Coincidentally, Russia assured the Saudis that it will also cut crude output, although this action goes against Russia’s objective to maximize crude revenues in order to prop up its sagging economy while continuing to wage war in Ukraine.

The prospect of shortfalls in crude availabilities has created a mini spike in prices, the effects of which could filter down to base oils. A number of producers around Europe have already announced markups for Group I and II oils.

Feedstock prices have risen by more than 30% since the end of June and may be expected to rise in tandem with crude levels if the latter climbs further.

Bucking the trend is the Group III segment, where plentiful availabilities of all grades have created strong downward pricing pressure. Values continue to weaken, and a surplus in European markets is increasing. Group II suppliers are observing Group III slide and are being careful not to push too hard with their own hikes.

Numerous lubricant producers had recently replaced some of their Group III usage with Group II oils supplemented by higher doses of chemical additives, in order to reduce their overall cost. The Group III premium over Group II has eroded in recent weeks, though, and Group II suppliers are leery of reversals of those decisions.

Crude oil and feedstock prices are showing slightly firmer than a week ago after retreating partially from sharp increases last week. Dated deliveries of Brent crude are at $86.50 per barrel, for October front month settlement, while West Texas Intermediate is up to $83/bbl, still for September front month. 

Low-sulfur gas oil is hovering at $925 per metric ton, around $15/t higher than last week, also for September front month. All of these prices were obtained from London ICE trading late Aug. 14.

Europe

Group I trade from Europe still is non-existent. Traders have made a few tentative inquiries for large cargoes, but few if any producers have such availabilities. Suppliers are concentrating on covering domestic and regional markets, which are currently seeing a resurgence in demand.

The lack of action for overseas markets will hurt chances of a revival in European Group I exports, reinforcing the idea that refiners in the region are more interested in business closer to home – which, to be fair, offers better prices.

After one base oil supplier imposed an across-the-board hike of $60/t, other producers have also announced increases, though some are raising values by larger amounts, and others are moving up in steps.

Prices for Group I exports are notional and listed here only for comparison purposes. Values are up this week to between $895/t and $955/t for solvent neutral 150, to $1,000/t-$1,085/t for SN500 and SN600 and to $1,195/t-$1,265/t for bright stock, all on an FOB basis.

Prices for Group I sales within Europe rose steadily the past few days. Some sellers have elected to impose large single increases, whilst others took a more cautious approach of lifting levels €20/t-€35/t.

The number of buyer inquiries for large quantities has jumped, perhaps granting relief to producers who could have faced containment problems under normal August trading patterns. The combination of rising feedstock costs and improved demand has increased upward pressure on base oil prices.

MOL appears to have completed the maintenance turnaround at its Hungary refinery and has informed customers of prices that are significantly higher than the competition. Sources state, however, that prices for sales made in euros are priced quite different from those made in United States dollars.

With announced markups not taking effect until September, current prices for Group I sales within Europe are unchanged at €940/t-€1,020/t for SN150, €1,050/t-€1,135/t for SN500 and €1,260/t-€1,295/t for bright stock. The euro’s exchange rate against the has been nearly flat and was $1.0907 on Aug. 14, so the price differential between Group I sales within the region and hypothetical exports is unchanged at €135/t-€200/t, exports being lower.

Group II market in Europe is fragmented these days, consisting of one large local producer, one major U.S. supplier that is a main cog in the market, and a few other U.S. producers that recently increased imports to the region. Despite an import duty of 3.7%, the latter group is offering keen prices.

One company was heard to offer 100 neutral at $880/t, or €807/t, which is around €150 below competitors. The reasoning behind these aggressive prices can only be to buy market share, although rising feedstock costs make the timing a bit surprising. The first group have announced modest markups but are keeping close watch on decreasing Group III values.

Demand is positive as a number of buyers emerged early from vacation to place orders for increased Group II quantities. The unseasonable surge in activity was clearly spurred by the increase in crude and feedstock costs.

