To the relief of many, the break-out of direct hostilities between Israel and Iran seems to be de-escalating after a series of attacks and reprisals apparently ran its course without a spike in prices for crude oil and other petroleum products.
Israel’s latest action came before dawn Friday – a pre-dawn strike in Isfahan, Iran – in response an April 13 Iranian rocket and drone assault that was unprecedented in scope but that caused little damage. There were no reports of any other strikes by Israeli forces, suggesting that Israel was satisfied with its response.
Iranian sources also played down the action, portraying it as a small blip in an exchange between the two nations. There were no suggestions of further action from either side, and it was said that Iran had “drawn a line” under the whole situation.
The potential for all-out conflict still remains in the region, with Israeli forces striking hard in Gaza on Monday, attempting to continue rooting out Hamas fighters.
The unstable situation has heightened economic worries around the region but has not caused a crude price spike that many predicted. Prices did rise above $92 per barrel briefly in the middle of last week but then retreated and traded Monday below $87.
Some speculate that China pressured Iran not to ratchet the conflict because China’s economy is in a precarious state, and its leaders want to avoid increases in energy costs.
With fundamentals remaining relatively stable, base oil prices appear stable, too, except in a couple locations where local situations are causing an impact. Markets for API Group I base oils are tight thanks to several maintenance turnarounds, last month’s fire at an ExxonMobil refinery in Port-Jerome, France, and the closing of the base oil plant at Eni’s refinery in Livorno, Italy.
Group II availabilities remain positive, with imported material flowing into Europe from the United States while Europe’s main Group II source finishes up its own turnaround. Some are predicting that imports may will start to drop, but there are no signs of that yet.
Group III replenishment cargoes from Asia-Pacific and the Middle East Gulf are starting to arrive into Europe after detouring around the southern tip of Africa because of attacks on shipping in the Red Sea. There are now sufficient supplies of API Group III base stocks to take the European market into the summer months, with further cargoes due to arrive this month and into May.
As stated above, crude oil prices moved lower the past week, even in the face of Israel’s strike in Isfahan. There were fears that Iran could create problems in the Straits of Hormuz where large quantities of crude from Iraq, Kuwait, Saudi Arabia and United Arab Emirates make the passage en route to global markets. Gas carriers from Qatar could also be affected if there were any disruption to shipping channels in the strait.
Dated deliveries of Brent crude fell to $86.75/bbl, still for June front month settlement, while West Texas Intermediate came in at $81.75/bbl, now for June front month.
Low-sulfur gasoil prices have dipped around $40 per metric ton to $780/t, for May front month. All of these prices were obtained from London ICE trading late April 22.
Europe
Once again there are no quantities of Group I being exported from Europe. There are quantities being shipped by an international oil major to markets in West and East Africa and to South Africa, but these are being delivered to affiliated companies or to contracted receivers taking regular shipments from one source. Whilst some consider these export sales, prices are kept private and confidential.
There were rumors that residual quantities of Group I were available in Livorno, but these turned out to be small quantities being used by Eni for its own finished lubricant production.
Supply of Group I for trade within Europe is relatively tight due to the aforementioned interruptions. Prices remain firm but unchanged from last week. Production within the region is being supplemented with a cargo from Yanbu, Saudi Arabia, shipped under the auspices of a South Korean affiliate of Saudi Aramco.
The cargo traveled to Antwerp-Rotterdam-Amsterdam where sales are being made on an FCA basis or for delivery by truck and barge. The next cargo will arrive toward the end of this month. Mediterranean producers are struggling to meet new and increasing demand, suggesting possible future demand for imports.
Group I prices in Europe are unchanged this week, though many buyers are keeping a concerned eye on the Middle East situation. Values are at €960/t-€995/t for solvent neutral 150, at €995/t-€1,060/t for SN500 and at €1,140/t-€1,245/t for bright stock.
The dollar exchange rate to the euro has remained around the same level as last week, posting Monday at $1.06425.
European Group II prices are stable, and producers are concerned that demand is not building as was forecast a couple of months back. Buyers are trying to lock in supplies of Group II base oils at current prices, but many suppliers are allocating availabilities to regular customers only.
