Houthi rebels continue to attack ships passing through the sea, and one attack last week killed three seamen and injured several others – the first fatalities recorded in the campaign. Most vessels journeying between Asia and Europe are diverting around the Cape of Good Hope in South Africa.

The lackluster scene in Europe has some worrying that business may not improve until next year.

Base oil prices are also mixed. Values for API Group II and III oils are softening on what some players see as weakening demand, but Group I supply appears to be shortening as Eni winds down sales from its plant in Livorno, Italy. There apparently is still a quantity of around 3,000 metric tons of bright stock available, although it may be sold by the time this report is published.

Not long ago Europe was awash in Group I but no longer as output wanes in Livorno and after previous closures of Group I plants in the United Kingdom, Portugal and the Netherlands. On top of that, major maintenance shutdowns loom at Group I plants in Hungary and Poland.

There is talk that a number of traders are looking to take Group I cargoes from United States sources into Europe, and the opening of that arbitrage could exert upward pressure on prices.

Many finished lube blenders contacted the past few weeks have suggested that they may now transition to Group II as their principal blend stock if Group I availabilities start to diminish. It is significant that demand is poor now; if markets started to pick up, a Group I shortage could develop in Europe.

Group II activity remains rather subdued, for demand has not returned as was anticipated late last year. There is plenty of Group III available to cover any mini demand spikes. A large influx of Group III could arrive soon from producers around the globe, filling the region with more material than can be absorbed quickly. This could exert downward pricing pressure for that segment.

Despite of commitments from the OPEC+ group to maintain production cuts through the second quarter of this year, crude oil prices have eased, with the main markers losing around $2 per barrel over the past few days. Dated deliveries of Brent crude are down $2 to $81.65/bbl, for May front month settlement. West Texas Intermediate crude continues to hold a narrower crack at $77.45/bbl, still for April front month.

Low-sulfur gasoil prices also weakened to $819 per metric ton, still for March front month. All of these prices were obtained from London ICE trading late March 11.

Europe

Once again there is no European Group i export market with any sellers with spare barrels diverting all availabilities into the domestic markets, where more buyers are becoming reliant on more distant sources to cover Group I requirements. Spanish producers are trying to pick up business which has been hastily transferred from the supplier which hd been operating out of Livorno.

That said, this refinery was not producing base oils for much of last year, when blenders in Italy were already purchasing quantities from Spanish sources and also from northern European refineries in Poland and Germany.

With only a quantity of bright stock available from Livorno, it is understood that no further quantities of base oil will emanate from this refinery with production ceasing now.

Hypothetical export prices are maintained for the purposes of this report, but essentially Europe may be transitioning into an importer of Group I base oils rather than an exporter, as of old. Consideration may have to be given to deleting references to European export sales. Notionally, SN150 is assessed at $735/t-$810/t, SN500 at $845/t-$930/t and bright stock at $1,095/t-$1,195/t.

As mentioned, a number of traders are embarking on taking cargoes from U.S. and other regions to bolster supplies of Group I base oils in Europe, where supply has become shorter and may continue along this axis into the future.

Buyers are reluctantly now looking to reform contracts which had lapsed at the end of last year with sellers now refusing to reinstate these contracts, citing that they do not have the length of supply to offer material on a contractual quantity basis. the positive news is that demand for finished products remains slow, but if the market returns to pre-pandemic activity sometime in the near future, there could be supply problems for Group I users.

Prices have moved upwards the past week to €925/t-€980/t for SN150, €965/t-€1,035/t for SN500 and €1,155/t-€1,220/t for bright stock.

The dollar exchange rate to the euro has moved slightly, posting at $1.09227 March 11. The average price differential between Group I sales within Europe and notional export prices is modified due to the former moving higher. The differential is put at €75/t-€135/t, exports being lower.

European Group II prices appear to have weathered the pressure from buyers, with most Group II numbers remaining firmly in the ranges that were set during January and February. Producers would have liked to move levels higher but both the timing and the fact that European prices are higher than any other region, goes against that move. The European market yields better margins and returns for refiners. Buyers were demanding that because European levels were high when compared with other markets in Asia and the U.S., that prices should be adjusted downwards. However, there has been a slight rise in demand, perhaps due to a number of blenders moving over to Group II from Group I base stocks. Also with one major refiner in turnaround at the moment, there is little excess material around the market, with that supplier maintaining supplies to regular lifters, but not supplying extra quantities, or offering to new buyers.