Prices for prompt sales from Rotterdam are now heard at $880/t for 100N, $875/t for 220N and $965/t for 600N. These prices are being described as one-offs, and it is worth noting that one local supplier boosted its prices by €12/t, though only to some customers.

In general, Group II prices are at €945/t-€1,110/t ($1,040/t-$1,225/t) for 100N, 150N and 220N and at €1,275/t-€1,335/t ($1,400/t-$1,475/t) for 600N. Prices for 220N are typically lower than those for 100N and 150N. All of these prices apply to a large range of Group II oils from Europe, the U.S., Asia-Pacific and Red Sea sources, imported in bulk and in flexi-tanks.

Group III prices weakened again this week although the downward pressure on this segment appears to be ebbing. The sector is still oversupplied. Some producers still regard the European Group III market as a positive place to be with acceptable margins.

Distributor margins, however, have been squeezed and many agents and distributors are concerned that the environment is deteriorating – especially for Group III oils with partial slates of finished lubricant approvals or without approvals. Imports of such oils are subject to price fluctuations between the time when they are loaded at their source refineries and ultimate sales from storage hubs in Europe, an interval that can last up to four months and can lead to distributors selling at a loss.

The situation for gas-to-liquids Group III+ oils scene is confusing because some parties claim they are able to purchase quantities without difficulty whilst others apparently face problems. Traders are reputedly buying quantities of these grades and reselling in the open market.

The low offers heard a couple of weeks ago appear to be holding as an offer of €1,400/t for 4 centiStokes has been repeated, along with an offer of €1,300/t for 8 cSt.

Prices for Group III oils with partial slates of approvals or no approvals have fallen to €1,400/t-€1,535/t for 4 cSt and €1,300/t-€1,525/t for 8 cSt, while 6 cSt is at €1,485/t-€1,535/t, all on an FCA basis ex Amterdam-Rotterdam-Antwerp or Northwestern Europe.

Group III oils from the Cartagena, Spain, refinery, which carry full slates of approvals including Volkswagen’s VW 504/507, slipped to €1,875/t-€1,925/t for 4 and 6 cSt, while 8 cSt – which is sold in small quantities in Europe – is at €1,850/t-€1,870/t, all on an FCA basis ex Amsterdam-Rotterdam-Antwerp, Northwestern Europe or Spain.

Baltic and Black Seas

Baltic reports are now confined to inward-bound cargoes of base oils sourced mainly from Europe, but there are offers for Group II grades made from sources in the United States. If the mainland European imports prices are anything to go by, these cargoes have a chance of opening up new avenues for Group II supplies.

There are shipping inquiries for parcels to move from Svetly in Kaliningrad, but these tend to remain as inquiries with no actual cargo movements. Lukoil appears to have given up on trying to ship material out to Nigeria, and seems to be concentrating on trying to take material into Gebze in Turkey. Once again the emphasis and key to this trade is finding the right vessel to take the cargo, and this is proving to be increasingly difficult. Not only must Russian charterers accept non-European Union-flagged tonnage, but the freight rate has to be acceptable to make the cargo work. Even Turkish vessels following discharge in Europe, and looking to return to home waters, are not prepared to offer low rates just to take Russian cargoes. They often prefer to take chemicals cargoes back to Turkey, loading from a European mainland port.

Base oils offered out of Gdansk from Lotos and PK Orlen were a sale tender arrangement, but reports are that the bid prices were unacceptable to the sellers and that the quantity of 4,000 tons will be re-tendered at a date yet to be announced.

With Group I prices on the climb around Europe, it is considered that buyers may be prepared to offer higher numbers for such a parcel. The cargo may go into the U.K. or into Baltic blenders looking for supplies of Group I material. The tender may be for 1,500 tons of SN 150, 2,000 tons of SN 500 and 500 tons of bright stock. Bid prices will have to be around $935/t for the SN150, SN 500 at $1,020/t, and bright stock at $1,255/t. All basis FOB Gdansk.

