This could be a major blow to the Kremlin, which is highly dependent on revenue from oil products and crude to fund its war in Ukraine. These sanctions also ban transportation, financing and insuring of Russian cargoes of petroleum products and crude and could severely limit options for Russian sellers and traders, making it extremely difficult to find vessels to move cargoes from Russian ports.

Base oils will obviously be affected, as Russian exports through both the Baltic and Black seas should be further constrained, even though Russian exporters are looking for new outlets in areas such as the Middle East Gulf, Singapore and South America.

Trading routes for Russian base stocks will be altered, and alternative sources – especially for API Group I base oils – will find opportunities. Sources such as Lotos’ refinery in Gdansk, Poland, may start to pick up some of the slack whilst traditional European producers will be relied upon to fill the gaps left by the lack of Russian oils.

Downward pricing pressure continues to build across all base oil groups throughout Europe, the Middle East and Africa. Some suppliers are taking initiative to announce markdowns, perhaps in anticipation of requests by buyers who are watching raw material costs drop. Large cuts have been announced in the Group II arena, whilst Group I values continue to come under fire in a segment largely controlled by buyers at the moment.

There have been no signs yet of year-end sales, although some sources suggest that sellers are willing to look at package deals involving multiple grades. The idea for sellers is to keep inventories from swelling too much for any particular grade since selling down that grade could be difficult in this environment.

Crude oil prices recovered slightly toward the end of last week. Dated deliveries of Brent crude are at $86.20 per barrel, approximately $4 higher than a week ago, now for February front month settlement. West Texas Intermediate rose more than $5 to $80.45/bbl, still for January front month.

It remains to be seen if the price cap set on Russian crude will affect values for other crudes, though a large impact is not expected. Saudi Arabia and others producing nations are pushing for further production cutbacks to lift prices higher.

Low-sulfur gas oil prices rallied after sinking to their lowest level since early February and are now at $905 per metric ton, still for December settlement for another few days. These prices were obtained from London ICE trading late Dec. 5.

Europe

Prices for Group I exports from Europe are falling again based on the small number of transactions being completed. In what is described a buyers’ market, sellers really have little choice other than to meet buyer price demands if they want to move large quantities. Some sellers are asking buyers to lift all grades, from light neutrals to bright stock, and not cherry pick whichever grade is in greatest demand. Traders are making similar requests to receivers in export markets such as West Africa, the Middle East and India.

European suppliers are still having to compete against Group I coming from Asia-Pacific and the United States, although the latest markdowns bring European oils in line with supplies from East and West.  

Freight costs remain high, although some say that bunker costs dropping and that with fewer cargoes of CPP going around, vessel owners and operators are keener to prune rates for reliable prompt charterers able to assemble cargoes in efficient and timely manner.  

Group I export prices are reduced to between $955/t and $990/t for solvent neutral 150, $1,020/t-$1,055/t for SN500 and $1,095/t-$1,155/t for bright stock, all on an FOB basis.

Prices for Group I sales within Europe fell on Dec. 1 but appear more stable now, though some buyers are still unhappy at the size of the premium over exports.

Trading remains slow, with blenders unable to escape the inflationary spiral that is causing problems for forecasting of sales and prices. Some are putting off purchases of large quantities, believing that crude and feedstock prices still have some distance to fall, even as some producers try to implement markups. Many agree that problems confronting the market are not close to being resolved.

The euro has recovered a bit of its value against the U.S. dollar, moving to $1.0526 in early week trading. This will give base oil producers a measure of confidence to price sales once again in euros. The price differential between Group I exports and sales within Europe swelled this week, as export offered numbers dropped more than values for intra-regional trades. The differential is now assessed at €110/t-€175/t, export prices being lower.

In the Group II segment it was hear last week that one major reduced light grade prices by €50/t, whilst the heavier grade was moved down by €40/t. These moves are in addition to slightly higher discounts applied at the end of October, and are part of the rebalancing between Group II and Group I values. These downward moves do not appear to have been prompted by buyers, but seem to have been volunteered by sellers, who were perhaps anticipating that buyers would move into action in early December to negotiate prices for the end of the year. Other players have not been so aggressive in the discounting stakes.