Imports from AsiaPac sources are at best on hold and may be entirely ruled out due to the extra costs involved in shipping cargoes around the Cape. Hence the European market is balanced in supply and demand terms. and does not require further large quantities from either U.S. or Asia-Pacific.

The Group II premium to diesel remains positive with both Group II base oil prices and diesel remaining relatively steady. The current premium of around $400/t on average is acceptable to producers, and with diesel prices only looking softer this situation is to continue.

Prices for the Group II grades are maintained and are currently assessed between €1,020/t-€1,065/t, ($1,105- $1,155/t) for 100 neutral, 110N and 150N, €1,055/t-€1,100/t ($1,145/t-$1,195/t) for 220N and at €1,175/t-€1,230/t ($1,270/t-$1,345/t) for 600N.

These prices apply to a range of Group II base oils from European, U.S. and Red Sea sources, all imported in bulk.

Group III European markets are facing a number of challenges, since with costs of shipping material from Far East and Middle East Gulf higher than previous these costs should be recovered from higher selling prices. The European market is also set to have a number of cargoes arriving en masse which could create price pressures purely due to the quantities of material available. Some producers have requested that distributors accept extra volumes in addition to their regular replenishment quantities, due to decline in other markets such as China, where new production has come on-stream and has eroded supply positions.

One or two suppliers from Asia-Pacific still offer lower prices than the mainstream market, although in one case specifications and quality are lower than material from Middle East Gulf and Malaysia.

European prices for Group III oils with partial slates of finished lubricant approvals or no approvals are unchanged this week at €1,555/t-€1,595/t for 4 and 6 cSt and at €1,565/t-€1,600/t for 8 cSt, all on an FCA basis ex Antwerp-Rotterdam-Amsterdam or Northwestern Europe.

Given the above ranges one supplier continues to offer material at lower numbers, between €1,320/t-€1,365/t, but these levels are not included in the ranges since they would distort the spreads coming from only one seller.

Rerefined 4 cSt is heard a little lower this week at €1,445/t-€1,495/t, on an FCA basis ex rerefinery in Germany. A 6 cSt grade is expected come onstream this spring.

Prices for Group III oils with full slates of approvals are assessed at €1,685/t-€1,725/t for 4 and 6 cSt, while 8 cSt is at €1,715/t-€1,745/t, all on an FCA basis ex hubs in Antwerp-Rotterdam-Amsterdam, Northwestern Europe and Spain.

Baltic and Black Seas

In the Baltic, it is rumored that a large cargo of around 10,000-12,000 tons loaded out of Saint Petersburg for receivers in Singapore. These parcels were formerly loaded out of Svetly terminal in Kaliningrad, which is reported to have ceased operating.

Russian cargoes are to be given safe passage through the Bab-al-Mandeb Strait by Houthi rebels, and it is expected that Russian exporters will max out possibilities to place cargoes into the Middle East Gulf, India and Far East. Prices will be extremely competitive. How vessels and cargoes are to be indentified as Russian is still unclear since it has not been possible to obtain information from either suppliers or the rebels in Yemen. 

There was availability of Lotos material in Gdansk, but what is unclear is the quantities available and also the timing. It was heard that a parcel of two or three Group l grades around 4,000-5,000 tons in total. This potential cargo was offered to approved traders, but it has not been heard what transpired, and shipping reports have no trace of any vessels loading out of Gdansk in recent days.

Russian FOB prices for SN 150 and SN 500 from Saint Petersburg and the Black Sea are indicated at extremely low levels, $505/t-$520/t for SN 150 and SN 500 at around $530/t. SN 900 can be made available at around $575/t, using SN 1200 or Russian bright stock blended with either SN500 or SN 150 to obtain the correct viscosity. Other parameters, such as color, are not available.

Turkish base oil markets predictable, with a continuing influx of Russian base oils swamping the market, but with comments from a number of blenders that there is little demand for finished lubricants in the Turkish markets or in export destinations around Turkey. Lower priced lubes are flooding markets in Iraq and Jordan with that material coming out of the United Arab Emirates, being shipped cross-border by land because most container traffic through the Red Sea has been suspended.