Softening crude and feedstock prices have removed any suggestions of immediate price revisions, with some players commenting that they may expect price changes from May 1, should the Middle East situation escalate. With diesel prices falling back any immediate pressure may be removed with the Group II average premium to diesel moving higher.
European prices remain higher than in other regions, although Asia-Pacific prices have been given a recent boost, and even without the hassle of shipping around the Cape, the arbitrage is no longer open from most Asian sources to Europe.
Group II prices are unchanged this week at €1,020/t-€1,065/t, ($1,105/t-$1,155/t) for 100 neutral and 150N, while 220N is at €1,065/t-€1,100/t ($1,145/t-$1,195/t) and 600N at €1,155/t-€1,200/t ($1,270/t-$1,365/t). These prices apply to a range of Group II oils from European, U.S. and Red Sea sources, all imported in bulk.
The Group II premium to diesel has improved with diesel prices lower.
Group III cargoes from Asia-Pacific and the Middle East Gulf are arriving in Europe having incurred extra freight costs for re-routing around the Cape of Good Hope. This could cause some upward pressure on prices, but there is word of a European trader about to commence imports of Chinese origin Group III base oils into the United Kingdom at exceptionally low prices. These will be arriving in flexi-tanks in the second half May or June. The voyage time is around 75 days rather than the normal 45.
European prices for Group III oils with partial slates of finished lubricant approvals or without approvals are unchanged at €1,585/t-€1,620/t for 4 and 6 cSt and at €1,575/t-€1,610/t for 8 cSt, all on an FCA basis ex Antwerp-Rotterdam-Amsterdam or Northwestern Europe. Two suppliers continue to offer material in a lower range at €1,325/t-€1,385/t.
Prices for rerefined Group III are unchanged at €1,475/t-€1,525/t for 4 and 6 cSt, on an FCA basis ex rerefinery in Germany.
Prices for fully-approved Group III oils are also unchanged at €1,785/t-€1,820/t for 4 and 6 cSt and at €1,825/t-€1,835/t for 8 cSt, all on an FCA basis ex hubs in Antwerp-Rotterdam-Amsterdam, Northwestern Europe and Spain.
Baltic and Black Seas
A cargo of Russian export barrels apparently loaded for Nigeria, but the vessel and the size of the parcel are not known as yet. Vessels are not reported on normal shipping lists for Russian charterers, with a high degree of secrecy or confidentiality surrounding all movements of Russian base oils.
This cargo could be a rumored large cargo of up to 10,000 tons of Russian base oils that was ready to load from either Saint Petersburg or Vyborg.
It is possible that Russian cargoes could move from Baltic to the United Arab Emirates and Singapore, with safe passage granted through the Bab-al-Mandeb Strait by Houthi rebels, but how this discretionary action is accomplished is an unknown. More likely, however, is the routine possibility that Turkish-flagged vessels – having discharged in northern Europe – would be prepared to take a return cargo to Gebze, repositioning the ship for future cargoes from East Mediterranean and the Black Sea to northern Europe. These may not be base oil parcels but could be clean petroleum parcels or easy chemicals.
Lotos and PK Orlen still do not appear to have availabilities for shipping outside the Baltic, although it was heard that a small parcel had been taken to Klaipeda for Lithuanian blenders.
Russian FOB prices for SN 150 and SN 500 from St. Petersburg had been increased but still remain at extremely low levels. The numbers are now assessed higher at $620/t-$665/t for SN 150 and at $625/t-$675/t for SN 500.
Turkey remains an economic catastrophe, with high inflation and ever higher interest rates that do not appear to be working to cut the inflation rate. Inflation is reported at around 72%.
No further information has come to light regarding the government-to-government operation re the import of Russian petroleum products, which of course includes base oils. Sources in Istanbul have been missing from their desks during last week, but later this week it is hoped that further detail as to how the trading process works between Russia and Turkey will be made available to this report.
