There are a number of potential base oil cargoes with shipping inquiries for movements from Baltic ports. It will be interesting to see how charterers such as Lukoil get on finding suitable vessels to take these to Turkey, the United Arab Emirates or the West Coast of India, to name just some of the destinations nominated for parcels ready for discharge from Riga, Latvia, and the Svetly, in Russia’s Kaliningrad oblast.

Looking at cargo movements in the Baltic, one Turkish flagged vessel has been hired to move base oils from Vyborg, Russia, to Riga, perhaps implying problems transporting it by rail through Latvia, the normal supply route from Russian refineries to shore storage in Riga port.

Base oil prices are weaker across the board this week, demand falling away as lubricant blenders opt to close early for the holidays. Some plan maintenance work during the break.

API Group I and Group II prices have been discounted over the past few weeks, and even API Group III base stocks are seeing some erosion on the few sales still being made. Buyers see little point in laying out for stocks to have in tank for January since all types of base oils are freely available. Crude oil values are falling again, creating the lure that base oils may cost less next month.

There are few signs of year-end sell-offs of base oil inventories, a common sight in most Decembers. Sellers say they are in no rush to offer discounts just to move material. The true facts are there are no buyers at the moment, and the future does not bode well for the start of 2023.

Many in the industry predict that European lubricant demand will not recover until the war in Ukraine ends, and although there is talk of settlement negotiations, real resolution seems far off.

Crude prices dipped further during the past week with to levels not seen since the middle part of the year. Dated deliveries of Brent crude fell to below $80 per barrel to $78.35/bbl, some $8 lower than last week and now for February front month settlement. West Texas Intermediate dropped to $73.80/bbl, still for January front month.

Low-sulfur gas oil plunged in spite of a cold snap across Europe that pushed natural gas values to a peak. The former is now at $814 per metric ton, almost $100 lower than one week ago, on the last day of December front month. These prices were obtained from London ICE trading late Dec. 12.

Europe

Prices for Group I exports from Europe notionally dipped during the last few days – notionally because few if any real export cargoes have been negotiated out of European hubs. A number of majors have again been seen moving large quantities of base oils to affiliates in South Africa and the Far East. With few third-party deals progressed, the export market is dull now, and several sources said they do not expect a resurgence until the new year.

European prices are now competitive against supplies of Group I coming from Asia-Pacific and the United States, but with few buyers, European supplies are in limbo. Freight costs remain high, but the lack of trades makes that moot, too. A couple sellers keen to move product out of storage prior to year end are continually contacting traders to see if large parcels can be fixed and loaded within this month. So far there have been no takers.

Export prices, such as they are, are assessed between $925 per ton and $965/t for solvent neutral 150, at $985/t-$1,025/t for SN500, and at $1,035/t-$1,100/t for bright stock, all on an FOB basis.

Trading within Europe is exceptionally quiet as many lube blenders are proposing to close at the end of this week and to not reopen until Jan. 9. Prices continue to be revised during the month and several changes to levels have taken place over the past couple weeks.

Some sellers offered unsolicited markdowns, hoping that prices would stabilize at those levels, but instead further cuts have become routine. The euro’s exchange rate against the U.S. dollar is hardly changed since last week at $1.0539. Analysts forecast that the dollar will weaken, allowing the euro to regain some ground.

The differential between prices for base oil exports and sales within the region is maintained unchanged at €110/t-€175/t, exports costing less.

There is also downward movement for Group II prices in Europe after one major imposed markdowns of €50/t across the board, and some others are following suit. The price trend stems from reduced demand, but sources predict demand will bounce back toward the middle of next year. If the fighting in Ukraine situation is resolved, it would boost the rebound.

A number of Group II cargoes are loading from sources in the U.S., from Pascagoula on the Gulf of Mexico coast and Richmond, California – three shipments carrying around 50,000 tons to Europe. Two of these cargoes will be on the high seas on 31 December, thereby avoiding being counted toward year-end inventory.

Group II are down to $1,265/t-$1,407/t (€1,200/t-€1,335) for 100 neutral, 150N and 220N and to $1,410/t-$1,460/t (€1,335/t-€1,385) for 600N. These values apply to a range of Group II oils from Europe, the U.S., Asia-Pacific and the Middle East Gulf.

In the Group III segment, distributors and resellers are easing some prices for oils with partial slates of finished lubricant approvals. These discounts are not large and are meant as gestures of goodwill rather than radical alterations to the price structure for this grade.

