Add in the war in Ukraine, which has stoked further inflation in Europe and neighboring environs, besides causing misery to both combatants and food shortages in far-flung poor countries. It all makes for heavy headwinds blowing against trade, including base oil markets.

Base oil values are under pressure from inventories that seem to be running high everywhere, and suppliers are trying almost anything to move material out of tank on an orderly and planned basis. The fourth quarter in any year is always predicted to be slower than the previous months, but this year has seen a complete reversal from earlier in the year when availability of all types of base oil was tight, particularly for API Group I in Europe, where the export market disappeared for three or four months.

There are what would otherwise be a number of open arbs for material to move from lower-priced markets to regions where prices remain for now at higher levels. This logic applies only to FOB prices, since rising freight rates nix the opportunity for deals structured otherwise.

Following the decision by the OPEC+ group to curtail crude output by around 200,000 barrels per day, demand dropped drastically, thwarting predictions that prices would jump toward $120 per barrel. This has limited the potential for hikes in prices for petroleum products, although devaluation of currencies other than the dollar is exerting upward pressure on costs for products and derivatives.

Dated deliveries of Brent crude are at $91.80/bbl, still for December front month settlement, down some $6 from last week. West Texas Intermediate fell around $7 to $85.65/bbl, still for November front month.

Low-sulfur gas oil prices are see-sawing above $1,100 per metric ton. With alternatives to Russian supplies flowing into the European Union, analysts expect prices to stabilize through winter. The posted price is currently at $1,103/t, now for November front month, around $170/t lower than last week. All these prices were obtained from London ICE trading late Oct. 17.

Europe

Group I exports from Europe have disappeared yet again but now for a variety of different reasons than earlier in the year. West African trades have been hit badly by serious flooding in Nigeria, Ghana and Cameroon. Middle East Gulf and Indian markets are awash with lower priced material from Saudi Arabia and Asia-Pacific sources such as Thailand and Singapore, where Group I FOB numbers can be around $250 per ton to $300/t lower than European levels.

Freight rates are also impinging on possible export sales, since they make costs unworkable into regions such as the Middle East Gulf and the West Coast of India.

Potential FOB prices are taken lower this week, with demand falling, if not completely disappearing. Judging from offers, values are now assessed between $1,035/t and $1,095/t for solvent neutral 150 and at $1,125/t-$1,185/t for SN500. Bright stock is also priced lower, although a couple of sellers have pitched this grade much higher, at around $1,700/t. Others trying to move all three Group I grades together have offered bright stock $1,240/t-$1,325/t.

Prices for Group I oils sold within Europe are under pressure from those buyers shopping among a number of suppliers for small quantities. Sellers are competing to move as much product as possible into a declining market with poor demand. Even halfway through the month, sellers are offering discounts that have caused prices to nearly collapse over the past week. Most buyers anticipated this happening and held back from making commitments for large quantities of Group I grades.

Many sources contacted this week said that even with lower numbers being offered, interest in finished lubricants was waning, and quantities forecast for this quarter were just not around,. Many businesses are cutting back on requirements and have advised blenders that offtakes will be reduced drastically over the next three months, and possibly through the first quarter of next year. Automotive factory fills have either been reduced or cancelled, and industrial oils are seeing a huge downturn as factories cut back working hours and output. 

Buyers are still taking only smaller quantities of Group I base oils, and with availability excellent, there are few fears of being unable to procure requirements as and when they are needed.

From a sellers’ standpoint, another problem is the exchange rate of the euro to the U.S. dollar. The euro is now below parity, so selling prices in euros ae having to be kept as high as possible to offset dollar purchases.

The price differential between exports and sales within Europe has fallen due to the slide in the latter and the hypothetical nature of the former. The differential is now assessed at €65/t-€120/t, exports being lower.

Group II prices have also come under pressure, with many players citing the spread against Group I price levels and numbers being offered for Group II supplies. Availability is more flush than earlier in the year, due both to declining demand for domestically produced material and an increase in imports coming in from U.S. sources. A market that was snug can now be described as going long.                    

