It is difficult to put into words the overall effects the war between the United States, Israel and Iran is having on base oil trading and supply, other than to state the obvious: Global markets may take a long time to recover from the supply chain interruptions that have come about due to reciprocal bombing and drone strikes by Iran on Middle East Gulf neighbors.
The shocking and unexpected repercussions from Iranian reciprocal attacks have been extremely damaging to much base oil production across the region. For example, API Group III production has ceased at production facilities in Qatar, Bahrain and the United Arab Emirates, whilst even the Samref refinery at Yanbu, Saudi Arabia, came under fire last week. It was suggested in last week’s report that Yanbu would be sufficiently distant from Iran not to be targeted, but that was obviously wrong.
In addition to the loss of Group III production, the Strait of Hormuz remains closed to all seagoing traffic, with one trader relating that even before the cessation of output at Al Ruwais, UAE, they had two vessels turn down lifting Group III base oils that would have involved moving the ship through Hormuz.
U.S. President Trump threatened this past weekend to destroy all Iranian energy sources, sending Iran a 48 hour deadline should Hormuz not be opened. But on Monday he announced that the U.S. would postpone any action for five days in the light of “new constructive talks” between the U.S. and Iran to end the conflict.
Iran had countered the U.S. threat by announcing that it would reciprocate by striking a UAE nuclear power station and a number of desalination plants around the gulf. This may have led to a Trump decision to relent.
Prices for crude and petroleum products have leapt in values, and gas oil prices in Europe reached around $1,350 per metric ton, leaving base oil producers and suppliers little choice other than to follow this upward trend. With gas oil levels trading around these levels, Group I SN150 could have been expected to skyrocket to levels around $1,500/t, assuming the usual premium. However, at the end of last week levels for this grade were seen to be hovering at around $1,420/t, so upward pressure might remain.
After the Trump postponement of attacks on Iranian energy infrastructure, crude prices came off the highs, but they remain significantly above levels from before the war and will remain elevated as long as there are problems with Hormuz and the conflict continues.
Generally, all base oil prices have risen considerably over the past three weeks, reflecting both the supply interruptions and increased raw material costs involved in producing base stocks. Increases vary depending on location, who is selling and to an extent who is buying. For example, deals negotiated prior to the conflict appear to have been honored at levels agreed, which has benefited a number of buyers and traders looking to shore up supplies of blend stock.
All buyers and receivers have been notified of price increases, whether contracted or on spot purchasing, but again these notifications vary, and are changing almost on a daily basis.
Buyers are trying to avoid stepping into the firepit that the market has become and are taking steps to curtail or at least limit Group I and Group II purchases at this time. Group III markets around all Europe, the Middle East and Africa have seen a dramatic rise in spot inquiries, but prospective buyers have been rebuffed with the news that there are no spot availabilities.
A critical moment is approaching, since most refineries holding crude stocks which would normally create a buffer of three to six months. Replenishment barrels are not arriving, and as each day which passes, hesitation becomes more concerning for refinery operators.
Many European refineries are dependent on crude supplies from Middle East Gulf producers, so hopes and prayers are focused on the Strait of Hormuz being reopened as soon as possible. Many vessels are sitting at anchorage on both sides of the strait, so time is of essence for these ships to remain functioning; bunker fuels, victuals and water are all needed as these ships stand by, and supplies are becoming critical in many cases. Ships have been waiting for more than three weeks now , and with few signs that the situation will change quickly, there are few options available for owners and operators other than to wait it out.
Crude and Gas Oil Prices
Crude oil prices continue to hover around recent highs, with reactions to events and news paramount to these values. Dated deliveries of Brent crude had risen to more than $115 per barrel, over the weekend, but has now regressed to around $102 on the back of the news of the U.S. suspension of energy strikes.
The crack between dated deliveries of Brent crude and West Texas Intermediate crude has expanded to around $12 to $15 per barrel, up from normal levels of $3/bbl-$5/bbl.
Dated deliveries of Brent crude: $100.05/bbl, May front month
West Texas Intermediate: $88.85/bbl, May front month
European low-sulfur gas oil: $1,238/t, April front month
Source: London ICE late Monday, March 23
Europe
Group I base oil prices have seen a fast moving market, unlike a normal base oil scenario, where prices tend to change on a slower curve. The market remains extremely volatile, with some suppliers touting deals that were in place prior to the Iranian conflict beginning and others on the spot market hiking numbers almost on an arbitrary basis.