The Turkish base oil markets remain very subdued. Whether this is a function of the holiday period, or whether this is due to the economic malaise besetting the Turkish markets, is a mystery. Russian SN 150 and SN 500 imports are still in evidence but not at the high levels seen earlier in the year. Turkish blenders have been trying to place finished lubricants into regional markets such as Syria and Iraq, but these moves have been less than successful, leaving Turkish blenders to target the Russian finished lubricant markets.

Russian base oil prices appear to have moved upwards, with some sources commenting that they were buying at prices below $800/t for SN 500, but now prices have moved higher to around $870/t-$890/t, but these levels are still much below any Mediterranean offers from Aghio or Augusta. Most of the Russian barrels entering the Turkish market are coming out of Volgograd refinery because of the difficult logistics involved in taking material from the Baltic.

Delivered prices are now indicated at $885/t for SN 500, with SN 150 at around $865/t, CFR/CIF Turkish ports. This information is gleaned from sources in Turkey, since no communication is possible with Russian sellers.

Tupras, by selling all production as export sales, have sold a parcel of bright stock, rumored to be around 2,000 tons. The cargo was sold to a U.S. trader, which will take this material into Europe and resell FCA at an Antwerp-Rotterdam-Amsterdam port. Price quoted was confirmed at $1,200/t FOB Aliaga or Gebze ports. There have been no reports of any Group I neutrals offered in this sale, which did not appear to come under a tender on this occasion.

Mediterranean sources for Group I base oils are Greeks out of Aghio and a major loading from Augusta in Sicily. Greek suppliers offered a 3,000-ton parcel, but the asking prices were deemed too high. ExxonMobil offered a parcel out of Augusta, but following the €60/t hike, it is thought that this offer will also be declined by Turkish receivers.

CIF prices may now be pitched at around $1,045/t for SN 150, with SN 500 at around $1,120/t basis CIF Gebze. Russian barrels are around $200/t lower.

Group II ex-tank prices remain unchanged this week, with levels at €1,050/t-€1,075/t for the three lower vis products – 100N, 150N and 220N – and 600N at €1,240/t-€1,265/t. Supplies of Group II grades may be sourced from the Red Sea, the United States, South Korea and Rotterdam.

Partly-approved Group III base oils resold by agents or distributors on an FCA basis, or on a truck-delivered basis, are maintained, having been discounted  in the last report and are assessed at €1,625/t-€1,695/t FCA.

Smaller quantities of fully-approved Group III grades delivered into Gemlik from Cartagena refinery are maintained this week at €1,995/t-€2,025/t FCA. Cargoes of 800-1,8000 tons cover this requirement for a few blenders that require fully-approved Group III base oils.

Middle East

Red Sea cargoes are reported moving from Yanbu and Jeddah to Mumbai anchorage and also to the U.A.E., but cargo movements are lower than in previous months. That is perhaps due to a slow down in activity because of high temperatures across the Middle East and also the holiday period in India, following the end of the monsoon season. The two parcels identified are for 18,000-ton cargoes comprised of Group I and Group II base oils. The U.A.E. cargo will discharge in Hamriyah and Fujairah.

Middle East Gulf markets are quiet. With many players on holiday, and with very high temperatures hitting the region, business will remain slow until well into September.

A large Group I and Group II cargo from Red Sea will start to discharge in Fujairah and then Hamriyah. The cargo of around 12,000 tons appears to have not yet loaded from Yanbu, but may load this week, discharging during August in Jebel Ali. This cargo was delayed and is Group II parcel but will discharge during early September.

Russian base oils supplied from Limas terminal in Turkey have reappeared, directed into receivers in Hamriyah, where these base oils are used in toll blending operations for lower specification lubricants that are exported to East African buyers and also to other Middle East Gulf locations, such as Kuwait and Iran.