Inflation levels still run amok in Turkey, causing the Central Bank to review interest rates to try to contain the levels. Russian base oil imports are thought to be conducted on a government-to-Government basis, but how payments are made to producers remains a mystery.

Russian imports of SN 150 and SN 500 are moving from Saint Petersburg, discharging into Gebze port. These imports are in addition to material coming out of Volgograd refinery, some of which goes through Limas terminal.

Imported Russian Group I base oil prices remain indicated on a CIF basis for SN 150 at around €610/t, with SN 500 around €630/t, these prices being exceptionally low. Russian producers appear to have a great deal of flexibility when it comes to ex-refinery prices, which continue to defy any normal barrel economics.

Tupras had stopped production of base oil at Izmir refinery, and it is not known yet if a restart has taken place. Tupras issued new price levels last week, for the first time in almost four months.

Levels are now as follows ex-refinery: spindle oil is priced at $965/t (Tl 31,116), SN 150 is at $907/t (Tl 29,269), SN 500 at $861/t (Tl 27,784) and bright stock at $1,028/t (Tl 33,167). Prices in Turkish lira are ex-rack plus a loading charge of Tl 5,150/t.

Group II ex-tank prices are maintained at around €1,175/t-€1,195/t for the three lower vis grades – 100N, 150N and 220N – with 600N coming in at €1,385/t-€1,475/t. Group II grades may be sourced from the Red Sea, the United States, South Korea or Rotterdam, although there will be problems in getting Red Sea and S. Korean barrels because of the Houthi situation in Yemen.

Partly-approved Group III base oils are FCA or on a truck-delivered basis, where an extra charge of around €35/t-€55/t for “local” deliveries will apply. Russian Tatneft 4 centiStoke grade is priced at around €1,420/t. Supplies that previously arrived from the U.A.E., Bahrain and Asia-Pacific remain at €1,575/t-€1,620/t FCA. It remains unclear how supplies from the Middle East Gulf and Far East will be affected. It may become uneconomic for cargoes to be re-routed around the Cape, then sail through the Mediterranean before delivering Group III base oils into Turkey. An alternative may be bridging smaller cargoes from Antwerp-Rotterdam-Amsterdam, following discharge of a main cargo.

Fully-approved Group III grades delivered into Gemlik from Spain and resold on an FCA basis have prices maintained at €1,920/t-€1,965/t FCA.

Middle East

Red Sea base oil trade from Luberef out of Yanbu and Jeddah is beset with problems, with reports that cargo movements are significantly affected by the Houthi rebels’ action in the Bab-al-Mandeb Strait. Luberef is unable to charter suitable vessels to move cargoes of base oils to regular receivers in India, Pakistan and the U.A.E. Other destinations are also being brought into the equation, with cargoes to Durban and Singapore unable to be completed.

Some ships from Europe are going through the Suez Canal to discharge chemicals and other clean petroleum into Yanbu, Jeddah and other northern Red Sea ports. These vessels are then loading base oils from Yanbu and Jeddah for ports in Sudan, Jordan, Egypt and Europe, avoiding the southern end of the Red Sea.

In Middle East Gulf regions there are reports from sources in the U.A.E. that confirm that Luberef is experiencing shipping difficulties in sending large cargoes to discharge into ports such as Fujairah, Jebel Ali, Ras Al Khaimah and Hamriyah. This is due to a lack of vessels prepared to make the transit through the Bab-al-Mandeb Strait. With one U.K.-registered bulk carrier with a cargo of fertilizer hit and now sinking, salvage teams were unable to assist due to the continuing dangers of Houthi attacks. The fears are now that the Red Sea could see contamination from leaking fertilizer on board. Another problem could be the depth where the vessel is going down, posing a navigational problems.

A further vessel has been hit by a missile, killing three crewmen and injuring many others on board.

