So far the impact on crude oil has been for prices to rise and then fall back, perhaps reflecting divergent opinions about prospects for the market. If Iran gets involved – either directly or through proxies such as Hezbollah in Lebanon or the Houthis in Yemen – it could lead to tighter sanctions on Iranian crude exports, shorten supply and pushing prices upward.

This situation has not developed as yet, and the hopes are that Iran will stay out of the conflict, at least, on a direct basis.

The war in Ukraine also continues and is probably having similar destabilizing impacts on energy markets.

API Group I and Group II prices have undergone large increases the past two or three weeks, catching up with earlier run-ups in crude and feedstock costs. Now commentators say there could be less pressure on prices if crude numbers stay in their current neighborhood.

API Group III markets around the regions remain relatively weak, with demand missing, and an oversupply caused primarily by new production from Asia-Pacific sources in South Korea and China. These new sources have taken market share from traditional incumbent suppliers from Middle East Gulf and Malaysia, and the threat is growing with more new facilities due to come on stream during the later part of this year and early 2024.

The better news is that a number of production facilities will undergo maintenance schedule over the next few months, which may take some of the pressure off an oversupply scenario.

In early week trading, crude oil appears weaker, coming off the recent highs above $90 per barrel in the case of dated deliveries of Brent crude. This crude has moved lower by some $4. This is in contrast to last week’s strong demand and higher prices.

Dated deliveries of Brent crude is trading at $87.85 per barrel, lower than last week’s numbers and remaining in respect of December front month. West Texas Intermediate crude has also moved lower to a level of $82.70 per barrel, off $5 from one week ago Prices in respect of this crude are for December front month.

Low-sulfur gas oil fell by almost $60 per metric ton and now posts at $866/t, in respect of November front month. All of these prices were obtained from London ICE trading late Oct. 30.

The weaker prices for gas oil are confusing since reports and forecasts suggest that demand is extremely positive for this product, and demand would normally be expected to remain positive heading into the winter heating season. Stocks of this grade are higher than in previous years due to European action to protect this market with purchases from many supply points globally. in the past this sector of the fuels market was heavily dependent on Russian imports, but has now successfully moved on from that position.

Europe

There have been some attempts to resurrect the export markets in Europe, but with Group I prices coming off in the U.S. due to the Mexican ban on Group I neutrals from the U.S., which were being used as fuel dilutants at lower prices than gas oil. The U.S. Group I market is now forecast to move longer, with producers likely to want to move surplus barrels as soon as practical, rather than end u with large inventories towards year end.

Firstly, this could mean that markets such as West Africa, which had previously accepted that U.S. prices for Group I base oils were too high to contemplate, are now facing a reversal of that trend, making sources in USG and USAC competitive again. Secondly, some traders may look at taking U.S. Group I into the European markets if the arbitrage allows this to take place. Indications are that the arbitrage could be open following the increases to European Group I prices.

The bottom line is that European prices may come under pressure should U.S. imports start to move in, which in turn could push the European Group I domestic markets longer, promoting the possibility for export sales into traditional regions such as West Africa and Middle East Gulf.

Livorno has announced availabilities of all grades, but there is a confusing picture emerging with available product being aimed at export sales via traders, but with prices which are commensurate with local sales into Italian blenders. These price levels will not work into export destinations.

There are further cargoes going into contracted receivers in West Africa other than Nigeria, for example, into Guinea, Cote d’Ivoire and Ghana. Sometimes these deliveries are in combination with larger cargoes supplying affiliates in South and East Africa.

Reporting non-existent export prices is not simple even if only given on a notional basis, however, SN150 prices are maintained this week, and are assessed between $900/t-$950/t, SN500 remains between $1025/t-$1100/t, and bright stock is unchanged from last week’s increased levels in a range between $1250/t-$1335/t.

Group I domestic prices have been raised, or are being raised, and can be described as stable and steady. How long this scene continues depends on whether traders look to take lower priced material from U.S. sources and dump these quantities into the European markets. There is no duty element to consider for imported Group I base oils. A number of sellers have informed customers that prices will all rise from November 1, although some suppliers imposed immediate increases which became effective during last week.

The forecasts are that there may be further upward adjustments to come should crude and feedstock prices move upwards, but this scenario could be muddied with large surpluses growing in the U.S. with a number of traders looking to move material to distant locations such as India, Middle East Gulf and West Africa, European destinations may be added to this list.

Prices are maintained this week, taking account of increases effective from November 1, with SN150 assessed between €1165/t-€1225/t, SN500 between €1220/t-€1300/t, and bright stock between €1375/t-€1450/t.

