Even for Group II, the pace appears to have been lost in the clamor to lay hands on requirements. Some players are commenting that they will be looking for smaller quantities than previously, and that with availability not being an issue, they are relaxed in the knowledge that should requirements have to be met to supply base oils for a particular blend, then quantities are available as and when required.

With the steam going out of the previously tight markets for all groups of base oil, there appears to be a relaxation from the buyers’ side, whilst some sellers are trying to move inventory sooner rather than later, since storage space is becoming an issue in some cases.

Group III remains relatively snug, with 4 centiStoke material still short around the markets, and this grade along with 6 cSt material is looking to be tighter than expected. All the importers have delivered cargoes into the European arena; however, with the turnaround in Finland now in full swing, there is air of expectation around the Group III markets that things are relatively tight, and this will not change until the unit at Porvoo comes back on stream at the end of September, all being well with the restart. No allocations or limitations are being put on supplies of Group III oils, other than suppliers of 4 cSt oils will only deliver planned volumes to regular buyers, with no additional quantities being offered.

Economies across the regions are all facing the specters of inflation and potential recession, which is dampening efforts to promote trade on a global basis, although certain regions are feeling the pinch more than others. The European markets are being particularly badly hit, with the threat of further energy curbs by Russia looming large on the horizon following the cessation of supplies of gas through the Nordstream I pipeline into Germany. Should gas supplies become more problematic, there will be a domino effect that will cannon into many different industries, limiting working practices and activities throughout the winter months. Although various countries are trying to cover requirements from elsewhere, time is of the essence and this winter will reveal cracks in operations, as power such as electricity and gas become scarce.

Crude oil prices are hovering around similar levels which have been seen over the last month or so. Dated Brent and WTI however have both firmed a little since the last report.  Dated Brent currently lists at $96.85 per barrel, this price now being for November front month. WTI has also been lifted by around $3/bbl since last reported, and now posts at a level of $90.25/ bbl, remaining for October front month.

Low sulfur gas oil has come off the spiked highs noted in the last report, but has not found its way back down below the $1,000 per metric ton mark. Prices remain strong, with demand for this material remaining high. Current price is recorded at $1,146/t, this price being for September front month.

Prices were obtained from late London ICE trading on 5th September 2022.

Europe

Group I export prices around Europe have been the subject of further erosion to prices. With availability improving over the summer, with all Group I facilities running at optimum production rates, buyers are being rather spoiled for choice in deciding where to purchase large quantities for export destinations. However, some of the prime regions for taking large Group I cargoes, such as Nigeria, are experiencing monetary problems such as not being able to access foreign currency, in order to open letters of credit to traders supplying quantities of base oils into this market.

The result of lower demand has been to lower selling prices in order to attract buyers to lift large quantities from producers. Some refiners have taken the decision to lower base oil run rates in favor of producing extra quantities of distillates which are in demand across the regions right now. This has not tightened up the base oil markets to any tangible extent because availabilities remain positive throughout Europe.

FOB prices for SN 150 are assessed lower than last reported and are currently at $1,255/t-$1,300/t, with SN 500 prices also moving down, at $1,320/t-$1,380/t. Bright stock is actively being pushed around the base oil market, with sellers keen to move large slugs of this grade. Prices reflected these moves, with some sellers prepared to offer deals for all three Group I grades to be lifted in one cargo lot, with bright stock prices at $1,420/t-$1,495/t.

Domestic base oil sales have not recovered after the summer recess, in spite of a number of suppliers substantially discounting existing price levels from Sept. 1 in efforts to kick-start the market. Sellers were prepared to meet a large demand from buyers who were reckoned to be coming back to the table to replenish depleted stocks, which had been run down in the months prior to the holiday period. Buyers, however, are continuing to purchase on a hand-to-mouth basis, only taking quantities necessary to cover day to day trading. Buyers still believe that a significant build-up of in-tank stocks may encourage sellers to offer keener prices through September.

The exchange rate at less than parity is not helping sellers’ causes, with euro prices for material levied at higher rates than dollar sales.

The differential between domestic and export prices has been decreased due to the large discounting in the domestic market from Sept. 1. The differential is now assessed at €55/t-€110/t, domestic being the higher level.

Group II prices were holding up at the recent highs, but an undercurrent of lower demand has started to affect buyer’s reactions to prices offered for the month of September. The resulting negotiations yielded some discounting, which trimmed the Group II prices somewhat from almost all suppliers of these grades. The downward moves for Group I have been significant in playing a part for buyers negotiating lower numbers. The differential between Group II and Group I is the largest seen for some years.