Sellers appear willing to keep their market shares even if European Group II volumes are down against last year. There is consensus that the finished lubricant market took a major hit this year, so a rebound to that market is the key to base oil markets picking up.

Group II dropped to $1,355/t-$1,425/t (€1287/t-€1354) for 100 neutral, 150N and 220N, while 600N slid to $1,530/t-$1,600/t (€1,454/t-€1,520/t). 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 are unchanged, but cracks in the segment suggest downward pressure is developing, and many buyers contend it is overdue in light of reduced feedstock costs and the depressed state of the European market.

Although the amount of material being imported into Europe from the Middle East Gulf has declined overall, two large cargoes have been noted coming into Antwerp-Rotterdam-Amsterdam The first was identified last week, loading out of Sitra, Bahrain, with three grades of Group III base oils. The second cargo will load out of Al Ruwais, United Arab Emirate around the same time and will sail to Antwerp-Rotterdam-Amsterdam with three grades totaling 6,000-7,000 tons. These cargoes are scheduled to arrive during second half January or early February.

Prices for Group III base oils with partial slates of approvals are softer this week after a number of sellers offered to take levels lower going into December. Levels are now at €1,720/t-€1,765/t for 4 and 6 centiStoke oils and €1,695/t-€1,745/t for 8 cSt, all on an FCA basis ex Antwerp-Rotterdam-Amsterdam or Northwestern Europe.

Prices for Group III oils are at €1,775/t-€1,825/t for 4 cSt and €1,790/t-€1,840/t for 6 and 8 cSt, all on an FCA basis ex Antwerp-Rotterdam-Amsterdam or Northwestern Europe and cargoes from Cartagena, Spain, delivered to receivers in France and Italy.

Baltic and Black Seas

Baltic news contains reports of a 3,000-ton parcel that loaded around the turn of the month in Riga. This cargo will discharge into Hull, on the east coast of the United Kingdom. This may be the last Russian import coming into the U.K., since the G7 and EU shipping sanctions will start to affect any potential cargoes of Russian export barrels from the Baltic that may in the past have gone into Scandinavia, the U.K. or the Continent. A further parcel of up 4,000 tons may load from Riga for receivers in Turkey, with the cargo discharging in Gebze. This parcel should load in the next day or so; however, a vessel is still to be fixed to take these base oils to Gebze. 

FOB prices for SN 150 as indications only remain assessed at $865/t-$885/t, with SN 500 at $895/t-$925/t.

There are no reports of cargoes to load out of Svetly terminal in Kaliningrad. As an indication only, SN 150 loading out of Svetly would be estimated at $845/t-$870/t, with SN 500 at $885/t-$910/t.

An interesting cargo is a re-refined parcel loading out of Kalundborg and moving into Klaipeda. This cargo will be used locally in Lithuania for blending, perhaps substituting for Russian exports. 

A small cargo of around 2,000 tons is being primed to come out of Riga for receivers in Varna, Bulgaria, in the Black Sea. Quite why this cargo is sailing from the Baltic to Black Sea is a mystery. Supply from Volgograd refinery would have made more sense, and the freight rate for a small parcel such as this will be extortionate. The only negative could be that the Volga is frozen over and that river vessels cannot navigate at the moment. It is not confirmed that the seller is the same as the Black Sea supplier, Lukoil. 

There are a number of inquiries for material to be loaded out of Gdansk. Gradually, supplies out of Poland have taken the place of Russian exports, which formerly loaded out of the Baltic ports.

FOB prices from Gdansk remain in line with European mainstream numbers, and as an indication SN 150 is placed at $955/t-$995/t, with SN 500 at $1,025/t-$1,055/t. Bright stock is assessed at $1,095/t-$1,165/t.

