The European scene has been further muddied by the latest episode in the war between Russian and Ukraine – the weekend’s short-lived clash between the Wagner mercenary group and Russia’s military leadership. A deal brokered by Belarus President Aleksandr Lukashenko diffused the situation, but Ukraine’s redoubled its counteroffensive and reportedly made progress in taking back territory. Much of the world is watching to see if the episode weakens Russia and hastens an end to the war.

What relevance has this situation for the base oil industry? If the fighting ends and Ukraine’s reconstruction begins, it might mean an economic resurgence that would boost many markets, including lubricants.

The haunting specters of high inflation and high interest rates are still holding back capital investment across Europe and beyond, but perhaps there will soon be light at the end of a long, dark tunnel.

API Group I base oil markets around Europe are calm but show little sign of exports resuming. Most refiners seem content to service local or regional markets with whatever availabilities they have. There are still supply issues stemming from a number of Group I refineries operating at less than normal rates. For example, the refinery in Gdansk, Poland, has not confirmed if will have availabilities for next month, and Eni’s refinery in Livorno, Italy, has extended its closing at least until October.

Prices for Group I are weaker going forward into July, with a number of buyers claiming that they received significant discounts for off-takes during the month on the proviso that they take fully allocated volumes to alleviate inventory problems for sellers headed into the quiet month of August.

Group II is also coming under pressure due to buyers not lifting fully contracted quantities. Sources said finished lube demand is poor in all sectors and not improving, from process oils to high-performance automotive lubricants. Forecasts now call for the third quarter to be weak in terms of Group II purchases.

Fortunately for suppliers within the region, lower Group II quantities are coming in from U.S. sources. The Group III segment is still trending toward oversupply in Europe, with no let-up to imports from Asia and the Middle East Gulf. Demand is wavering – again on falling demand for finished products blended with these base stocks. Some players are saying that the market will pick up during the second half of the year and will recover further early next year.

Forecasts for crude oil have been bullish the past few days, with some financial institutions such as JP Morgan suggesting that prices could surge. However, demand remains muted in big markets such as China and India remains muted, where large quantities of discounted Russian crude are limiting opportunities for other OPEC+ members states.

The result is a confused picture that saw values falling in early trading this week, reversing the positive movement last week. Dated deliveries of Brent crude are down around $2.5 per barrel from last week to $74 per barrel, still for August front month settlement. West Texas Intermediate fell below $70 per barrel to $69.30/bbl, also for August front month.

The strength in low-sulfur gas oil evaporated the past week as prices retreated around $30 per metric ton to $706/t, still for July front month. All of these prices were established from London ICE trading late June 26.

Europe

At the risk of repeating ourselves, the European Group I export market does not exist at the moment as no refiner is in position to offer quantities needed for export cargoes or to offer competitive prices that would be acceptable. Internal transfers by energy majors continue to move material into delivery hubs – for example from Northwestern Europe to South Africa and Singapore or from the Mediterranean to Singapore and to a delivery hub in Spain.

Notional and reported for comparative purposes only, prices are between $960 per ton and $1,020/t for solvent neutral 150, $995/t-$1,085/t for SN500 and SN600 and at $1,225/t-$1,300/t for bright stock, all on an FOB basis.

European Group I producers are focused instead on local markets, where available quantities are covering meager demand is only covering available quantities, but downward pricing pressure is reducing the premium over diesel starting to fall, so refiners may be go back to shifting feedstock use to production of distillates. Imports are helping to balance the regional markets, but with the absence of an export scene, one-way movements into Europe are the name of the game now. Should European prices start to fall, incentives for imports from sources in Red Sea and U.S. may disappear. 

A number of sources contacted toward the end of last week reported negotiating considerable discounts for July – conditioned, as stated above, on taking full monthly allotments. Many would have preferred to avoid taking such volumes heading into the summer vacation season. On the other hand, talk that crude costs could rise may have motivated some to take advantage of existing low prices.

July price indications are taken lower on reports of discounts of up to €75/t. Values are now at €955/t-€1,020/t for SN150, €1,045/t-€1,120/t for SN500 and around €1,285/t for bright stock.

The euro’s exchange rate with the U.S. dollar hardly changed at $1.0915. The price differential between Group I sales within the region and notional export pricing is adjusted this week to €75/t-€125/t, export prices being lower.