Turkish base oil markets rely on Russian base oil imports, which are much lower in prices than any Mediterranean-sourced products. Sellers such as Motor Oil Hellas and ExxonMobil do not have the availability to offer cargoes into Turkey, or prices are too high for Turkish traders and blenders to consider. Other Mediterranean suppliers, such as the Algerians, do not meet the European Union’s REACH (Registration, Evaluation and Authorization of Chemicals) accreditation and hence cannot offer cargoes for Turkish imports. How Russian material is REACH-approved is not known.
A blender based near Aliaga advised this report that it had received an offer for around 4,000 tons of three Group I grades from Sicily. Prices in the offer were more than $300/t higher than available Russian material that can be purchased by the truckload, thus improving cash flow by not committing funds to open a letter of credit and taking a larger quantity of perhaps up to or around 4,000-5,000 tons in total.
Local supplier of Group I base oils, Tupras from Izmir refinery, has again maintained prices with levels ex-refinery as follows. Spindle oil is priced at $965/t (Tl 31,116), SN 150 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, having been raised, are now maintained, with levels at €1,225/t-€1,265/t for the three lower vis grades – 100N, 150N and 220N – with 600N now at €1,390/t-€1,475/t. Not including the recent 600N cargo from Korea, which was priced out of the range at $1,260/t, perhaps due to a quality issue, although that was the CIF price and not the ex-tank price. Sales are conducted either in euros or dollars for these grades.
Group II grades may be sourced from the Red Sea, the United States, South Korea or Rotterdam, although supplies from South Korea may currently be restricted due to the Houthi problems in the Red Sea.
Partly-approved Group III base oils on an FCA basis includes Russian Tatneft 4 centiStoke grade, which is priced around €1,440/t. Supplies that had previously arrived from the U.A.E., Bahrain and Asia-Pacific remain at €1,575/t-€1,620/t FCA, but supplies from the Middle East Gulf and the Far East may be badly affected, with it becoming uneconomic for cargoes to be re-routed via the Cape. The material would then have to be taken through the Mediterranean, before finally discharging in Turkey.
Fully-approved Group III grades from Cartagena refinery in Spain are being delivered into Gemlik and resold by traders on an FCA basis to local blenders requiring fully-approved base oils for finished lubricants. Prices are maintained at €1,960/t-€1,995/t FCA.
Middle East
Shipping continues to be a problem for Saudi producers in Yanbu and Jeddah, although some vessels have been getting through the Bab-al-Mandeb Strait without incurring any problems from Houthi rebels. Some news was heard that Houthi rebels had been warned off by the Saudi military and had been threatened with reprisals should any attack or strike be countenanced against a vessel carrying Saudi cargoes.
Whether this is in fact true cannot be proven, but some ships have made the transit discharging into the west coast of India and the U.A.E.
North bound cargoes are being loaded but these are smaller and fewer than the large parcels which traditionally loaded out of the Saudi ports of Yanbu and Jeddah for receivers in the west coast of India and the U.A.E. Oddly, figures seen in a recent report suggest that record quantities of base oils were shipped from Yanbu and Jeddah to Mumbai anchorage in February.
Middle East Gulf regions are calmer than last week, when tensions were running high, with the possibility of a ramping up of conflict between Iran and Israel. This week it appears to be almost normal, with daily working returning to the region, but the Middle East Gulf remains in shock by the direct involvement of Iran in the Saturday, April 13 attack with more than 300 missiles and drones on Israel. Israel have responded with an attack on Friday morning in Isfahan, which has largely been played down by Iran.
There are reports widely available that Iran is basically broke and cannot afford a full scale confrontation with Israel or any other nation for that matter. With inflation running at above 35% and prices for goods and services leaping by more than 300% in some cases for food, for example. A decade of sanctions has taken its toll, with loss of oil revenues, and has wiped out middle-class wealth. Government debt has ballooned, with unemployment and corruption as an all-time high. The rial plummeted against the dollar last week, with no signs of recovery.
Houthis, being one of Iran’s proxies, continue to attack merchant marine vessels in and around the Red Sea with Middle East Gulf importers and exporters of base oils and finished lubricants finding difficulty in arranging shipments. Sources in the U.A.E. have confirmed that Luberef cargoes from Yanbu and Jeddah continue to be delayed and/or cancelled. Alternative arrangements are being put into place with sources saying they are trying to obtain Group I cargoes from India, and Group II cargoes from Asia-Pacific sources in Korea and Singapore.
