Saudi Arabia and Russian had led production cutbacks aimed at “stabilizing” prices near or above $100/barrel, but falling demand trashed those efforts. Before the attacks on Israel, some pundits went so far as to predict values would approach $70/barrel towards the end of the year. This may not happen now.

The steep drop spooked markets for petroleum products including the base oil scene, where many producers were looking to lift prices to maintain premiums against diesel and other distillates. Upward pressure that would have supported such moves appears to have abated, at least temporarily. It’s possible that pressure is now tending downward.

The new conflict between Palestine and Israel will have a destabilizing effect on Middle East politics and economics, and with the potential involvement of Hezbollah and Iranian influences, there is now a potential powder keg in that region, with further potential for hostilities and war.

Europe, the Middle East and Africa surround the conflicts in Ukraine and now Israel and could be badly affected by interruptions to supply chains, with imports into Israel all but stopped from early this week. Those imports include base oils bound for Israeli ports such as Haifa, Tel Aviv and Ashdod, causing a knock-on effect through entire supply routes.

Suppliers and traders involved in that region were contacted early this week to obtain reactions, but many were too stunned by events to have made rational decisions about the future.

Throughout Europe, the Middle East and Africa prices for all grades of mineral base oils appear to be in limbo. Individuals at a conference in Dubai said that regional demand had still not risen to expected levels and that the situation undercut any upward pressure on base oil values. One positive statistic for suppliers is that gas oil prices fell in line with crude and other petroleum products, allowing the premium in relation to diesel to swell.   

Crude oil prices have been on a rollercoaster ride the past couple weeks and, as mentioned, fell dramatically last week from above $90 to below $80/bbl. Industry sources are postulating that the Saudi and Russian cutbacks are having little effect in the face of ample supply and relatively poor demand.

Dated deliveries of Brent crude rebounded to $87.65/bbl, for December front month settlement, still $4 lower than last week. West Texas Intermediate is down to $86.15/bbl, still for November front month, leaving the crack between the benchmarks at a mere $1.50.

Low-sulfur gas oil has weakened significantly from lat week’s level, but again, as with crude prices, this product has been lifted due to the war in Israel and Gaza. Low-sulfur gas oil has dropped to a current level of $881 per metric ton, for October front month, a drop of $100/t from last week. All of these prices were established from London ICE trading late Oct. 9.

Europe

API Group I exports from Europe are still not happening as suppliers lack availabilities for such business. International oil majors making transfers to affiliates are continuing shipments to receivers in West Africa ports such as Conakry, Guinea, Abidjan, Nigeria, and Tema, Ghana, along with destinations in South Africa and East Africa.

The latest from news from the Eni refinery in Livorno, Italy, is that 1,000 tons of solvent neutral 150 will be available some time next week and that the base oil plant will then continue producing that and other grades. Details about availabilities are still unclear, and after a five-month shutdown, there may be issues to be addressed before production returns to capacity.

Another potential “exporter” – the Lotos refinery in Gdansk, Poland – has 2,000 tons of bright stock available, but this will be difficult to place with no other grades available for shipment. Had there been quantities of SN500, the grades could have been blended to make SN900, which could have been offered to traders for Nigeria.

Prices for Group I exports from Europe, listed here on a notional basis, are unchanged at $800/t-$925/t for SN150, $925/t-$1,000/t for SN500 and $1,180/t-$1,300/t for bright stock.

Prices for Group I sales within Europe are steady after some suppliers imposed token increases on Oct. 1. Margins have returned to respectable levels, as has the Group I premium to diesel following very recent declines in the latter. 

Indication prices have emerged from Livorno, but it is difficult to discern what they refer to in the absence of availabilities. Those prices are €1,039/t for SN500 and €1,297/t for bright stock. Apparently these sales are being pitched at the export market, but it is not clear why they would be priced in euros.

Overall, Group I sales within Europe remain at €1,075/t-€1,160/t for SN150, €1,125/t-€1,210/t for SN500 and €1,285/t-€1,350/t for bright stock. These prices appear to be under little upward or downward pressure.

The euro’s exchange rate against the United States dollar barely changed the past week and was at $1.05524 Oct. 9. The price differential between Group I exports from Europe and sales within the region is therefore unchanged at €160/t-€245/t, exports being lower.

European Group II prices appear stable, with sellers describing demand as relatively suppressed. The drop in feedstock costs has relieved the previous upward pressure.

