Middle East markets have been quiet, as is the norm at this time of year, but African markets – particularly the southern and eastern parts of the continent – are showing considerable strength in demand.

West Africa remains slow as the rainy season comes to an end and the Nigerian scene is bogged down in red tape, banking issues and governmental interference, all of which are depressing trading opportunities. But parts of West Africa are buoyant, including in Guinea, Cote d’Ivoire and Ghana, where cargoes from a major have been covering requirements for API Group I base stocks.

After a recent burst of hikes to Group I prices, numbers appear to have calmed and are reported as steady, though increases in raw material and operational costs may be exerting upward pricing pressure.

Base oil premia to distillate fuels have fallen, encouraging refiners to shift feedstock from base oil production to larger quantities of jet fuel and diesel. This could shorten base oil supplies and create more upward pressure, especially for Group I and II oils.

If Group I and Group II numbers are relatively firm but stable, Group III is now the weakest category. Availabilities from the Asia-Pacific region are growing, and production figures from the Middle East Gulf and Malaysia remains strong, making it possible that an over-supply could develop. Demand in major economies such as China and India is running behind predicted levels.

Crude oil prices are very slightly softer at the beginning of this week but seem steady and may stay around current levels for the next few weeks – at least until production cutbacks by Saudi Arabia and Russia take effect.

Dated deliveries of Brent crude oil dropped a few cents the past week to $85 per barrel, still for October front month settlement. West Texas Intermediate fell around $1 to $80.70/bbl, now for October front month, stretching the crack between the benchmarks to around $4.5/bbl.

The enigma of low-sulfur gas oil prices revived as the petroleum product marker surged to $950 per metric ton, still for September front month. All of these prices were obtained from London ICE trading late Aug. 28.

Europe

Group I exports from Europe still are not happening, and given the relative tightness of supply, producers have little incentive to divert large slugs of material that can be satisfactorily sold to customers nearer to home.

A few large cargoes of Group I base stocks are being moved to places such as South Africa and Singapore, but these parcels are inter-affiliate shipments rebalancing sales hubs.

Given the recent price hikes for Group I sales within Europe, and if an export scenario to come about, values would be closer to inter-regional levels.

Group I export prices are notional and given here for comparison purposes only. Those levels are now estimated at between $950/t and $1,000/t for solvent neutral 150, $1,065/t-$1,100/t for SN500 and $1,245/t-$1,300/t for bright stock.

Prices for Group I sales within the region rose in August and are set to climb again from Sept. 1. Refiners have blamed the markups on rising feedstock expenses and increases in wages and energy costs. Some sellers have announced hikes of €25/t-€85/t to take effect later this week.

Demand is positive, but sellers do not have additional barrels to cover increases in orders. Availabilities are becoming more and more limited as feedstocks are shifted to distillate production.

Hungarian refiner Mol published new prices last week: €1,117/t for SN150, €1,198/t for SN500 and €1,307/t for bright stock, all for truck pickups or delivery by rail at buyer expense. Hence prices for Group I sales within Europe are up this week to €1,055/t-€1,120/t for SN150, €1,095/t-€1,200/t for SN500 and €1,265/t-€1,320/t for bright stock.

The euro’s exchange rate against the United States dollar remained constant the past week and sat at $1.0805 on Aug. 28. Assuming export prices would have risen in line with prices for sales within the region, the differential now sits at €75/t-€140/t, export values being lower.

European Group II prices have moved higher and will rise further for some suppliers on Sept. 1. Values increased in other regions because of firmer crude and feedstock prices, and some of the Group II sold in Europe comes from such sources.

Demand is increasing as more and more players try to beat potential price increases. Suppliers are rationing supplies to contracted quantities arranged between buyers and sellers, and with this week seeing the return of many buyers, September looks to get off to a busy start. Crude and feedstock prices having risen by around 10% since July.