Russian base oils continue to be delivered into the U.A.E., with prices indicated at around $610/t for SN 150, with $640/t for quantities of SN 500. One large parcel is thought to be up to 15,000 tons loaded either out of Saint Petersburg or Limas terminal in Turkey for regular receivers in Hamriyah. As has occurred previously last year, a similar cargo was re-loaded for Nigeria, when a large parcel of around 8,000 tons made up of three grades – SN 150, SN 500 and SN 900 – with a certificate of origin from the U.A.E. was sold to receivers in Lagos. It is considered that the cargo was specifically bought, following the blending of SN 900, to move to Nigeria. 

Group III suppliers out of Al Ruwais and Sitra loaded cargoes for Indian receivers in Mumbai anchorage and also for distributors in mainland China. One concern for the U.A.E.- and Bahrain-produced Group III barrels is that foreign imports from one supplier in South Korea are trashing the local U.A.E. market, with reselling prices for 4 cSt material offered at $950/t FCA Hamriyah. The specification of the offered 4 cSt product is not the same as other comparable material with a viscosity index of only 124.

Netbacks for partly-approved base oils from Adnoc and Bapco were taken lower last week and are maintained at these levels on the basis of extra costs for freight to U.S. and Europe, while selling prices remain at the same levels. Distributors responsible for chartering vessels to carry cargoes from Bahrain and Abu Dhabi will be negotiating with producers on the assumption that distributor margins remain the same. FOB prices will have to have been adjusted lower.

Netbacks are indicated at $1,460/t-$1,510/t for the 4 cSt, 6 cSt and 8 cSt partly-proved and non-approved Group III grades. Netbacks for gas-to-liquid Group III+ base oils from Ras Laffan in Qatar remain at around $1,475/t-$1,525/t.

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

Group II base oils are being sold ex-tank in the U.A.E. or sometimes on a delivered basis by truck in the U.A.E. and Oman. Prices remain unchanged, with levels at $1,620/t-$1,685/t for 100N, 150N and 220N, with 600N at $1,735/t-$1,795/t. The high ends of the ranges refer to road tank wagon deliveries to buyers in the U.A.E. and Oman. Replenishment cargoes coming from the U.S. and Europe will have increased costs for shipping. Prices may have to reflect those increments, although material arriving from South Korea will still remain competitive and may hold prices down.

Africa

South Africa shipping agency sources confirm another large base oil cargo will load either in April or May for discharge into Durban. The parcel is said to be comprised of around 19,000 tons of base oils, but the exact quantity will depend on the vessel chartered. A current cargo is comprised of around 18,000 tons of Group I, Group II and Group III base oils, plus a small quantity of easy chemicals.

West Africa reports contain news of a vessel carrying cargo from Fawley, which will supply three groups of receivers in Conakry in Guinea, Abidjan in Cote d’Ivoire, and Tema in Ghana.  The cargo is comprised of around 10,000 tons of three Group I grades, with 5,000 tons of three grades going lastly into Tema.

Cargoes arriving into Apapa in Lagos are from a number of sources and have discharged during the last few months. Singapore, South Korea and the U.A.E. are some of the sources nominated, in addition to shipments from the U.S. Gulf Coast and U.S. Atlantic Coast. Another 6,000-ton parcel loaded in January out of Vyborg for a Baltic Sea trader.

Reports are that Nigerian receivers are not keen to take further Russian cargoes for fear of reprisals or a reluctance of blenders to take quantities of these base oils, knowing that they are of Russian origin. The cargo loaded out of Hamriyah in the U.A.E. was comprised of Russian base oils.

It is likely that the large 18,000-ton cargo from the U.S. may either have arrived in Apapa or will be discharging during the next few days. The cargo is being sold to multiple receivers in Nigeria. Updated landed prices will be confirmed for the next report, bringing latest numbers up to date.

The naira exchange rate continues to be a headache, with the latest rate now at 1,560 naira to one U.S. dollar. This alone is a huge problem in supplying, and more importantly, getting paid for base oil cargoes going into the Nigerian market. Access to dollars is extremely difficult, and sellers often have to accept naira payments and then exchange the local currency on the black market to obtain dollars. Some traders insist on payments being made in U.S. dollars in advance, but not all the receivers’ banks can lay hands on dollars prior to the cargo being loaded.

CFR Apapa prices are indicated this week at around $930/t-$950/t for SN 150, $1,000/t-$1,020/t for SN 500 and SN 900 at around $1,040/t-$1,060/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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