Instead of prices being set at the beginning of a month and held firm for the duration of that period, prices are being altered almost on a daily basis, with buyers keen to access the best deal possible before taking smaller quantities than previously. Even the exchange rate between euro and dollar is not supporting the high levels seen over the last year.

How fickle can base oil markets be, with last week’s report suggesting that exchange rates were causing upward pricing pressure. Values are taken lower this week, to $1,485/t-$1,555/t (€1,525/t-€1,595/t) for 100 neutral, 150N and 220N and to $1,665/t-$1,720/t (€1,710/t-€1,765) for 600. The prices applicable to Group II base oils are currently in a state of flux, not being held firm for any length of time.

These prices apply to a range of Group II oils from Europe, the U.S., Asia-Pacific and the Middle East Gulf.

Group III prices have also succumbed to the increasing pressures coming from weaker markets where demand is falling even for Group III grades, which up until now have enjoyed a positive position on the base oil spectrum. Again, sellers are blaming weaker demand, with economies across Europe experiencing monetary and fiscal problems caused by inflation and rising costs of materials and wages. Grades which were short and in demand, such as 4 centiStoke grades, are now available from all suppliers around Europe.

There are pockets of new activity where some blenders are moving across to use Group III base stocks for the first time in new formulations, but this uptake may not offset existing use where demand is starting to fall. The question being asked by all sellers and distributors is how far will demand fall, and will there be a turning point where Group III base oils once again expand sales to endorse new types of finished lubricants across the markets?

Last week this report commented on the Porvoo turnaround, stating that production of base oils had resumed. This was not the case, since maintenance on the main refinery was extended and the base oil plant may not restart until the beginning of November.

Prices for Group III oils with partial slates of finished product approvals are slightly lower at €1,815/t-€1,845/t for 4 and 6 cSt and €1,795/t-€1,820/t for 8 cSt, which is notably below the lighter grades.These prices are all on an FCA basis ex Antwerp-Rotterdam-Amsterdam and Northwestern Europe.

Group III oils with full slates of approvals are also tweaked lower at €1865/t-€1900/t for 4 cSt and €1,875/t-€1,910/t for 6 and 8 cSt. Here prices for 8 cSt remain higher because fully-approved 8 cSt grades are used in specific blends requiring this viscosity.

Baltic and Black Seas

Baltic activity is a much-reduced part of the base oil scene, although one cargo was identified this week, moving out of Riga port with 2,800 tons of Russian export base oil grades, going into Dordrecht. This cargo may be one of the contracted arrangements which are permitted to continue until February of next year.

However there have been no cargo movements seen coming out of Svetly terminal in Kaliningrad, and efforts to establish the reasons behind the absence of product moving from this base have not been successful to date. Lithuanian sources confirm that trains carrying petroleum products are still transiting through that country in route to Kaliningrad, but whether these trains are conveying base oils for onward shipment is unclear. The same company, Lukoil, continues to export Russian export barrels to deep-sea locations through Black Sea operations.

Gdansk continues to load Group I cargoes, with one smaller parcel of 1,500 tons, which was loaded at the beginning of October for receivers in Turkey. This is a small cargo to move with freight rates being high, but the vessel involved is a Turkish flagged ship. Perhaps it is trying to return to domestic waters, therefore perhaps offering a rock-bottom freight rate to take this parcel to Marmara rather than ballast back, with the associated voyage costs.

FOB Baltic prices take account of Gdansk loadings in Poland. FOB prices for this port are placed in line with European mainland levels and are maintained in line with those numbers. As indications, only SN 150 is estimated at $1,035/t-$1,065/t, with SN 500 at $1,125/t-$1,160/t. The prices levels for the two grades loaded out of Riga and assessed on an FOB basis are to be at $895/t-$935/t, for SN 150, with SN 500 at $925/t-$970/t.