Group II prices did hold a low premium to low-sulfur gas oil, but the premium improved as gas oil prices fell the past couple weeks. Prices are unchanged this week at €1,135/t-€1,170/t ($1,215/t-$1,250/t) for 100 neutral, 150N and 220N and at €1,230/t-€1,275/t ($1,325/t-$1,375/t) for 600N. Typically 100N and 150N are typically priced higher than 220N due to generally higher usage in Europe of the two lighter grades. All of 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 in flexi-tanks.

Group III producers and distributors continue to face pressure from a combination of retreating demand and increased availabilities in European markets. The relatively small normal input from Tatneft was halted by the European Union’s ban on imports of Russian oil products, but additional barrels are coming from Malaysia through a trader and shipments of gas-to-liquids base oils from the Pearl joint venture plant in Qatar, on top of continued supplies from Bahrain and the United Arab Emirates.

Prices for Group III oils with partial slates of finished lubricant approvals or without approvals are at €1,360/t-€1,490/t for 4 centiStoke grades (the lower number referring to rerefined material), €1,415/t-€1,455/t for 8 cSt and €1,465/t-€1,495/t for 6 cSt, all on an FCA basis ex Antwerp-Rotterdam-Amsterdam or Northwestern Europe or, in the case of rerefined oils, Germany.

Group III oils from the refinery in Cartagena, Spain, carry full slates of approvals and therefore command a price premium over partial or unapproved Group IIIs, but that difference is now €350/t-€400/t, and there are reports of some buyers looking to save money by finding ways to replace fully-approved varieties in some lubricant formulations.

Fully-approved Group IIIs are priced at €1,845/t-€1,895/t for 4 and 6 cSt and at €1,800/t-€1,825/t for the small amount of 8 cSt sold in Europe, all on an FCA basis ex hubs in Antwerp-Rotterdam-Amsterdam, Northwestern Europe and Spain.

Baltic and Black Seas

Baltic Sea reports contain news that Lukoil and Litasco may be looking to deliver a large parcel of base oils into Apapa port in Nigeria. This possibility was mooted for the past couple of months, but the sales process and the methodology of the transaction have been averse to a normal trading deal. Extended credit will have to play a part in the sale. Payment perhaps would be made in naira, which would mean the seller having to send representatives to Nigeria to handle the exchange of naira on the alternative market, to achieve an exchange rate that could support prices.

Having accepted the negatives of such a deal, outlets for Russian base oils are few, and with prices for of FOB numbers for SN 150 from Svetly at around $640/t and SN 500 at around $680/t, these suppliers would enjoy a considerable price advantage over other traders.

SN 900 – which would be crucial in forming a cargo – could be blended using SN 1200, and SN 500 and SN 150, and would possibly be priced at around $740/t.

Prices would provide the sellers with advantages versus alternative supplies from the United States, for example. The problem would also be in chartering an acceptable vessel to take the cargo, given the restrictions placed on Russian traders in finding suitable tonnage.  

Further smuggled Russian and Belarus supplies of Group I and Group III base oils are being identified as moving into European Union countries bordering Russia, such as Latvia and Lithuania, but this report has to be very careful in highlighting these supplies, since some sources have made certain comments regarding these movements.

Imports from European and other external sources are going into Baltic markets, with supplies of rerefined base oils and naphthenic oils also moving into the Baltic to replace Russian grades, which were used extensively before the EU ban came into force.

Tenders for Lotos and PK Orlen material out of Gdansk would now realistically have to be priced at around $1,025/t for SN150, SN 500 at $1,120/t and bright stock at around $1,300/t FOB Gdansk. But there are no availabilities currently for any solvent neutrals out of Gdansk, since it was heard that only a quantity of 2,000 tons of bright stock was available on an FOB basis. Without other grades to accompany this material, it is considered difficult to be able to get a buyer to take just this quantity of this grade in isolation.

Turkey remains in the doldrums, with extremely muted base oil trade in that country. The economic problems are getting larger and more apparent, with a number of Turkish blenders unable to function properly without access to European supplies of Group I base stocks. Prices are too high for most to be able to operate blending plants as these installations are supposed to function.

The market is reliant almost entirely on Russian imports of SN 150 and SN 500 to supply blending operations across Turkey. Buyers are unable to afford imported dollar priced alternatives from Mediterranean producers, and even new availabilities out of Livorno will be too highly priced for this market if current indications are considered.