Group II prices are up to €1,095/t-€1,145/t ($1,195/t-$1,255/t) for 100 neutral, 150N and 220N and to €1,320/t-€1,375/t ($1,430/t-$1,500/t) for 600N. Usually 100N and 150N are priced higher than 220N due to the popularity of the two lighter grades.

These prices apply to a large range of Group II base oils from Europe, the U.S., Asia-Pacific and Red Sea sources, imported in bulk and in flexi-tanks.

Group III prices have steadied for now. There is some rationale for upward pricing pressure, as this segment has incurred the same increases in feedstock costs as Group I and II. But as mentioned earlier in this report, a global oversupply for Group III base oils may be looming. Some pundits have argued that supply and demand will be balanced when demand returns to the major markets such as China.

Prices for Group III oils with partial slates of finished lubricant approvals or without approvals are unchanged at €1,485/t-€1,575/t for 4 centiStoke grades, €1,475/t-€1,545/t for 8 cSt and €1,510/t-€1,595/t for 6 cSt, all on an FCA basis ex Antwerp-Rotterdam-Amsterdam or Northwestern Europe.

Prices are also unchanged for Group III oils from the Cartagena, Spain, refinery with full slates of approvals including Volkswagen’s VW 504/507 gasoline engine oil specification. Four and 6 cSt grades are at €1,875/t-€1,925/t, while 8 cSt is at €1,860/t-€1,885/t, all on an FCA basis ex hubs in Antwerp-Rotterdam-Amsterdam, Northwestern Europe and Spain.

Baltic and Black Seas

Inward cargoes of various base oils are reported in the Baltic region, with material going into Klaipeda and Riga in lots of around 4,000 tons per parcel. Rerefined base oils are moving from Kalundborg in Denmark and also from Hamburg, going into Lithuanian receivers. There remain shipping inquiries for a number of base oil parcels to load out of Svetly in Kaliningrad, but there is little evidence of large cargoes of Russian export barrels moving from this source, other than the one parcel noted below.

A cargo of around 10,000 tons was reported moving from Kaliningrad to Singapore, being contracted supplies that had not taken place for some months, perhaps with charterers finding suitable tonnage to carry this cargo being difficult.

Lukoil is looking again at taking material into Nigeria and Brazil, with possibilities to supply large cargoes of SN 500 into the Brazilian market.

The ongoing problem will be chartering a suitable vessel to carry the cargo, bearing in mind receivers’ flexibility, not knowing when a cargo could be arranged. 

Base oils offered out of Gdansk as a sale tender remain unsold following unsuccessful bids from traders looking to take this material into either the United Kingdom or northwest Europe. It has been mooted that the supplier in Gdansk, Lotos and PK Orlen, will only offer to traders who are able to purchase tender barrels on a prompt basis, meaning that these traders would have to have nominated storage ready and available for the quantities awarded.

Last bid prices were too low at $840/t for SN150, SN 500 at $940/t and the offer for bright stock at $1,040/t FOB. Prices were reckoned to be around $150 out on what would be acceptable numbers for this quantity at that time, but now Group I levels have escalated.

The cargo offered may now be larger – which may make it attractive for deep-sea destinations such as West Africa – but with criteria from sellers demanding prompt lifting, a Nigeria option may not be applicable.

The tender was for 1,500 tons of SN 150, 2,000 tons of SN 500 and 500 tons of bright stock, but each of those quantities may be increased. With prices rising, considered bid offers will now have to be around $980/t for SN150, SN 500 at $1,085/t and bright stock at $1,285/t. Basis FOB Gdansk.

Turkish base oil markets are still deathly quiet, with no return to offices and desks reported from blenders and traders. Some are saying that it could be next week before we see a mass return to working, if at all.

The new interest rate hike by the Central Bank has been put in place, against the president’s wishes, to start to control inflation, which has been officially declared at 48%. Privately, sources indicated that they believe that the rate is closer to 80%, with food and energy costs spiraling out of control. Officials in the government comment that interest rates may reach 30% before the year end.