European Group II demand is not at a peak but is adequate to move the barrels being produced locally plus imported material from the U.S. and Asia. The market can be described as balanced, but it would not take much to tilt it long.

Group II prices continue to be much lower than new Group III levels, and a number of blenders are considering blending Group II with polyalphaolefin as an alternative to Group III, boosting the usage of the lower API category. This slight positive input reduces downward pricing pressure for Group II oils.

The Group II premium to diesel is stable and high enough to incentivize refiners to produce greater quantities of Group II base oils, but refiners are nevertheless for shifts in the fine line between oversupply and balance.

Prices come up for review this week but for now are unchanged at €960/t-€1,125/t ($1,030/t-$1,205/t) for 100 neutral, 150N and 220N and at €1,295/t-€1,360/t ($1,421/t-$1,492/t) for 600N. The first two lighter grades are typically priced higher than 220N due to their popularity and greater level of usage. These prices apply to a wide range of Group II oils from Europe, the U.S., Asia-Pacific and Red Sea sources, imported in bulk, and also in flexi-tanks.

Group III prices continue sinking as new Asia-Pacific suppliers to Europe work to gain a in a market that is still lucrative for Group III. Grades with full slates of finished lubricant approvals – now only the marketer of output from the refinery in Cartagena, Spain – are resisting the trend, but there are chinks appearing as customers are encouraged to take quantities above their monthly allocations. Some buyers are protesting current prices trying to negotiate discounts.

Buyers are looking to take additional quantities of gas-to-liquids Group III+ oils being sold in flexies by Asia sources. Prices for these grades are competitive at €1,755/t-€1,795/t, on a CIF basis, depending on the Mediterranean port to which they are delivered.

July prices are set to fall as some buyers reportedly negotiated markdowns of €50/t-€60/t. Group III oils with partial slates of finished product approvals or without approvals are at €1,595/t-€1,720/t for 4 and 6 centiStokes, including new offers from South Korean sources and €1,625/t-€1,675/t for 8 cSt, all on an FCA basis ex Antwerp-Rotterdam-Amsterdam or Northwestern Europe.

Fully approved Group III from the Cartagena joint venture have offered at €1,965/t-€1,995/t for 4 and 6 cSt, while small quantities of 8 cSt required for the European market are priced at €1925/t, all on an FCA basis ex hubs in Antwerp-Rotterdam-Amsterdam, Northwestern Europe or Spain.

Baltic and Black Seas

Reporting on base oil trading in the Baltic regions has altered dramatically, from an area geared to exports of Russian produced base oils, to now a different region where the majority of cargo movements are now imports from mainland Europe and also from the United States. All types of base oils are now forming part of a new trading pattern, which included the import of Group I grades that are replacing Russian barrels, but also Group II and Group III base stocks that are in evidence, with Lithuanian and Latvian blenders changing their slates to reflect European Union membership and an exclusion on using Russian material.

Additionally, rerefined oils are also included in the portfolio of new grades employed in the Baltic states. These oils are being supplied in handily sized cargoes at 3,000-4,000 tons per parcel, some going into Klaipeda, and one cargo moved to Riga.

Lukoil still continues to endeavor to move base oils through their terminal at Svetly in Kaliningrad. Because of the geographical position, logistics and economics of moving material through Kaliningrad to Turkey, the Middle East Gulf and Singapore is extremely difficult, with vessels in short supply due to the EU and Allied ban on using vessels that are EU or allied flagged. There are not many options available to Lukoil in finding tonnage at the time required. Up until now, they have been using Turkish flagged vessels in the main, which become available following discharging chemicals or clean petroleum cargoes in northern European ports.

One small cargo of 3,000 tons was recently sent from Kaliningrad to Gebze port in Turkey. Although sellers would ideally have wanted to move a larger parcel, available vessels determine the size of the cargo, not vice versa.

Lotos/PK Orlen in Gdansk have still not confirmed if they are to have availabilities in July but may be able to verify availabilities towards the end of this week. Currently using available stocks base oils from Gdansk by road, they are supplying Italian blenders that are unable to lift any Group I material from Livorno refinery due to the outage.

FOB prices from Svetly are “guesstimated” by taking CIF prices landed into Gebze, less estimated freight costs. As an indication only, SN 150 is taken to be around $765/t-$800/t, with SN 500 indicated at $775/t-$820/t. Delivered prices will vary from one destination to another and also from one receiver to another, and it must be added that these prices may not be accurate FOB levels. Prices are given on a “best indication” basis only.