Companies domiciled in Turkey cannot access dollars to be able to purchase cargoes of base oil from outside sellers. It is believed that Group I and Group II base oils were offered to Turkish receivers from Luberef from Yanbu, but it has not been clarified yet if this deal will go ahead. There may be some exceptions to normal trading procedures to make this trade work, but details have not been released to this report.

Petrol Ofisi issued a tender to buy 2,000 tons of 4 centiStoke Group III base oils and had the successful supplier as a South Korean producer. The CIF price was heard to be less than $1,400/t, but other details were unavailable in time for this report.

Imported Russian Group I base oil prices are reported as stable, having moved higher some couple of weeks ago. This would be in line with the $30/t increase, which was applied to domestic Russian markets.

With suggested government to government payment guarantees and requisitions made on behalf of Turkish companies by Regional Government officials. Pricing continues to be shrouded in secrecy until the final buyer takes ownership of the product. Sources have suggested that SN 150 would be sold at around €775/t, with SN 500 at €800/t, but it is not apparent if this is a sale between Russian traders and Turkish blenders, or between the Turkish government and the blender.

Mediterranean suppliers are unable to compete against Russian prices, with estimated, or assumed CIF prices for SN 500 now around $1,165 pmt CIF Gebze, almost $400/t higher than Russian prices.

Group II prices on an ex-tank basis continue to be maintained, with current levels at around €1,145/t-€1,175/t for the three lower vis products – 100N, 150N and 220N – and 600N at €1,345/t-€1,370/t. Supplies of Group II grades are sourced from the Red Sea, the U.S., South Korea or Rotterdam. Some traders have become active in these supplies, with material loaded in flexies and delivered to Turkish receivers.

Partly-approved Group III base oils resold by distributors on an FCA basis, or often on a truck-delivered basis, remain as per last report, with Russian 4 cSt grade from Tatneft at €1,345/t. Other suppliers are put at €1,585/t-€1,625/t FCA.

Smaller quantities of fully-approved Group III grades have repeatedly been delivered into Gemlik from Cartagena refinery, perhaps by Repsol rather than SK. Prices are maintained and are at €1,955/t-€1,995/t FCA. Cargoes ranging from 800 tons up to 1,800 tons cover these requirements for a small number of blenders that require access to fully-approved Group III base oils.

Middle East

Shipping reports with inquiries and fixtures indicate a large number of cargoes loading out of Yanbu and Jeddah ports for Luberef, part of Saudi Aramco. Both Group I and Group II base oils are moving out of Yanbu, while SN 150 and SN 500 are available out of Jeddah. Group II cargoes are moving into the west coast of India and the United Arab Emirates. Other destinations include Alexandria, where 3,000-ton parcels of bright stock are regularly delivered for Egyptian General Petroleum Corp. Durban is also mentioned as a possible destination for around 6,000 tons of Group II grades from Yanbu. Group II base oils are moving to receivers in the U.A.E., with a large cargo of 18,000 tons discharging in four ports: Hamriyah, Ras Al Khaimah, Fujairah and Jebel Ali.

Middle East Gulf reports contain reports that indicate a true melting pot for base oil trades and business. More blending operations were set up in the U.A.E. over the last five years than possibly anywhere else in the world. Freeport status was afforded to many importers that blend lubricants and then re-export the finished products, without these oils ever moving into the U.A.E.

Supplies of Group I and Group II base oils are arriving from many sources, including but not limited to, South Korea, Singapore, Rayong and Rotterdam. Over the last few months large Group I cargoes of more than 20,000 tons were worked from U.S. sources, but U.S. prices have risen, closing the arbitrage between the U.S. Gulf Coast and U.S Atlantic Coast. 

U.A.E. buyers were looking at Group I cargoes from Asia-Pacific, but again, prices in that market have risen, making it difficult to move quantities into the U.A.E. Alternative sourcing is looking at India, Thailand and Indonesia, but freight rates have gone through the roof. That makes it difficult to move smaller cargoes that were once delivered into the U.A.E. from Rayong. Traders are looking at switching smaller quantities to flexies because container prices and costs dropped substantially from a couple of years ago and have become more attractive than shipping in bulk. 

Russian barrels are on permanent offer and permanent supply to a number of buyers in the U.A.E. Litasco placed a number of inquiries for vessels to load out of both Svetly in Kaliningrad and Limas terminal in Turkey.