The euro exchange rate to the dollar is slightly altered, posting at $1.06197 Oct. 30. The price differential between Group I exports from Europe and sales within the region widened to €185/t-€275/t, exports being lower.

European Group II prices have re-stabilized following the large increases announced around ten days ago, with some suppliers only advising customers that increases would be implemented from November 1. The size of increases are in line with the first supplier to announce price rises. Levels were increased across all grades by up to $150/t, with the majority of buyers paying between $90/t-$130/t more than previously. An interesting fact is that the increases were all announced in dollars, when the actual sales are mostly made in euros.

The Group II base oil premium to diesel is now in a better place than previously, when the premium was standing at an all time low. Also with gas oil prices coming down, the premium is becoming more attractive, and this may satisfy producers that enough has been done to redress the situation.

Apparently the concerns that price rises could damage demand seem to have vanished with sellers commenting that demand remains healthy and that buyer anticipation that prices could move higher has incentivized buyers to purchase larger quantities of Group II. laying down stocks whilst increasing blenders’ inventories.

Price levels are maintained as per the re-assessed from last week, which will take account of increases being implemented from November 1. Prices are between €1160/t-€1220/t ($1220/t-$1280) in respect of the three light vis grades (100N, 150N and 220N), with 600N between €1290/t-€1355/t ($1355/t-$1425).

Typically 100N and 150N are priced higher than 220N due to demand and generally higher usage in Europe of the two lighter grades.

Prices are in respect of a large range of Group II base oils, including European, U.S., Asia-Pacific and Red Sea sources, imported in bulk and in flexi-tanks.

Group III prices are still eroding but on smaller scale than previously. Prices are being nibbled at by buyers who are repeatedly requesting discounts when prices are being offered, causing prices to drop by relatively small amounts.

Group III prices continue to erode with buyers routinely requesting extra discounts when offers are made for forward sales. The amounts are smaller than seen earlier in the year, with discounts between €10/t-€25/t being applied to many offers. Sellers are building in discounts prior to making offers trying to minimize any downward trend to prices, and attempting to protect margins.

There are two schools of thought regarding the Group III market within Europe. The first is that demand has crashed and that this alone has caused prices to tumble from the dizzy heights of last year, to the more humble rates now on offer.

The other viewpoint is that oversupply is causing the market to become weaker with a substantial increase in the quantities of Group III base oils available, this is the reason that prices have faced a steady downward trend over the past few months.

This writer’s opinion is that a combination of these two factors has caused the Group III collapse, with both situations leading to price pressures which have caused numbers to fall startlingly, particularly on partly-approved and non-approved material. Fully-approved Group III base stocks have been partly protected from the savage price erosion seen across the market, but even here, prices have been lowered due to the large differentials between fully-approved and partly-approved grades, which in some cases can be as much as €500/t.

Availabilities of re-refined Group III base oils are adding to the mix with new production coming out of one unit in Elsteraue in Germany and another facility due to start production in the first half of next year. 4 centiStoke Group III base oils are made available from the current production.

Partly-approved grades, including re-refined, have prices for 4 centiStoke remaining between €1355/t-€1465/t, The low of this range refers to re-refined material. 8 cSt is unchanged between €1400/t-€1445/t with 6 cSt adjusted slightly lower between €1445/t-€1475/t. Prices are based on FCA supplies ex Antwerp-Rotterdam-Amsterdam/northwesternE and Germany.

Prices for fully-approved Group III base oils from Cartagena refinery are taken lower this week, and with the price differential between fully-approved and partly-approved Group III base oil a major talking point, there are still degrees of hesitation by some buyers to commit to contracts for next year.

Four and 6 cSt grades are placed between €1825/t-€1875/t. Small quantities of 8 cSt oils are assessed between €1795/t-€1820/t. Prices are in respect of FCA sales ex hubs in Antwerp-Rotterdam-Amsterdam, northwestern Europe and Spain.

Baltic and Black Seas

Reports from Nigeria suggested that a cargo of Russian base oils from Kaliningrad has been offered and accepted by receivers in Lagos, but trying to identify vessels which may be involved in the cargo has drawn a blank. It is not apparent if a cargo has been loaded or not, or whether receivers have been advised of an estimated time of arrival into Apapa. There are doubts as to whether this is a smokescreen to imply that base oils are moving through Svetly terminal, and that it is “business as usual” for Lukoil and Litasco.

The news implied that parcel of around 12,000 tons of three grades was accepted by a number of buyers, but this could not be corroborated.