FOB prices for Group I base stocks from Gdansk refinery in July will be akin to European mainstream pricing. With no export market at this time, and prices looking to the future, best estimates on an FOB basis are that SN 150 may now be priced at $965/t-$1,025/t, with SN 500 at $1,025/t-$1,095/t. Bright stock, if available, will perhaps be somewhere at $1,235/t-$1,300/t.

Turkey continues to import large quantities of Russian SN 150 and SN 500, and some material is arriving from Svetly in the north, while the mainstay supplies are coming out of Volgograd refinery and are delivered into Turkish ports via the Black Sea.

Livorno cannot be considered a supply option for the next few months, and currently Motor Oil Hellas in Aghio are about to go into turnaround and are generally short of Group I base stocks. Mediterranean-sourced Group I cargoes are severely limited, with the only options being from ExxonMobil from Sicily or from Valencia. This supplier has offered material from Augusta, but prices are too high for Turkish receivers to consider this option. Prices are calculated to be around $250/t higher than Russian barrels.

ExxonMobil’s offer out of either Augusta in Sicily or Valencia was priced with SN 150 at $1,050/t, with SN 500 at $1,120/t basis CIF Gebze – the prices were deemed too high.

A cargo of 6,000 tons, made up of three Group I grades, will be delivered to Gebze in the next few days. This was a tender offer from Sonatrach in Algeria, with quantities of 3,000 tons of SN 500, 2,500 tons of SN 150 and 500 tons of bright stock 150. CIF-delivered prices were very competitive and were heard at $875 pmt in respect of the SN 150, SN 500 at $995/t, but no bright stock price was heard.

The Baltic cargo of 3,000 tons out of Svetly has been loaded and is en route to Gebze. This cargo was scheduled to load around June 15, but at the same time another parcel of around 10,000 tons was due to load from the same source. This parcel remains a shipping inquiry with apparently no suitable vessels around to load such a cargo.

Tupras availabilities and prices are not known this week, with rumors that the lube production may again have run into problems. What these problems are is also unknown – whether it is physical or financial is not communicated – checks will be made this week for further information and an update.

Group II ex-tank prices remain unaltered, with levels at €1,175/t-€1,220/t for the three lower vis products – 100N, 150N and 220N – and 600N at €1,345/t-€1,425/t. Supplies of Group II grades are sourced from the Red Sea, the U.S., South Korea and Rotterdam or hub storage in Valencia.

Partly-approved Group III base oils sold by appointed distributors on an FCA basis, or on a truck-delivered basis, are taken lower, and are assessed at €1,725/t-€1,775/t FCA. Fully-approved Group III grades delivered into Gemlik from Cartagena refinery are also taken lower and will now be priced at €2,100/t-€2,150/t FCA. The small cargo of 1,2000 tons loaded out of Cartagena and will discharge into Gemlik port. 

Middle East

Red Sea news contains reports showing a number of large cargoes to be loaded out of both Yanbu and Jeddah for the west coast of India. The first cargo of 17,000 tons will load for receivers Mumbai anchorage. The smaller cargo of 3,000 tons loaded out of Yanbu for Egyptian receivers. There are shipping inquiries for cargoes to go into Aqaba in Jordan, and also another Group I parcel to load for receivers in Sudan. The Aqaba cargo is believed to be around 4,000 tons in total, while the parcel into a Sudanese port will be around 3,500 tons – made up of three grades – so it will load out of Yanbu, where bright stock is available.

Middle East Gulf reports indicate Group II cargoes will arrive into the United Arab Emirates ports of Hamriyah and Jebel Ali. These cargoes are sourced from a number of supply points, such as South Korea, the United States and Europe. Additionally, cargoes will also arrive from Yanbu. Luberef will possibly supply the lion’s share of Group II base oils coming into the U.A.E., but with barrels coming out of Al Ruwais refinery, this production of around 120,000 tons per annum is mostly retained and used internally for in-house blending by Adnoc.

The move to Group II is gathering pace in the U.A.E., and this base oil type may become the predominant type of base oil used there and in other parts of the Middle East Gulf region. Group I base oils are still moving into the U.A.E. from Saudi Arabia and Europe, although recent offers from U.S. traders were turned down in favor of taking Russian supplied barrels from Limas terminal in Turkey. These cargoes are currently being arranged and will be confirmed when shipping is arranged. More vessels are available to Russian traders from this loading location due to the proliferation of Turkish flagged vessels in their home ports. 