Black Sea and East Mediterranean regions report a number of cargoes moving out of the area and also a number of parcels of various types of base oil arriving in Turkey for internal use by Turkish blenders. There appeared to be a hiatus in movements from the Volga river system, with fewer cargoes moving down to the Limas terminal in Turkey. Activity appears to have returned, with a number of the Volga river vessels arriving and discharging material into tanks at the terminal. Prices FOB Limas were lowered drastically over the last week or so, reflecting lower Russian prices for receivers in Turkey and also for onward sales through Limas terminal. Numbers are now assessed at $845/t-$880/t for SN 150, with SN 500 at $925/t-$965/t.

Tupras restarted base oil production at Izmir refinery after some downtime. The material produced at the refinery is offered in local currency, but in dollars is placed at around $1,425/t-$1,480/t for the SN 100 and SN 150 grades, while SN 500 is put at $1,560/t-$1,595/t. Bright stock is priced at $1,720/t-$1,755/t, all grades are ex rack at the refinery, to which a small premium should be added for truck loading. The quality of the renewed production is unknown, and there may be some problems with the bright stock specifications, which has been the case in the past.

Local buyers are showing little or no interest to purchase from Tupras, given that the Russian export price levels are much more attractive.

Given that many Turkish blenders are mainly using Russian base oils, certain formulations call for approved Group I base oils meeting European standards. With this in mind, a cargo of 7,750 tons is loading this week out of Hamburg, calling in a Tarragona in route and then delivering the cargo into Derince. This cargo could contain a quantity of naphthenic base oils in addition to Group I grades.

One U.S. Gulf cargo was identified as an inquiry for Gebze. This parcel of 2,500 tons may load during October, but as yet the base oil type and Turkish receivers are unknown.

Group III base oils are being delivered into Turkish storage with a 2,600-ton parcel from Malaysia loaded during the first part of this month, which will discharge into Gebze port. This material carries some approvals but is not fully approved. Other fully approved Group III base oils are supplied from Cartagena in Spain in small parcels between 750 and 2,000 tons. These quantities are resold on an FCA basis as detailed below.

Imported Group II base oils sold FCA storage in Turkey by traders and distributors are discounted this week following lower numbers starting to apply. Group II prices ex-tank are assessed at €1,775/t-€1,820/t for the three lower vis products, with 600N at €1,855/t-€1,890/t.

Group III base oils sold on an FCA basis for partly approved grades are also adjusted lower and are now placed at €1,870/t-€1,925/t. Fully approved Group III grades from Cartagena in Spain are being sold FCA at around €1,945/t-€1,980/t.

Middle East

Red Sea activities show a number of export cargoes arranged for various destination, carrying different combinations of both Group I and Group II base oils. Cargoes are loading out of Yanbu, and in addition Group I solvent neutrals will also be loaded in tandem out of Jeddah where required. One cargo sailed from Yanbu with 4,000 tons of what is considered to be Group II grades for receivers in Le Havre. Other cargoes follow the norm, with two large parcels of 14,000 tons and 13,000 tons, respectively, loaded for the west coast of India, probably Mumbai anchorage. Future cargoes will load for Egypt and Antwerp-Rotterdam-Amsterdam.

The Middle East Gulf reports a number of cargoes of Group I and Group II base oils coming into the United Arab Emirates from Saudi Arabia, Thailand and Singapore, those being Group I from Rayong, while the Singapore supply could consist of Group II grades. Russian export barrels are considered for another cargo from Limas terminal in Turkey. This will be supplied as per the last two parcels by Lukoil and will be discharged into storage in Hamriyah port in Sharjah. Numbers are now estimated at $965/t-$1,000/t for the SN 150 and $1,045/t-$1,075/t for the quantity of SN 500. This is based on a cargo of around 8,000 tons, and with low Russian prices, receivers will be looking for further quantities, rather than revert to using Iranian base oils that may or may not be available, given the problems in that country at this time. 

A further base oil cargo from Taiwan is noted as possible towards the end of October. This is in addition to a small parcel of 2,000 tons from Karachi going into one of the smaller emirates in the U.A.E. in Ras-al-Khair. This cargo would also figure at the end of this month.