Buyers meanwhile are remaining quiet and reflecting on the moves in the markets. One source commented this week, that it would be foolish to embark on purchasing quantities of base oils, other than supplies needed to maintain production of finished lubricants. Many have pointed to the speedy alteration to feedstock prices, which could mean that base oil numbers could see large downward movements. If instead events spiral out of control, then prices could rise to levels not seen for number of years.
Once again it is the unknown factor that rules Group I markets, and this will continue as long as the Middle East situation exists.
There was one large cargo movement of Group II base oils) from Northwestern Europe to Southeast Asia, possibly Singapore, perhaps an intra-company movement by a major to rebalance inventory. The cargo consisted of around 20,000 tons of base oils. The vessel may have been utilized instead of loading a cargo for South Africa, but logistics and planning behind the cargo movement are not disclosed.
At the same time a European trader has been clearing inventory in readiness to receive a Group I cargo from the U.S. This parcel would have been negotiated and fixed some time prior to the current fighting, with that will now be inflated for any further sales of this material.
European prices moved significantly over the past week, pushing offers to the highest levels for some years. However, the markets remain relatively quiet in terms of deals, with buyers waiting as long as possible to see where markets may be headed. Prices are up on the back of more expensive distillates, gas oil in particular.
Group I
European exports, FOB (hypothetical levels necessary to complete deals)
SN150: $1,430/t-$1,465/t
SN500: $1,495/t-$1,540/t
Bright stock 150: $1,820/t-$1,865/t
Northwestern Europe, FCA Antwerp-Rotterdam-Amsterdam
SN150: $1,525/t-$1,560/t
SN500: $1,595/t-$1,635/t
Bright stock 150: $1,860/t-$1,895/t
Eastern Europe, FCA
SN150: $1,575/t-$1,625/t
SN500: $1,685/t-$1,720/t
Bright stock: $1,890/t-$1930/t
Mediterranean prices, FCA Spain
SN150: $1,475/t
SN600: $1,560/t
Bright stock: $1,900/t
Pan-European, FOB/FCA
SN150: €1,300/t-€1,340/t
SN500/600: €1,485/t-€1,535/t
Bright stock 150: €1,725/t-€1,770/t
Pan-European prices are assessed on an aggregate basis taking prices from Scandinavia, Poland, France, Germany, Benelux, Spain, Italy, Greece, the United Kingdom, and Baltic States.
The euro’s exchange rate with the U.S. dollar was $1.15593 Monday.
European Group II base oil prices are taken higher are seem liable to change almost daily, though again few buyers are looking to make purchases. Prices are now around $1,625/t-$1,675/t for 150 neutral and $1,730/t-$1,785/t for 600N.
Group II, FCA
110N: €1,500/t-€1,560/t
150N: €1,545- €1,575/t
220N: €1,515/t-€1,540/t
600N: €1,620/t-€1,655/t
These prices apply to a wide range of Group II base oils that may be sourced from within Europe, the U.S., the Red Sea and Asia-Pacific.
European Group III markets are in a quandary, with a number of distributors almost declaring a form of force majeure as they advise customers that there are indefinite problems with replenishment cargoes, given the current situation in the Middle East Gulf. All three sources in the Middle East Gulf have halted production as a result of Iranian strikes. All have suspended supplies. Fires have been started at refineries in Qatar, Bahrain, and the United Arab Emirates causing damage that has not yet been fully declared by operating companies.
One market source reported having heard of a cargo being loaded in Indonesia from a refinery that sourced a previous cargo that arrived into Rotterdam in the second half of February. The party behind these cargoes remains in ghost mode and is still unknown.
Group III base oils from Cartagena, Spain, may start to shorten up, although the producer has fully restocked a Northwestern European hub and is gradually raising prices for its fully approved material available.
The refinery at Cartagena will soon start a planned maintenance turnaround, and there may be contingency plans to take material from South Korea to supplement the European Group III markets given that there will be a dearth of material arriving from Middle East Gulf sources.
European Group III prices are raised, with imminent shortages predicted for the European market given the breakdown in availabilities from all Middle East Gulf sources. It is doubtful whether U.S. production could be speeded up to help cover European demand, although there could be some Group II sacrificing to maximize Group III production.