Cargoes of Group I material are arriving into U.A.E. ports of Ras Al Khaimah and Hamriyah from suppliers in Thailand, Singapore and Indonesia. Alternative supplies of Group I base oils are also provided from Indian refiners in Haldia and Chennai, where Indian refiners buying low-cost Russian crude imports are producing larger quantities of Group I base oils to be exported. Quantities of around 5,000 tons per cargo are the norm, with cargoes sold to buyers in the U.A.E. and Pakistan.

Middle East Gulf Group III exports have nominated cargoes from Bapco ex Sitra refinery in Bahrain, and other parcels loading out of Al Ruwais in Abu Dhabi. The ultra large cargo of 23,700 tons will load out of Qatar for Shell. This cargo will be bound for Singapore and Mainland China for discharging into the Shell system for internal use. However, some of this cargo may be sold to distributors and may be resold in flexies to traders, who may offer this gas-to-liquid-derived Group III+ material to buyers and receivers in Europe and elsewhere. Delivered prices are expected to be competitive with partly-approved Group III grades, but this material is superior in quality even to fully-approved European material.

Adnoc is to load a cargo from Al Ruwais for Nantong in mainland China during this week, while a further replenishment cargo for the European market will load next month, with around 7,000 tons for discharge in Dordrecht.

Netbacks for partly-approved Group III base oils loading out of Al Ruwais and non-approved Group III base oils loading from Sitra refinery have been re-assessed and are moved lower again this week in view of the latest moves in the European Group III market. Netback returns are re-assessed at $1,625/t-$1,685/t for 4 centiStoke, 6 cSt and 8 cSt partly-approved and non-approved Group III base oils.

Netback levels are derived from regional selling prices, less marketing, margins, handling and estimated freight costs.

Group II base oils sold 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 on a truck-delivered basis within the U.A.E. and Oman.

Prices remain unchanged and are maintained at 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 in the U.A.E. and Oman.

Africa

South African sources have confirmed that the vessel loaded with a large base oil cargo of around 23,000 tons completed loading in Rotterdam and Fawley and is on the high seas en route to Durban. The cargo will initially discharge in Durban, Mombasa in Kenya, and the final port Dar-es-Salaam in Tanzania. Another cargo of around 19,000 tons will presently load out of Rotterdam and Fawley but will discharge only in Durban with base oils and easy chemicals.

The rainy season continues in West Africa and is affecting operations and logistics in Nigeria, Ghana and Cote d’Ivoire. Demand for buying base oils has dropped, with normal activities reduced during the rainy season. Nevertheless, a cargo is being arranged to deliver Group I base oils into Guinea, Cote d’Ivoire and Ghana. It is believed that this cargo will load solely out of Fawley and will carry a total of some 8,500 tons of Group I grades, 5,000 tons of which will be supplied under the Ghana tender arrangements into Tema port.  

The base oil market in Nigeria remains in turmoil and continues to have problems getting access to dollars which are necessary to allow local Nigerian banks to open letters of credit. The recent election problems continue, with disastrous consequences for banks and government agencies. The president elected some weeks back is still subject to legal proceedings from the opposition party, which is pursuing a case against the new president in the Nigerian courts.

Traders are still having to accept part-payments for cargoes in unconfirmed letters of credit, local naira and dollars in cash. The problems arise when more than one receiving party is involved with a single cargo. With cargoes being split between sometimes three or four different parties, each with their own set of banking nightmares, trading base oils in Nigeria has become exceptionally difficult. Adding to these problems is the almost certain demurrage on vessels arriving with base oil cargoes – demurrage that eventually will either remain unpaid, or will be heavily discounted for settlement – and trading in Nigeria is not enticing.

Prices for a recent cargo had CFR confirmed by traders at levels of $1,020/t for SN 150, SN 500 at $1,070/t, and SN 900 at $1,150/t.

New offers for future cargoes next month or for August loading may be slightly lower prices due to trader competition. CFR prices may then be in the following ranges: SN 150 at around $1,075/t-$1,095/t, SN 500 at $1,145/t-$1,175/t and SN 900 at $1,220/t-$1,245/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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