Russian base oils delivered into the U.A.E. have had prices raised again, with these grades now indicated CFR at around $710/t for SN 150 and $725/t for SN 500. A parcel of around 5,000 tons has loaded from Limas terminal in Turkey for receivers in Hamriyah and is believed to have completed discharge last week.
Rumors are afoot, that a U.A.E.-based trader may look to buy a specific Russian cargo comprising of three grades of base oils – SN 150, SN 500 and SN 900 – firstly to discharge in Hamriyah. The cargo would then be resold to an international trader, accompanied by a U.A.E. certificate of origin. Thereafter, the secondary trader would re-export the cargo to Apapa. The trader involved has already taken a “U.A.E.” cargo of Group I base oils to Nigeria sometime last year.
Netbacks for Group III exports from the Middle East Gulf for partly-approved base oils from Adnoc in the U.A.E. and Bapco in Manama may be set to improve, on the basis that distributors are at least trying to raise selling prices in markets such as U.S. and Europe. Whether prices will rise is debatable given the current market conditions and additionally it depends if the producers, Adnoc and Bapco, will lower FOB prices to take account of the extra costs of freight to Europe.
At the moment netbacks remain indicated at $1,485/t-$1,525/t, for the 4 cSt, 6 cSt and 8 cSt partly-approved Group III grades.
Netbacks for Shell gas-to-liquid Group III+ base oils from Ras Laffan in Qatar are also maintained at around $1,500/t-$1,560/t, mainly due to larger cargo sizes of around 25,000 tons per parcel, contributing to lower freight rates.
Netback levels are assessed from distributors’ selling prices, less estimated marketing, margins, handling and freight costs.
Group II base oils continue to sell ex-tank in the U.A.E., or on a truck-delivered basis in the U.A.E. and Oman. Prices are maintained. Fewer cargoes appear to be arriving from Yanbu, leaving the market tight, with demand rising, following Ramadan and Eid. Buyers are looking at alternative sources, such as South Korea and Singapore, to cover this market. Selling levels are maintained at $1,685/t-$1,725/t for 100N, 150N and 220N, with 600N at $1,775/t-$1,825/t. The high ends of the ranges refer to road tank wagon deliveries to buyers in the U.A.E. and Oman.
Africa
South African shipping agency sources in Durban confirmed the large European base oil cargo appears to have loaded at least in the first port of Rotterdam before sailing to Fawley, where further quantities of Group I or Group III base oils will be loaded. The parcel will be comprised of around 19,000 tons of three types of base oil plus a small quantity of easy chemicals.
West Africa reports that the 9,000-10,000 tons cargo has loaded from Fawley for receivers in Guinea, Cote d’Ivoire, and Ghana. The Ghana delivery will be 5,000 tons of SN 150, SN 500 and bright stock. The exact quantities are not disclosed, but normally quantities would be around 1,500 tons of SN 150, 2,500 tons of SN 500 and 1,500 tons of bright stock. This delivery will go into Tema.
The 8,000-10,000 tons cargo which may – or may not – have loaded out of the Baltic, with SN 150, SN 500 and SN 900, may arrive into Apapa during May, but no positive confirmation can be established either in the Baltic or in Nigeria. It is believed that a Minsk-based trader will have chartered the vessel and will deliver this parcel into receivers in Lagos.
There may be a further large cargo from the United States that would arrive into Nigeria in May or June, but delivered prices will have to rise. The problem is that Russian and U.A.E. offers are pulling the market down and making life difficult for other traders that are dealing in prime Group I grades and are having to use bright stock – which is more expensive – to blend the SN 900 grade. Russian cargoes can blend SN 900 using SN 1200 or second rate Russian bright stock, which is lower in cost.
CFR Apapa prices are indicated in ranges at around $975/t-$995/t for SN 150, $1,055/t-$1,080/t for SN 500 and SN 900 at around $1,110/t-$1,125/t. Prices had been moved higher, reflecting higher FOB levels and increased freight costs.
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.
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