Prices for Group III oils with partial slates of approvals are unchanged since the decreases reported last week, with 4 and 6 centiStoke grades at €1,720/t-€1,765/t and 8 cSt at €1,695/t-€1,745/t, all on an FCA basis ex Antwerp-Rotterdam-Amsterdam or Northwestern Europe.

Values for oils with full slates of approvals are also unchanged at €1,775/t-€1,825/t for 4 cSt and €1,790/t-€1,840/t for 6 and 8 cSt. These numbers apply to sales made on an FCA basis ex Antwerp-Rotterdam-Amsterdam or Northwestern Europe and are delivered prices from Cartagena, Spain, into France and Italy.

Baltic and Black Seas

Baltic Sea reports are that having had few outgoing cargoes from Svetly in Kaliningrad, there is suddenly a raft of shipping enquiries for base oils to move to the United Arab Emirates, Turkey and the west coast of India. These cargoes of 5,000-6,000 tons each will load during December. As mentioned, the seller – Lukoil in this case – may have difficulties in finding suitable tonnage to perform these voyages, due to the restrictions imposed by the G7 group of nations and the European Union. Effectively, any vessel that is flagged or operated under the auspices of any of those countries will be banned from loading cargoes out of Russian ports. In addition, there are constraints on finance and insurance, all of which will limit the options available to Russian charterers. 

A further parcel of up to 6,000 tons will load from Riga for receivers in Gebze in Turkey. This cargo may be comprised of material that was delivered into Riga from Vyborg. This parcel was due to land during the first week of December, but the fixture is still open, with no vessel yet fixed to take this parcel. The same sanctions problem may be causing delays to this cargo.

Research is taking place to try to establish if transit through Latvia following base oils being made available CPT Latvian border with Russia. Previously trains were permitted to transit both Latvia and Lithuania, enroute to the Baltic coast. Supplies of base oil are still passing through Lithuania before entering Kaliningrad and discharging into Svetly terminal for Lukoil.

FOB prices out of Riga for SN 150, and as an indication only, are currently assessed at $835/t-$865/t, with SN 500 at $875/t-$910/t.

SN 150 loading out of Svetly is estimated at $825/t-$855/t, with SN 500 at $845/t-$890/t.

The small cargo from Baltic for Varna in the Black Sea appears to have been abandoned, perhaps due to the logistics and costs of moving 2,000 tons of base oils to receivers in that port. Feasibility for this cargo was doubtful.

There are inquiries for material to load out of Gdansk. Supplies and availability out of Poland has been replacing Russian export barrels loading out of the Baltic ports for receivers in Antwerp-Rotterdam-Amsterdam, the east coast of the United Kingdom and Scandinavia.

FOB prices from Gdansk remain in line with European mainstream numbers. As an indication, SN 150 is placed at $935/t-$975/t, with SN 500 at $995/t-$1,035/t. Bright stock is assessed between $1045-$1110 pmt

In the Black Sea, Volgograd refinery does not appear to be supplying Turkish receivers. This operation may have been halted for the winter months if the Volga has frozen. This could explain the number of cargoes being sourced out of the Baltic for Gebze and other locations, such as the U.A.E. and the west coast of India. Also, the supply that routinely moves to Singapore is also being sourced out of the Baltic rather than loading from Limas terminal. However, the last parcel dispatched to Singapore loaded out of Limas terminal a couple of weeks back with 13,500 tons of base stocks.

Base oils from Limas terminal are estimated at FOB prices around $865/t-$885/t for SN 150, with SN 500 at $890/t-$920/t. Prices refer to bridged product sourced out of Volgograd refinery, stored in Limas terminal in Marmara and then re-loaded on sea-going vessels for buyers in the U.A.E., the west coast of India or Singapore. Lukoil has now listed the west coast of India as a possible discharge destination. This follows the comments here last week suggesting that Lukoil had yet to attempt to break into the Indian market. This appears to be taking place. The company supplied a great deal of base oils into Antwerp-Rotterdam-Amsterdam and having lost this trade due to sanctions, the company is looking to develop new markets that are still available.  

Turkish buyers are considering potential cargoes from Livorno and Aghio, but Mediterranean prices remain too high for Turkish buyers, who have been using large quantities of Russian base oils at very attractive prices. Offers for Mediterranean supplies are believed to be in the region of $1,025/t-$1,045/t for quantities of SN 150, with SN 500 and 600 at around $1,075/t-$1,095/t, and indications for bright stock may be around $1,125-$1,175/t basis CIF Gebze or Derince.