The exchange rate is causing problems for producers trying to accommodate buyers’ requests for lower prices. With the euro going negative to parity against the dollar, this has increased pressure on refiners and producers to maintain as price levels as high as possible.

Prices are taken lower and are currently assessed at $1,740/t-$1,800/t (€1,752/t-€1,813/t) for the three light vis grades – 100N, 150N and 220N – with 600N now at $1,865/t-$1,910/t (€1,878/t-€1,923/t).

Prices are for a range of Group II base oils, including European, United States and Asia-Pacific grades. Additionally, possible imports may also arrive from a Middle East source.

Group III base oil prices are stable with few outside influences around the market to cause any significant changes. The perception at this time is that the market is tight, but this may be due to the turnaround at one of the two approved producers of Group III base oils. With the exception of 4 cSt material, the market is amply supplied with replenishment cargoes from Malaysia, the United Arab Emirates and Bahrain all making landfall during August and September. Suppliers and distributors are expecting that the fourth quarter will be as positive as the previous part of the year, with demand continuing to build for Group III base stocks.

The turnaround is due to complete with thirty days of start, so all being well, production should be back at the beginning of October. Material has been placed in storage to cover the period of non-production.

An interesting statistic is that 6 cSt material is also showing higher demand, although in Europe the 8 cSt grade is not as popular as the other two main grades.

Prices for partly-approved Group III base oils are almost maintained, with only small tweaks to some prices at the high ends of the ranges. Levels are now at €1,895/t-€1,940/t. The 6 cSt and 8 cSt grades are at €1,900/t-€1,935/t, with 4 cSt base oils at €1,895/t-€1,935/t. Prices are for FCA supplies from Antwerp-Rotterdam-Amsterdam and northwest Europe. In some instances, prices for 4 cSt material are hiked higher than numbers for 6 cSt and 8 cSt, but this is not general.

Fully approved Group III base oil prices are also slightly altered for September. Four cSt grades are placed at €1,930/t-€1,965/t, with 6 cSt and 8 cSt oils at €1,945/t-€1,990/t.

Baltic and Black Seas

Baltic Sea activity has dwindled to almost zero, with only one vessel reported lifting a part-cargo out of Liepaja, en route to the west coast of the United Kingdom and Antwerap-Rotterdam-Amsterdam. The additional cargo, believed to be the mainstay quantity of the total parcel, has loaded out of Gdansk. There have been no reported cargoes coming out of Svetly terminal in Kaliningrad, which is rather surprising because Lukoil trains are still passing through Lithuania en route to the terminal at Svetly. There are no shipping enquiries for future vessels to load out of Kaliningrad either, perhaps indicating the reluctance of European receivers to take Russian export barrels, even under designated contract which is permitted to run until next February.

No deep-sea cargoes are reported, such as those previously loaded for Singapore, South America and Mexico.

FOB Baltic prices relative to the one identified part-cargo are given as indications only. SN 150 is indicated lower this week, at $1,200/t-$1,245/t, with SN 500 indicated at $1,275/t-$1,330/t. Indications for SN 900 may be around $1,340/t-$1,375/t.

The Black Sea and East Mediterranean regions report a large Russian base oil cargo that loaded last week for receivers in Hamriyah, in the United Arab Emirates. The cargo of some 11,000 tons of Russian grades loaded out of Limas terminal in Turkey after the material coming down the Volga River system in smaller river vessels, bridging the larger quantity into storage in Limas. Loaded numbers on FOB Limas basis would have ranged at $1,195/t-$1,220/t for the SN 150, with SN 500 at $1,255/t-$1,310/t.

In Turkey receivers, buyers and blenders are dealing with the problems of rampant inflation, which has reached incredible levels, with food and energy being the main elements that are contributing to an estimated figure of something around 200% year on year. These levels are unsustainable in any economy and cannot continue. Base oils are being sold for export along with finished lubricants that are going into markets such as Central and South America.

Turkish blenders continue to buy Iranian and Uzbek base oils which are being trucked cross border into Turkey. There are no letters of credit opened to facilitate these purchases, the trade being carried out by way of cash payments made in advance for each truck load of base oil.

Tupras, the Turkish refiner, is not producing any base oils at the Izmir plant. Information received from sources in Istanbul suggest that this refinery will re-start base oil production and this stoppage is a temporary setback which will be sorted out in due course.

The small parcel of 1,900 tons has now loaded out of Mersin for receivers in Haifa. This material is possibly bright stock, or bright stock feedstock from Izmir refinery.  