In the Black Sea regions material from Volgograd may have slowed or even halted for the winter if the river system is frozen. Hence, there may be further cargoes coming out of the Baltic for both Turkish receivers and also for onward shipment to the United Arab Emirates or Singapore through the terminal at Limas. Lukoil loaded the large 13,500-tons cargo out of Limas terminal. This cargo is bound for receivers in Singapore with base oils which were supplied from Volgograd refinery.

The base oils from Limas terminal remain as an estimate at FOB prices around $875/t-$895/t for SN 150, with SN 500 at $895/t-$925/t. Prices refer to bridged product sourced out of Volgograd refinery, stored in Limas terminal in Marmara, and then re-loaded on the sea-going vessels for buyers in the U.A.E. or Singapore. The supplier has not attempted as yet to break into the Indian market, where Russian product can still be imported.

The Varna cargo of 2,000 tons from Riga in the Baltic is fascinating, and it will be interesting to see if this delivery actually goes ahead.

Turkish buyers are looking at cargoes from Livorno and Aghio, but prices are set too high for Turkish buyers, who have been taking Russian material at very low numbers. Offers for Mediterranean supplies are believed to be in the region of $1,035/t-$1,055/t for quantities of SN 150, with SN 500 and 600 at around $1,085/t-$1,100/t, and indications for bright stock may be around $1,185/t-$1,200/t basis CIF Gebze or Derince.

Imported Group II prices ex-tank are taken lower this week, and will now come at €1,570/t-€1,625/t for the three lower vis products, with 600N at €1,640/t-€1,695/t. These base oils are still relatively highly priced compared to the mainland markets, but these oils were moved to storage in Gebze and resold on an ex-rack basis by distributors.

Group III base oils sold on an FCA basis for partly-approved grades are assessed at €1,775/t-€1,810/t. Fully-approved Group III grades that are being delivered from Cartagena in Spain or from South Korea will be priced at around €1,825/t-€1,895/t on an FCA Gebze basis. A small replenishment cargo of Group III base oils will arrive from Cartagena in Spain during the next couple of weeks. This is a small parcel of 1,200 tons only.

Middle East

Red Sea reports contain the headline news that Saudi Aramco will have an IPO that will float 29.7% of the company’s stock on Dec. 11 on the Riyadh stock exchange. The stock being floated is owned by Jadwa Industries Investment Co., and the remainder of the stockholding will remain owned by Saudi Aramco (Luberef ). The float could raise as much as U.S. $1.32 billion, with price for the stock having been set between SAR 91-99 per share. The privatization will have little effect on the base oil supplies coming out of Yanbu and Jeddah refineries.

This week sees only one cargo loading out of Yanbu for receivers in Hamriyah, U.A.E. This parcel will be made up of 3,000 tons of base oils, but whether Group I or Group II is not advised, or the cargo could be a combination of both types of base stock.  

In Middle East Gulf regions two cargoes are noted, one loading out of Singapore with around 3,000 tons of base oils that will go into Hamriyah. Also discharging in the same port will be a smaller cargo of 2,000 tons of Group I base oils from Rayong in Thailand. Cargoes from Thailand and Singapore have become commonplace, along with parcels from Taiwan. Hamriyah has become the main port for storage of base oils in the U.A.E., with more material passing through tanks in Hamriyah than in other ports, such as Ras Al Khaimah and Jebel Ali.

ExxonMobil’s first cargo of around 4,000 tons loaded out of Rotterdam and Fawley, with the parcel two-port discharging in Fujairah and Jebel Ali, U.A.E. The same seller will also have a larger cargo of almost 10,000 tons discharging into Jebel Ali and Fujairah. This parcel will load firstly from Rotterdam, then Augusta, before sailing via Yanbu to the two U.A.E. ports. The Yanbu call is interesting.

Export Group III cargoes are planned from Al Ruwais and Sitra, with the first cargo of up to 10,000 tons coming out of Al Ruwais for receivers in Mumbai anchorage. The second cargo of up to 8,000 tons will load around Dec. 20, with three grades of Group III base oils for Antwerp-Rotterdam-Amsterdam. This cargo will discharge into Dordrecht for European distributors.