Imported Group II prices ex-tank are maintained at €1,570/t-€1,625/t for the three lower vis products, with 600N at €1,640/t-€1,695/t.

Group III base oils also sold on an FCA basis for partly-approved grades, assessed at €1,765/t-€1,800/t. Fully-approved Group III grades, which are being delivered from Cartagena in Spain or from South Korea, will be priced at around €1,815/t-€1,885/t on an FCA Gebze basis.

Middle East

Red Sea traffic is light this week, with only one small cargo of 3,000 tons loading Dec. 20-25 for receivers in Alexandria, Egypt. This supply will be for Egyptian General Petroleum Corp., who no longer appear to have the regular supply contract for bright stock. Instead, Luberef seem to supply on a spot basis as and when required.

In Middle East Gulf cargoes some familiar sources are noted, with up to 3,000 tons coming out of Rayong in Thailand going into Hamriyah. There is a potential cargo moving in what would normally be the opposite direction to normal. This parcel will load either in Hazira or Mumbai and will discharge into Hamriyah. A cargo of 3,000 tons from Singapore makes up the mix again, discharging into Hamriyah storage.

Exports in the form of Group III cargoes are nominated from Al Ruwais and Sitra, with 7,500 tons coming out of Al Ruwais for buyers in mainland China. At the same time another cargo of 8,100 tons will deliver to three Indian ports – Mumbai, then Chennai and finally Kolkata. Another 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, 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 place the cargo into storage and resell on an FCA basis to third parties.  A smaller quantity of 1,000-1,500 tons may be sold to traders in the U.K. for local distribution.

A large parcel of Group III+ base oils from Ras Laffan in Qatar, and maybe Sitra in combination, is to load 29,000 tons of product sailing for the Mediterranean and Antwerp-Rotterdam-Amsterdam. This cargo will be dispensed into the Shell system and will not be resold directly to any third parties.

The 11,500-tons cargo for the U.S. is still not fixed but should be loading any day now. Another cargo of 5,000 tons will discharge in Mumbai anchorage during December. This cargo will be the responsibility of Bapco directly.

Netbacks for Group III base oils out of Al Ruwais and Sitra are maintained at previous levels. They are now assessed 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, U.S., and China and are derived and assessed from those regional selling levels, less marketing, handling and estimated freight costs.

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 being resold ex-tank, or on a truck-delivered basis within the U.A.E. Prices are unchanged, 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 base oils.

Africa

Following the nomination of the large cargo for South Africa, no further vessel fixtures for base oils are to arrive in Durban prior to the end of the year. South African shipping sources have confirmed that the large cargo of 16,380 tons of various base oils and chemicals will load out of Rotterdam and Fawley in about one week’s time. The bulk of the cargo will go into Durban, while the balance will go into Mombasa port.

The Nigerian shipping inquiry for 10,000 tons of base oils to load from a Korean port and sail to Lagos was taken off the market. It was hard to see how this cargo was contemplated, with the sailing distance and the accompanying freight rate that would have been horrendously high. The delivery lead time is against such a movement.

West Africa remains quiet, with no cargoes reported going into Guinea, Cote d’Ivoire or Ghana. There are further problems in Nigeria with reports of the inability of the local banks to open letters of credit. In Nigeria the issuance of a letter of credit is mandatory for an import license to be granted, allowing a base oil cargo to enter the country.

Nigerian banks are still unable to get hands on U.S. dollars to enable the opening of letters of credit. After the local banks issue the letter of credit, it must be processed through a prime European bank, where confirmation is added to the letter of credit, allowing the document to be able to issue payment.

Traders are sitting on the sidelines and are not engaging potential sources or suppliers in negotiating for cargoes. Sources and buyers in Nigeria are not being contacted currently. There are no offers or prices in the market at present. Therefore, it is difficult to pinpoint prices at this time.

The Lukoil cargo of 12,000 tons of Russian export barrels out of Riga is the only cargo nominated to enter the Nigerian market, and local news reports that this cargo was sold on the basis of 120 days credit. Presumably that was against a letter of credit. 

CFR levels for base oils to go into Apapa remain notional, and pricing information is not disclosed by Lukoil, the seller of the Baltic cargo. Working on the basis of FOB Kaliningrad numbers plus freight and margins, the estimated landed prices are as below.

Levels are given as indications only, with freight rates playing a large contributory part of the prices. Prices are around $1,125/t for SN 150, with 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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