The Russian cargoes remain problematic. Supplies are being offered on an “open credit” basis, without a letter of credit and full disclaimer on quality and quantity from sellers. It is not known how the importation of these products are handled, since U.A.E. customs authorities are strict on shipping protocols and documentation accompanying imported material.

Group III cargoes continue to be loaded and delivered into India, China, the U.S. and Europe. The European oversupply appears to have been rationalized away, with producers Adnoc and Bapco – through their relative agents and distributors – commenting that they are committed to the European Group III market. While they may adjust prices and cargo frequencies, supplies into the European markets will continue.

Third parties, such as Shell and Chemlube, loading out of both Adnoc and Bapco are reconsidering quantities coming into the European market.  

Netbacks for partly-approved base oils loading out of Al Ruwais and Sitra are taken lower, with selling levels discounted in some of the main markets, for example in Europe. Netback returns are now assessed at $1,470/t-$1,535/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 dispensed by distributors and resellers 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 are maintained and assessed at $1,520/t-$1,465/t for the light vis grades100N, 150N and 220N, 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 Africa shipping agency sources have confirmed that the large base oil cargo that loaded out of Rotterdam and Fawley is now on the high seas en route to Durban. The vessel will discharge the man part of the cargo in Durban and will than deliver smaller quantities of 4,000-6,000 tons into Mombasa and Dar-es Salaam.

Deliveries from the same supplier to Conakry and Abidjan will use a stand-alone vessel and will load around 9,000 tons in total, including 5,000 tons of three Group l grades to cover the Ghana tender in Tema.

West Africa reports of a number of inquiries for base oil cargoes to arrive into Nigeria in September, although with the end of the wet season approaching, activity is generally muted, with only a couple of reported shipments arranged.

The first cargo of around 8,700 tons will load out of Singapore during this month and will discharge into Apapa during September or perhaps early October. The freight rates for this shipment will be extremely high compared to U.S. or European rates, and it is reckoned that the rate will be almost $200/t for freight. FOB prices will have to be extremely competitive to make any sense going into the Nigerian market.

Assuming regular margins and demurrage penalties, FOB prices for SN 150 will have to be in the order of $825/t, for the SN 500 the FOB price will have to be around $850/t and SN 900 will be around $900/t. These are very low numbers, and unless the trader involved is cutting margins, then these prices will have to apply.

The second parcel is reputed to be 6,000 tons of base oils from an Asia-Pacific source. This may be refer to material loading out of South Korea, although freight costs for 6,000 tons, and the extra distance involved from that source makes this parcel extremely marginal.  Other traders are looking at various options from East and West and may try to put something together for September loading.

One major problem in the Nigerian market is the exchange rate of the naira to the U.S. dollar, which has climbed above 900N/USD. The exchange rate is leading to higher prices for landed products, and additionally there is talk that the Nigerian authorities have imposed a 1% import duty on all base oils coming into the country. This is leading to difficulties in financing cargoes, given the various problems with payments in getting around the Nigerian banking system by accepting cash, local naira and the use of the black market to access dollars. 

Confirmed numbers for a recent cargo had CFR levels of $1,020/t for SN 150, SN 500 at $1,070 pmt, and SN 900 at $1,150/t.

In spite of Group l prices starting to rise, most Nigerian buyers seem to be relaxed and are doing nothing at this time to find base oils for import. Receivers in Lagos may stop prevaricating on prices, since numbers may rise in the next round of cargoes. With crude and feedstock prices having moved higher, Group l base oil prices are starting to move upwards, although with cargoes loading out of Asia-Pacific, and the U.S. prices are perhaps not moving so fast.

CFR offered prices are indicated to fall in the following ranges: SN 150 at $1,050/t-$1,095/t, SN 500 at $1,100/t-$1,175/t, and SN 900 at $1,175/t-$1,265/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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