Group III exports are maintained as the mainstay activity for base oils moving out of the Middle East Gulf. Trades are recorded out of Sitra and Al Ruwais with destination for the latter, with 8,500 tons as a mainland Chinese port. Another 6,000 tons is booked for Rotterdam, also towards the month end for Stasco.

Ras Laffan cargoes out of Qatar are reported at a total of 135,000 tons for the month of August, including the large 55,000-ton parcel that sailed for the U.S. Gulf Coast. The trading patterns for cargoes under the Shell umbrella coming out of Ras Laffan are varied, with exports to Asia-Pacific drifting lower, but with a surge in quantities going into the U.S. market making up any shortfall for material moving out of this base. The Group III+ grades exported from Qatar are based on gas-to-liquids technology and are not resold as base oils into the third-party markets. These grades are prepared under the auspices of Shell, and are sold as blended Group III+ packages, or are used within the Shell affiliate system in blending in-house finished lubricants.  

Netbacks for Group III base oils out of Al Ruwais and Sitra are maintained this week, although selling prices in Europe may be drifting lower. U.S. prices are believed to be stable. Netbacks are assessed at $1,755/t-$1,795/t for the range of 4 centiStoke, 6 cSt and 8 cSt partly-approved Group III base oils. Factors that could negatively affect netbacks in the future are freight cost increases and lower selling prices to end-users, which would ultimately affect ex refinery levels.

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 on a FCA basis in the U.A.E. can be sourced from European, U.S, Asia-Pacific and Red Sea suppliers, and are being resold ex-tank, or on a truck delivered basis within the U.A.E. Prices are taken down a little this week, with new levels at $1,715/t-$1,785/t for the light vis grades, with 500N and 600N at $1,845/t-$1,915/t.

Africa

North African trade came to life this week, with the report of a 4,000-ton cargo that loaded out of Antwerp for receivers in Mohammedia in Morocco. This is the first parcel to be noted from Anterwerp-Rotterdam-Amsterdam, since most of the trade in base oils has been from Italian and Spanish suppliers. It is considered that this cargo will consist of perhaps three Group l grades.

There are no further South African cargoes reported this week, although with substantial quantities already loaded, or loading, it may be another few weeks before follow-up cargoes are nominated for Durban and other locations such as Mombasa and Dar-es-Salaam.

West Africa reports are filled with the disaster occurring in Nigeria and surrounding countries where torrential rain has caused flooding on a massive scale. The disaster meant that transport and all logistics have come to a halt. With base oils supplied by road from storage in Lagos, the situation will be mean a complete halt to truck movements. The aftermath is also expected to impinge on businesses, with damage to property and services not yet ascertained. Currently reports are filtering through, but meaningful news is not yet forthcoming due to lack of communications and a breakdown of power supplies.

Base oil cargoes are furthest from all minds at the moment, but prior to the flooding news breaking, one cargo was noted to be coming out of Rotterdam and Fawley, carrying 10,000 tons of Group l grades for Apapa. The vessel loaded during the first week of October, so it has some chance of missing the effects of the floodwater in Nigeria. Should the vessel arrive during the flood time, then substantial demurrage and possible detention charges could apply, should the discharge be delayed. There could be scope for force majeure under the terms of the charter party, although this report is not aware of the facts.

Although this vessel loaded from a major’s facilities, it is more than possible that this cargo is being handled by a trader. That would make sense going into Nigeria, with all the twists and turns of doing trades in that part of the world.

CFR levels for base oils offered into Apapa remain unchanged and as advised, with indications around $1,255/t for quantities of SN 150, SN 500 priced at around $1,300/t and SN 900 at $1,345/t. As an indication only bright stock may be landed at around $1,440/t C&F Apapa. Any leeway on FOB prices, which may come about due to a weakening market in Europe, may be more than offset by rising freight rates that may have overtaken any discounting to FOB 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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