Russian base oil prices are incredibly low. They are suggested to be around $785/t for SN 150 and around $825/t for quantities of SN 500, discharging into Hamriyah storage. The U.A.E. continues to be crucial for Russian base oils.

The toll blending exercises handled in the U.A.E. distribute lubricants to many markets, including East Africa, the EU and the U.K. Further information on this trade is being gathered following the Argus Base Oils conference, which was held last week in Dubai.

Group III cargoes from Middle East Gulf production hubs are loading during October for receivers in India and China. Cargoes for the U.S. and Europe have already loaded and are en route to distributor storage in those markets.

Shell in Qatar supplied two large cargoes, one into India and another for Europe. Other smaller cargoes of 10,000-15,000 tons will load for Singapore. Supplies of gas-to-liquids produced Group III+ base oils are now widely available in Singapore and Europe, where previously these oils were not resold directly as base oils in those regions. The European supplies were initially procured from sources in Singapore and were then transported to European receivers in flexies. These preceded the Shell supplies into Europe, which have now superseded deliveries from Singapore.  

Netbacks for partly-approved base oils from Al Ruwais and Sitra terminals are maintained because selling prices appear to have steadied in main markets such as Europe and India. Raising prices is not an option at the moment, with poor demand and oversupply.

Netback returns remain assessed at $1,455/t-$1,510/t for 4 cSt, 6 cSt and 8 cSt partly-approved and non-approved Group III base oils.

Netbacks for Group III+ GTL material out of Ras Laffan in Qatar are unchanged at around $1,530/t-$1,585/t. Levels are assessed on the basis of buying prices from traders in Singapore and also selling prices in Europe.

Netback levels are established from distributors’ selling prices, minus estimated marketing, margins, handling and freight costs.

Group II base oils selling on an FCA basis in the U.A.E. are being sourced from European, U.S., Asia-Pacific and Red Sea producers. Base oils are sold ex-tank U.A.E. or on a truck-delivered basis within the U.A.E. and Oman.

Prices are maintained, with numbers 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. It should be noted that these Group II prices are decidedly higher than those prices applying in main markets such as the U.S., Europe and Asia-Pacific. The reason is that the product changes ownership many times prior to reaching an end-user. All parties take a margin out of the deal, adding to the final pricing.

Africa

South African sources in Durban have confirmed another large base oil cargo will sail for Durban, loading in Rotterdam and Fawley sometime in November and will arrive prior to the year end. Final quantities are not yet known, but the cargo will initially discharge in Durban, proceed to Mombasa, and finally Dar-es-Salaam. It is considered that all three base oil types will be on board. A vessel inquiry was issued by ExxonMobil chartering. Laycan and other dates will be advised as soon as they become available.

West Africa will see the arrival of a vessel loaded out of Fawley, with three grades of Group I base oils for receivers in Conakry in Guinea, Abidjan in Cote d’Ivoire and Tema in Ghana. The total cargo will possibly be around 8,500 to 9,000 tons, with 5,000 tons of that quantity covering the supply into Ghana.

Nigerian news is that a trader’s large U.S. cargo has loaded and is on the high seas en route to Apapa for discharge. The cargo will arrive at the end of October, but it is considered that this will be the only cargo coming into Nigeria around that time, with no other fixtures or negotiations reported as yet.

There are strong rumors that a supply of Russian base oils may be undertaken from Svetly in Kaliningrad, but the quantity is not known as yet. That is because it will probably be conditional of finding a vessel to undertake the voyage, and depending on DWT and space available, that will determine the size of the cargo. There may also be financial limitations due to the process of the trade, with receivers having to get extended credit facilities of anything up to 150 days following the bill of lading date. How the transaction will unfold for Litasco is still to be discovered.

The U.S. arbitrage between the U.S. Gulf Coast and U.S. Atlantic Coast and Apapa is probably now closed, with FOB prices for Group I cargoes having moved higher. With Nigerian receivers not looking to pay higher prices, there may be something of an impasse, with the usual traders taking a back seat for the next couple of months.

This could open the door for Russian supplies. With ultra-low FOB numbers, this will give considerable advantage when selling into Nigeria. The problems will be obtaining a vessel to perform the voyage.

There may be the possibility for another cargo to come out of Singapore, but prices in that region have also moved higher as with the U.S. The freight costs will not be as low as the last movement, making this option impractical.

CFR Apapa prices are assessed at around $1,100/t for SN 150, $1,160/t for the SN 500 and SN 900 around $1,195/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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