Group III
Partly approved, FCA Antwerp-Rotterdam-Amsterdam, Northwestern Europe
4 cSt: €1,525/t-€1,575/t
6 cSt : €1,565/t-€1,580/t
8 cSt: €1,540/t-€1,570/t
Fully approved, FCA Antwerp-Rotterdam-Amsterdam, Northwestern Europe, Spain
4 cSt: €1,985/t-€2,120/t
6 cSt: €2,110/t-€2,150/t
8 cSt: €2,200/t-€2,225/t
All the above products sold on a delivered basis will be subject to additional transportation charges.
Rerefined Group III, FCA Germany
4 cSt: €1,330/t
5 cSt : €1,350/t
6 cSt: €1,375/t
Baltic Sea
Reports of small quantities of Russian base oils being exported from the Baltic have not been substantiated and are deemed to be imaginary. Quantities are said to be transported in flexi-tanks in containers, which implies small quantities, and it is not feasible that given the Ukrainian drone attacks on refineries, the heavy maintenance schedules for a number of Russian refineries happening currently, and the demand from local domestic markets in the absence of any imports from the European Union, that Russian traders would be active in an export market to unknown destinations.
It has not clear which refinery would be supplying these quantities of base oils.
No bulk exports of Russian base oils are reported leaving the Baltic supply points of St. Petersburg or Vyborg, Russia. There are no export sales reported to any regions previously identified such as Nigeria, with traders who were formerly involved in the Nigerian market scratching around, even trying competitor traders if they can help access barrels for sale into the Nigerian market.
Black Sea & Turkey
Crude prices rising are having a detrimental affect on the Turkish economy, which was already struggling, and the additional revenue required to make crude purchases, even from Russian sellers, is considerable strain on the country.
Turkish lube blenders have been purchasing Group I base stocks from AMOC and APC in Alexandria, and Luberef is also involved in supplying quantities of Group I and Group II base stocks to receivers in Gebze, Turkey. A Turkish trader will receive a cargo of Group II grades from Taiwan, but is it not known when this cargo will arrive into Gebze.
A cargo has reportedly loaded out of Turkey, moving a quantity of Group I base oils to Indian receivers, with the vessel going through Suez, proceeding through the Red Sea, and the Strait of Bab-al-Mandeb where Houthis are active. This situation can only mean that the cargo is Russian in origin, and the vessel has declared to Yemen to be allowed safe passage. This will be the first Russian cargo loaded out of Limas terminal for India for some time.
Turkish domestic prices from Tupras have been hiked in response to the crude and product prices increases.
Group I
Tupras, ex rack Izmir
Spindle oil: Tl 48,395.50/t plus, VAT Tl 11,708.30/t
SN150: Tl 44,918.00/t plus, VAT Tl 11,012.90/t
SN500: Tl 51,158.50/t plus, VAT Tl 12,260.40/t
Bright stock: Tl 67,556.50/t, plus VAT Tl 15,540.50/t
Sales also incur the standard loading charge of Tl 10,146.50/t, which remains unchanged and should be added to the prices above
Traders in Turkey have advised that there are few availabilities due to the volatility of prices, as traders are taking into account cargoes that may be arriving promptly along with probable increases likely to be applied to new availabilities.
Group II, ex-works
110N and 220N: offers to be reviewed
350N: prices to be advised
150N: no offered prices
500N/600N, ex Taiwan or Saudi Arabia: prices to be advised end March
Group III
Partly approved, FCA
Tatneft 4 cSt: no availabilities
Fully approved, CIF Gemlik
SK/Repsol 4, 6, 8 cSt: €2,270/t-€2,300/t
Middle East
The Samref refinery in Yanbu was hit by Iranian missiles. Damage apparently was limited, and no injuries or fatalities were reported. Samref supplies feedstock to the nearby Luberef base oil plant also located in Yanbu. It is not known whether base oil production has been affected, but two cargoes, one for EGPC in Alexandria, and another for receivers in Aqaba were loaded during first half of March, probably prior to the strike on the refinery.
A cargo from Yanbu was diverted from receivers in the UAE to Mumbai. This is as a result of the problems in the Strait of Hormuz, making economic sense rather than have the vessel incur demurrage at anchorage, possibly for an indefinite length of time. Having made the deviation, the same vessel would have transited the southern Red Sea and wasn’t targeted by the Houthis, therefore would the Iranians may have granted safe passage through Hormuz?