In Bahrain, another three cargoes will load during December. The first cargo that will load out of Sitra in Bahrain is for up to 8,300 tons of Group III grades that will sail for Antwerp-Rotterdam-Amsterdam. This cargo is for Stasco, who will put the cargo into storage and resell on an FCA basis to third parties.  A smaller quantity of 1,000 to 1,500 tons may be sold to traders in the U.K. for local distribution.

This parcel of Group III base oils is separate from any GTL base oils that are produced in Ras Laffan in Qatar. These base stocks go directly, and only, into the Shell system and are never resold to third parties on a direct basis.

The second cargo of 11,500 tons is for the United States, where the appointed distributor will receive the parcel, place it in storage and then resell through satellite hubs in the hinterland. The third and last cargo of 5,000 tons will discharge in Mumbai anchorage during December.

Netbacks for Group III base oils out of Al Ruwais and Sitra are reduced this week and are now reckoned to lie at $1,690/t-$1,725/t, for the range of 4 cSt, 6 cSt and 8 cSt partly-approved Group III base oils.

Netback levels are based on local FCA prices in markets such as Europe, India and the U.S. and are derived and assessed from those regional selling levels, less marketing, handling and estimated freight costs.

Large cargoes for Shell with GTL Group III+ base stocks are also loading out of Ras Laffan in Qatar. Cargoes are moving to Asia-Pacific, the U.S. and Europe. Cargoes will load prior to the year end and will be bound for the U.S., China and Hamburg in Germany. Parcels are expected to be around 25,000 tons each.

Group II base oils on a FCA basis in the U.A.E., sourced from European, U.S, Asia-Pacific and Red Sea sources, are resold ex-tank, or on a truck delivered basis within the U.A.E. Prices are lower following discounting across markets, with levels at $1,590/t-$1,625/t for the light vis grades, with 500N and 600N at $1,655/t-$1,720/t. The high end of the range refers to road tank wagon-delivered product.

Africa

Following the nomination of the large cargo for South Africa, there was no further booking for base oils to arrive into Durban prior to the end of the year. South African shipping sources confirmed the large cargo of 16,380 tons of various base oils and chemicals that will load out of Rotterdam and Fawley on or around Dec. 20. The bulk of the cargo will go into Durban, while the balance will go into Mombasa port.

In Nigeria there is a shipping inquiry for 10,000 tons of base oils to load from a Korean port and to sail to Lagos to discharge. One assumes that this a quantity of Group I base oils, since that is the only type of base oil utilized in Nigeria, though quite why any trader would want to load from Korea and sail to Nigeria is beyond thinking about. The freight alone plus the delivery lead time are against such a movement. We watch with interest for a vessel to load towards the end of December.

West Africa remains quiet, with even more problems arising for importers of base oils looking to fix cargoes prior to year end. If this were possible it would mean that stocks would not be on either sellers’ nor buyers’ books at the year end, thus avoiding taxation on inventory. There are still reports of the impasse between traders and local receivers, with fault lying directly with the banks locally.

Nigerian banks are still unable to get hands on U.S. dollars to enable the opening of letters of credit. Traders are biding their time and keeping out of any negotiation with sources or buyers in Nigeria. There are no offers on the table currently.

The Lukoil cargo of 12,000 tons of Russian export barrels out of Riga may be the only supply going into Nigeria before the year end. 

CFR levels for base oils to go into Apapa remain notional since traders will not commit to suppliers until the financial situation is sorted out. Pricing information is not disclosed by Lukoil, the sellers of the Baltic cargo.

Levels are given as new indications only, with freight rates playing a large contributory part of the prices. Prices are around $1,125/t for SN 150, SN 500 at around $1,185/t and SN 900 at $1,225/t. Also, as an indication only, bright stock is assessed at around $1,320/t CFR 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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