A major loading out of Rotterdam will discharge between 1,800 and 2,200 tons of base oils into Gebze during September and October. Cargoes from Livorno and Aghio have been offered to buyers in Turkey, but these cargoes were turned down as they were considered too expensive, Another explanation ha been heard, that being that letters of credit were impossible to open due to the banking limitations in Turkey at this time. Offered prices for SN150 and SN 500 and 600 were around $1,335/t for SN 150, with SN 500 around $1,420/t CIF Gebze.

Imported Group II base oils sold FCA storage in Turkish ports by traders or distributors are maintained, with September pricing considered to be made more competitive with some quantities of Group II grades arriving into Gebze from Yanbu refinery. Prices ex-tank are assessed to be at €1,910/t-€1,955/t for the three lower vis products, with 600N at €2,025/t-€2,095/t.

Group III base oils sold on the same FCA basis, for partly-approved grades, remain at €2,135/t-€2,175/t. Fully approved Group III grades from Cartagena in Spain are to be sold FCA at around €2,200/t-€2,275/t.

Middle East

Red Sea reports indicate only one small base oil cargo of 1,800 tons making its way at the end of September to Singapore. Other larger cargoes will surely be arranged for the west coast of India and the U.A.E., although due to flooding and the effects of the monsoon, a cargo for Pakistan was delayed until suitable berthing and port facilities can be assured. An interesting inquiry was filed for a vessel to load out of Yanbu and Jeddah to take a cargo of up to 8,000 tons in total to Dar-es-Salaam and then to Lome in West Africa. This is an interesting vessel movement, assuming that at least 50% of the cargo would be destined for Lome.

Middle East Gulf receivers are awaiting the 11,000-ton cargo from Limas in Turkey, which should arrive into Hamriyah in Sharjah around the second half September. This is a follow-up cargo from Lukoil. The large parcel of Iranian SN 150 and SN 500, which was loaded out of Hamriyah for La Plata, was confirmed as being Iranian origin, although the certificate of origin on board the vessel apparently states U.A.E origin.

An 8,500-ton Group III base oil cargo for the west coast and east coast of India loaded out of Al Ruwais. In addition, a smaller parcel of 3,500 tons will load from Bahrain, Sitra terminal, for Houston. This will replenish distributor stocks in the United States. A Sitra cargo loaded for distribution in the U.A.E. and will probably be discharged into Jebel Ali.

Netbacks for Group III base oils out of Al Ruwais and Sitra are taken much lower since it was pointed out that prices did not support such high netback levels. The netbacks have been re-assessed and are now put at $1,755/t-$1,795/t, for the range of 4 centiStoke, 6 cSt and 8 cSt partly-approved Group III base oils.

Netback levels are based on local prices derived and assessed from regional selling levels, less marketing, handling and estimated freight costs.

Group II base oils resold on the basis of FCA U.A.E, sourced from European, U.S, Asia-Pacific and Red Sea suppliers are being resold ex-tank, or on a truck-delivered basis within the Middle East Gulf, most of the material remaining in the U.A.E. Prices are maintained at $1,825/t-$1,865/t for the light vis grades, with 500N and 600N at $1,955/t-$1,995/t.

Africa

South African shipping sources have confirmed a further cargo of 9,600 tons has loaded from Fawley and sailed to Durban. It is not confirmed whether the cargo will comprise entirely of Group I base oils or if there will a Group III element to the parcel

West Africa is generally quiet, with only the part-cargo from Yanbu going into Lome being news this week.

There are reported problems in Nigeria with the local banking system. The issue is that Nigerian banks have to bid for dollars on the exchanges to access foreign currency to be able to prepare and open letters of credit to suppliers of base oils. They are reliant on the local letters of credit issued from Nigeria and then confirmed by a nominated first-class prime European bank, before chartering of vessels and subsequent purchasing and loading of cargo can be completed. This is hopefully a temporary problem, which is preventing the importation of base oil cargoes into Apapa.

The bottom line is that a number of blending operations are going very short of base stocks to manufacture finished lubricants, and without the cash flow from that exercise, companies can simply go out of business.

With no trades moving into Nigeria and without any current new indications, CIF/CFR levels for base oils offered into Apapa are maintained and are indicated at around $1,575/t-$1,620/t for quantities of SN 150, SN 500 is priced at around $1,685/t-$1,725/t and SN 900 is assessed at $1,720/t-$1,755/t. As an indication, only bright stock may be landed at around $1,795/t C&F Apapa. When eventual cargoes are negotiated, there may be some leeway on the above prices.

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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