FOB prices for SN 150 from Svetly are estimated to be around $685/t, with SN 500 at around $695/t. Up until the Mexican ban on United States’ Group I neutrals came in, the U.S. was out of the picture for supplying into Nigeria, but that may now have changed, altering the attraction of Nigerian receivers taking Russian barrels as the only option available.

Imports remain a major part of the new supply lines into Baltic ports which were previously used for exporting quantities of Russian barrels. Riga and Liepaja in Latvia and Klaipeda in Lithuania are receiving imports of virgin base oils from Europe and elsewhere, in addition to rerefined Group I and rerefined Group III material. There may be an opportunity for traders to take Group I base oils from the U.S. and sell cargo quantities into the Baltic. This would be an alternative to some blending operations still using quantities of smuggled Russian base oils which are mixed and blended with EU-sourced material to disguise the blend stock.

Gdansk availabilities for export remain missing, with traders looking to lift a cargo for the west coast of the United Kingdom. This could be a likely source for a quantity of around 4,000-5,000 tons of three Group I grades. Sellers are concentrating on local markets where prices are higher and margins more acceptable. Prices are assumed to be in line with European levels for domestic sales.

Another Greek cargo was offered in response to Turkish buyers looking for European Group I base oils. The difficulty will remain with prices compared to Russian barrels, but some blending operations require higher quality base stocks, with higher viscosity index and lower color, without using viscosity index improver to attain acceptable levels. It is not known if the cargo was accepted by receivers as yet, and more information is being sought on the latest update.

The Turkish economy is still in tatters, with interest rates climbing, and inflation still running out of control. The exchange rate for the Turkish lira is at an all time record low against the dollar, Central Bank will impose a further rise in interest rates before year end, making the rate 30%. 

The Turkish lubricant market is almost entirely dependent on Russian imports of SN 150 and SN 500 to supply blending operations across Turkey, and with the downturn in the finished lubes market in Turkey and surrounding countries time are tough for blenders.  

Imported Russian Group I base oil prices are heard to have move upwards with reports that levels have increased by around $40/t-$50/t. This is probably in response to higher vacuum gas oil costs in Russia.

Sources have suggested that SN 150 is now sold at around €820/t, with SN 500 at €845/t.

The Tupras refinery in Izmir remains closed for base oil production but may start operations within this week. It was thought that a feedstock problem was the cause of the stoppage, but whether this was a quality problem, or an availability issue, is as yet not clear. Prices for product in stock remain unchanged until stocks are depleted. Prices for SN 150 are $1,166/t (Tl 24,519), SN 500 at $1,227/t (Tl 27,024) and bright stock at $1,450/t (Tl 33,167). Selling prices are in Turkish lira. Prices are ex-rack plus a loading charge of Tl 5,150/t. It was heard that current stocks are almost gone and that it may be a couple of weeks before base oils are available. 

Group II prices ex-tank are pushed higher this week. Levels are around €1,255/t-€1,300/t for the three lower vis products – 100N, 150N and 220N – and 600N at €1,475/t-€1,525/t. Supplies of Group II grades may be sourced from the Red Sea, the U.S., South Korea or Rotterdam. Some traders are active in these supplies with material being loaded in flexies and delivered to Turkish receivers.

Partly-approved Group III base oils resold on an FCA basis, or sometimes on a truck-delivered basis, are maintained with Russian 4 cSt grade from Tatneft at €1,345/. Other suppliers are at €1,565/t-€1,610/t FCA. The Group III prices are only marginally higher than the new Group II numbers.

Smaller quantities of fully-approved Group III grades were delivered to Gemlik from Cartagena. Prices are maintained at €1,955/t-€1,995/t FCA. Cargoes of 800 tons up to 2,000 tons will cover these requirements for the small number of blenders that require access to fully-approved Group III base oils.

Middle East

Prices out of Yanbu and Jeddah for Group I base oils rose by around $50/t and are at a high point, after increases were notified during last week. It is thought that Group I prices will also have increased in line with international moves and that increments of up to $100/t may have been applied. Large cargoes are loading out of Yanbu and Jeddah, moving to the west coast of India, but it will be interesting to see what effects – if any – the availabilities out of the U.S. might have on trade between Saudi Arabia and India. There may be competition for Group I material going into the United Arab Emirates at the same time.

