea producers. Grades are sold ex-tank U.A.E., or sometimes on a truck-delivered basis within the U.A.E. and Oman. Prices remain unchanged this week, following upward moves in the last report, with levels at $1,520/t-$1,465/t for the light vis grades, with 600N at $1,570/t-$1,565/t. The high ends of the ranges refer to road tank wagon deliveries.

Africa

South African agents confirmed a large cargo of around 24,000 tons of base oils will load out of Rotterdam and Fawley, discharging first in Durban, then Mombasa, and finally Dar-es-Salaam. On board will be quantities of Group I, Group II and Group III base stocks. 

Traders have opted not to consider Indian Group I base oils for receivers in Nigeria, commenting that the freight element is unworkable and would take the prices too high for Nigeria. U.S. Gulf Coast and U.S. Atlantic Coast are favorites at this time, with no availability from Europe at the current time. Livorno may be an option during the coming months, but reports are that there are problems not only with a refinery fuels turnaround, but also with lube production. More information is being investigated.

Jeddah and Yanbu have been included on the list on the basis that a cargo of two Group I grades sailed from this source to northwest Europe. With current problems at Yanbu and only two solvent neutral grades available out of Jeddah, this option may have to go on hold until later in the year.

Russian material from Lukoil is still offered out of Svetly terminal in Kaliningrad, but there appear to be problems in making this cargo work. The problems may lie with payment terms with letters of credit and import licenses.

The stand-alone cargo out of Fawley with around 6,500 tons of two Group I grades is delivering Group I base oils into Abidjan in Cote d’Ivoire and Tema in Ghana. The Ghana tender supply normally requires three Group l grades – including a quantity of bright stock – but this quantity of bright stock may have been supplied by an earlier vessel that was en route to Durban. Certainly, a Durban bound vessel called at Tema port some weeks back.

A follow-up large U.S. Gulf Coast and U.S. Atlantic Coast cargo with possibly up to 20,000 tons of three Group I grades – SN 150, SN 500 and SN 900 – is being negotiated for June loading, but the supply of this size of cargo to multiple receivers is a nightmare.

Confirmed prices for a recently arrived cargo had CFR levels at $1,020/t for SN 150, SN 500 at $1,070/t and SN 900 at $1,150/t. Bright stock was blended with SN 500 at loading, to produce SN 900. Due to the relative high prices for bright stock in the blend, this makes the SN 900 grade more expensive than blending with another heavy neutral, such as SN 1200.

Offers for cargoes arriving in June or July will have to have higher prices due to increasing FOB levels. CFR prices are anticipated to be SN 150 at around $1,045/t-$1,080/t, SN 500 at $1,125/t-$1,165/t and SN 900 at $1,200/t-$1,225/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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