Against this backdrop it is hard to see how the Turkish economy – other than tourism – can bounce back in manufacturing and service sectors to be on a par with other European neighbors. Demand for finished lubricants locally is dismal, with blenders trying to export finished products to Russian, Iraqi, and Syrian markets. This operation has not been successful.

Russian SN 150 and SN 500 base oils are still being imported on open credit terms, although it is believed that there are forms of guarantee to sellers such as Lukoil, from the Turkish government. Russian material still forms the bulk of base oil imports coming on to the Turkish market.

Russian base oil prices have had to move upwards, with sources suggesting that they can now buy at prices above $900/t for SN 500. These reports cannot be confirmed because receivers will not give out information on prices. Delivered prices are indicated at $925/t for SN 500, with SN 150 at around $900/t, CFR/CIF Turkish ports.

Mediterranean sources for Group I base oils could be Motor Oil Hellas out of Aghio, but there appear to be currently no availabilities, since all production is concentrated on supplying the Greek domestic market.  ExxonMobil offered a parcel of Group I grades but following the €60/t increase across all Group I grades in Europe, any offer will be too expensive for Turkish receivers.

CIF prices will now be pitched at around $1,045/t for SN 150, with SN 500 around $1,125/t basis CIF Gebze. Russian barrels remain more than $200/t lower.

Moving into September, Group II ex-tank prices are raised, with levels established at around €1,120/t-€1,155/t for the three lower vis products –100N, 150N and 220N – and 600N at €1,320/t-€1,345/t. Supplies of Group II grades may be sourced from the Red Sea, the United States, South Korea and Rotterdam.

Partly-approved Group II base oils resold by agents or distributors on an FCA basis, or on a truck-delivered basis, are maintained, assessed at €1,625/t-€1,695/t FCA.

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

Middle East

Group I and Group II base oils are loading from Yanbu and Jeddah for Luberef and are aimed at receivers in Mumbai anchorage, the United Arab Emirates and South Africa. Smaller parcels of 3,000-5,000 tons are to supply buyers in Egypt and Sudan. Three thousand tons of bright stock from Yanbu, covering the Egyptian General Petroleum Corp. contract, will sail to Alexandria, in addition to a cargo of around 4,800 tons of Group I grades discharging in Aqaba.

Middle East Gulf markets are relatively slow at the moment. There are a number of inquiries in the market for traders and direct suppliers to offer for large cargoes of Group I and Group II base oils, with buyers in the U.A.E. trying to purchase before prices move upwards. They may have missed the boat if purchases have not been confirmed already. With crude relatively stable for the moment, the effects of rising feedstock prices may have already been priced into FOB numbers.

However, it remains an unknown if the Saudi and Russian production cutbacks may give crude another push. This could mean further increases in raw materials. All variables are being discussed right now by large buyers that are looking to lay in large inventories of all types of base oil.

A large Group I and Group II cargo from Luberef is due to discharge in Fujairah, and then the balance of the cargo in Hamriyah. The cargo of around 12,000 tons loaded from Yanbu and will discharge during this week or next in the first port.

Russian base oils supplied from Limas terminal in Turkey are arriving into Hamriyah, where these base oils will be used in toll blending operations. These blended lubes are also supplied to distributors and agents in Middle East Gulf locations, such as Kuwait and Iran. It is not clear as to why if a large cargo of 10,000 tons can be loaded out of Svetly in Kaliningrad and supplied to receivers in Singapore, why can the same material not be loaded out of Kaliningrad for the U.A.E. Perhaps it hangs on the voyage time or finance options offered to buyers.

In addition to the material being imported into the U.A.E. from Yanbu, Group II cargoes are primed to arrive from sellers in South Korea and Singapore. These cargoes are often based on a two port discharge, with part cargo going into the west coast of India, and the balance moving to U.A.E. receivers. 

Exports of Group III base oils from three Middle East Gulf sources are loading and are delivered regularly into India, China, the U.S. and Europe. Cargoes from the U.A.E., Qatar and Bahrain make up the exports of base oils from the Middle East Gulf.