Middle East Gulf supplies of Group I and Group II base oils are coming into the U.A.E. from many sources, including South Korea, Singapore, Rayong, and Rotterdam. Group I cargoes are again being worked from U.S. sources, with U.S. prices moving downwards due to the Mexican ban of solvent neutrals. U.S Gulf producers were mainstay suppliers for Mexico with large cargoes moving into Mexican ports on a regular basis. The arbitrage between the U.S. Gulf Coast and Middle East Gulf could soon be re-opened, offering supplies of higher quality base oils to blenders in the U.A.E. currently using Russian barrels. If the European Group I market goes long, there will be opportunities to move material into the U.A.E. as an option.

U.A.E. buyers will continue to look at Group I options from Asia-Pacific, but prices have risen to levels which could make these sources uncompetitive. At the same time, Russian sellers continue to offer Group I and Group III base oils to receivers in the U.A.E. The Group III prices that are from Tatneft, but sold by Lukoil, are more than competitive against local supplies from Adnoc and Bapco. Russian sellers are keen to dump as much product as possible into the U.A.E. market.

Russian base oil prices remain incredibly low and are suggested to be around $825/t for SN 150 and around $845/t for quantities of SN 500, discharged in Hamriyah.

Group III suppliers Adnoc and Bapco are to load large cargoes for the west coast and east coast of India, where demand has ballooned. The reason for this is not clear, but one source commented that South Korean refineries were down for maintenance and that this may have caused a disruption to supplies of Group III grades from those sources.  

Two large Shell cargoes into the United States and Europe are on the water from Ras Laffan and will arrive into Rotterdam and Houston during November.

Netbacks for partly-approved base oils from Al Ruwais in Abu Dhabi and Sitra in Bahrain are taken only slightly lower this week because selling prices appear to have been subject to erosion in Europe but may be rising in India and the U.S. Netbacks are assessed at $1,430/t-$1,475/t for 4 centiStoke, 6 cSt and 8 cSt partly-approved and non-approved Group III base oils.

Netbacks for Shell Group III+ gas-to-liquids material out of Ras Laffan in Qatar are maintained at around $1,520/t-$1,575/t. Levels are assessed on data from traders in Singapore and resellers in Europe.

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

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

This week prices are moved higher, with levels assessed at $1,565/t-$1,595/t for the light vis grades 100N, 150N and 220N, with 600N at $1,695/t-$1,760/t. The high ends of the ranges refer to road tank wagon deliveries in the U.A.E. and Oman. Prices have risen, following increases in the U.S. and Europe.

Africa

South African sources in Durban are still awaiting confirmation of the latest large base oil cargo to be loaded by ExxonMobil out of Rotterdam and Fawley prior to sailing to South Africa, and perhaps beyond to East Africa as well. No laycan for loading was heard as yet, but it is suggested that the cargo quantity could exceed 20,000 tons. All types of base oil may be loaded. 

West Africa has the flaky news that a Russian base oil cargo could be on the way to Nigeria, but as mentioned, confirmation is not clear on if the cargo has been sold and when a vessel will load. The quantity of the cargo is unknown, although this may depend on the size of an available vessel, which will ultimately determine the total parcel.

A vessel loaded out of Fawley with three grades of Group I base oils for receivers in Conakry, Abidjan and Tema. The total cargo is around 8,500 to 9,000 tons, with 5,000 tons of SN 150, SN 500 and bright stock going into Tema to cover the next delivery under the Ghana tender.

A regular trader’s large U.S. cargo should have arrived in Apapa, but it is not known whether the parcel has started discharging yet. That’s because there are often delays getting on to the required berth, or there are document issues from one or another of the receivers that can hold up proceedings. Demurrage, and sometimes detention, is a regular feature of base oil trading in Nigeria. This charge is often going unpaid to charterers from receivers, or it goes into long term negotiations that never come to fruition.

Until recently, this could have been the last cargo moving from the U.S. to Nigeria because Group I prices are moving higher, but now with the current situation in Mexico throwing a different light on proceedings, things may change. There will be pressure on U.S. prices to fall over the next few days and weeks, opening up the possibility for another cargo to load at rates that would be acceptable to Nigerian receivers. One obstacle could be that to blend a large quantity of SN 900, bright stock would be required. That grade is still permitted to land in Mexico and may not drop in price like the solvent neutrals, making the blended SN 900 expensive.

Other traders are investigating alternative sources, one of which could be Yanbu in Saudi Arabia, but it is not known if the sellers, Luberef, would a) want to be involved with trading a base oil cargo into Nigeria, or b) sell on an FOB basis to a third party trader who could handle the “intricacies” of base oil trading in Nigeria.

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.

If a Russian cargo is proved to be fact, then Russian prices will come in $100/t-$175/t lower than current delivered prices, but not all blenders in Nigeria can use Russian quality base oils, so there may be limitations on quantities that can be accepted in Apapa.

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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