Netbacks for partly-approved base oils loading out of Al Ruwais and Sitra are unchanged, with selling prices bottoming out in markets such as the U.S. and Europe. Netback returns are 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.

Netbacks for gas-to-liquids material coming out of Ras Laffan in Qatar have not been available because the Group III+ base oils from this site were not for general distribution. They were retained within the Shell system for internal blending and the making of additive packs which were sold in the market. Recently there appears to have been a change of policy, and these oils are now to be found in the open market in Europe and Far East.

The intention for the future is to try to get a handle on the pricing of these grades and to work out netback numbers on the basis of large cargoes of at least 20,000 tons, which would certainly provide cost savings due to economies of scale. 

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

Group II base oils resold 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 pushed higher from September and are now assessed at $1,455/t-$1,485/t for the light vis grades 100N, 150N and 220N, with 600N at $1,585/t-$1,610/t. The high ends of the ranges refer to road tank wagon deliveries in the U.A.E. and Oman.

Africa

A shipping source based in Durban, South Africa, confirmed that a large cargo will load out of Rotterdam and Fawley, giving estimated time of arrival in Durban sometime around the end of October. The vessel has not yet been fixed, but this will be in progress. Reports should confirm the vessel loading during September. Vessels performing these cargoes are also employed to supply receivers in Conakry in Guinea, Abidjan in Cote d’Ivoire and Tema in Ghana.

West Africa is seeing the end of the rainy season, but financial and economic conditions in Nigeria have not improved. A number of receivers are reputedly looking to traders to cover a large swathe of base oil requirements, covering a possible total of around 80,000 tons over the next couple of months. These imports would be in five or six cargo lots, depending on the arrangements for finance and delivery.

Problems continue in Nigeria. The banking system and central government remain unable to find ways to access dollars to provide financial assistance to importers in opening local letters of credit to smooth the importation and financing of base oil cargoes coming into the country.

A number of former traders and distributors based in Lagos folded over the past few months, citing government red tape and restrictions to trade as being behind their demise.

The Singapore-sourced cargo of around 8,700 tons should have completed loading and will be due to discharge in Apapa during September or perhaps early October. The reported freight rate for this cargo is extremely high, with a rate of almost $200/t. FOB prices from Singapore will have to have been extremely competitive.

Assuming regular margins and demurrage penalties, FOB prices for SN 150 would have to be in the order of $825/t. For the SN 500, the FOB price will have had to be around $850/t and SN 900 was around $900/t. The CFR prices for this cargo will show higher prices latest confirmed arrivals, with FOB levels plus freight and margins taking levels to around $1,100/t for SN 150, $1,160/t for the SN 500 and SN 900 at around $1,200/t.

One problem in Nigeria is the exchange rate of the naira to the U.S. dollar, which has exceeded 900N per U.S. dollar. The exchange rate is leading to higher prices for landed products, since some receivers are having to pay traders in local before exchanging this currency into dollars on the black market. Now the Nigerian government is to impose a 1% import duty on the value of the cargo imported. This is providing further difficulties to financing cargoes, given the problems with payments and local handling of cash without letters of credit. Security and fraud are concerns in doing base oil business in Nigeria. 

Confirmation of numbers for a recent cargo back in June had CFR levels of $1,020/t for SN 150, SN 500 at $1,070/t, and SN 900 at $1,150/t.

Group I prices have risen. With crude and feedstock prices potentially moving higher still, Group I base oil prices are rising globally, with cargoes loading out of Asia-Pacific, and the U.S. seeing prices firming. U.S. sellers increased posted prices considerably over the past few weeks. It will be interesting to see, when it comes to export markets in Brazil and Nigeria, whether sellers will apply discounting to posted prices to be able to remain competitive to make these large cargoes work.

CFR offer prices remain indicated in the following ranges: SN 150 at $1,050/t-$1,095/t, SN 500 at $1,100/t-$1,175/t, with 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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