How vessels loading out of Saudi ports Yanbu and Jeddah avoid problems from Houthi rebels in Yemen remains a mystery, one theory being that vessels chartered to deliver into India and the UAE sail under friendly flags such as China or Pakistan.
Sources in the UAE are finding real problems with a lack of base oils and additives, making operations within the Middle East Gulf very difficult and becoming more so. Any hopes that Hormuz will soon be open are building in the light of the latest news from Trump, but at the same time Iranian officials have declared that no negotiations or meetings have taken place and that their position remains.
The blender contacted by this report some ten days ago confirmed Monday that without base oils arriving in bulk or additives coming in by container they have around fourteen days left before having to abandon the operation. The company has a cargo at anchorage outside Middle East Gulf, having sailed from Ulsan in South Korea at the end of January. The cargo is 10,000 tons of Group II light grades for manufacturing white oils and transformer oils.
Blenders and traders had purchased a number of cargoes of Group I and Group II base oils as insurance against any conflict, but some cargoes are not loaded (that’s the good news) or are on the high seas with few options to divert or delay without substantial financial penalties involved in demurrage. Many vessel carrying cargoes en route to Middle East Gulf destinations are slow steaming, hoping that on arrival, Hormuz will be open again and that they are able to make the transit safely.
If Hormuz is to reopen, there will be congestion in all UAE ports and berthing problems for the number of vessels arriving. This may lead to further delays to the dispatch of cargoes into shore tanks.
UAE cargoes arrived some time back from the U.S., South Korea, Thailand and Saudi Arabia. Base oil prices in the UAE can only be maintained since no new material has arrived since Hormuz was closed. There are no reports of prices escalating for material previously in tank. Even base oils arriving eventually into UAE receivers should have prices maintained, but there may be extra costs for vessels demurrage and delays, which may be added to charges for the cargo.
Group I, CIF/CFR UAE ports
SN150: $890/t-$925/t
SN500: $955/t-$980/t
Bright stock 150: $1,245/t-$1,275/t
Some receivers have suggested that owners’ insurance should cover delays and demurrage but P&I clubs are denying that they are picking up the charges for vessels delays.
Group II prices are raised, but no new quantities have come onto the market.
Group II, FCA or RTW UAE and Oman
110N, 150N and 220N: $1,565/t-$1,590/t
600N: $1,675/t-$1,700/t
Group II base oils imported into the UAE and other Middle East Gulf ports in Qatar, Bahrain and Kuwait were supplied from a number of sources in the Red Sea, the U.S., South Korea, Singapore and Europe. Cargoes are often discharged into storage in the UAE and then transshipped as smaller parcels to various ports around Middle East Gulf. High ends of the ranges refer to material being delivered by RTW in the UAE and into the Omani exclave, north of Khorfakkan and Fujairah.
After drone and missile strikes by Iran on the Ras Laffan refinery in Qatar, Pearl production of gas-to-liquids Group III+ has halted, and no further loading will take place for the time being.
Sitra refinery in Bahrain was also hit, causing a fire that led to Bapco declaring force majeure. Base oil production has been affected, and third-hand reports from sources in Dubai say it may be four or five months before operations can be fully restored.
One of the the Adnoc refineries at Al Ruwais had also been targeted and shut down. This refinery produces the feed for Group III base oils hence it is doubtful whether there will be a speedy outcome for this situation. On contacting the European distributor last week, no news was provided from Adnoc to that party.
Group III base oils have had prices pushed higher from Adnoc, prior to the refinery damage causing the closure. Prices were increased by $50/t across all grades, which has been passed on to buyers. The sellers in the UAE are allocating product that remains in tank, but comments received from the distributor this week suggest that they will only operate two more weeks before running out of stock.
Group III, FCA Hamriyah/Sharjah or RTW UAE and Oman
4 cSt: $1,255/t
6 cSt: $1,265/t
8 cSt: $1,285/t
Prices for Group III prices above include a reseller’s margin of around $105/t to cover storage, handling, insurance and margins. RTW deliveries from distributors can incur an additional charge of between $20/t-$65/t, depending on delivery location and quantity.
The distributor for Group III base oils in the UAE is concerned that there will be no supplies for the foreseeable future, meaning that the operation to redistribute Group III within the UAE and Oman will falter and that supplies will have to be sourced from elsewhere. The company is making contacts with Korean suppliers to engage and investigate whether any arrangements cane out into place.
Netbacks for Group III base oils ex Al Ruwais and Sitra are suspended for the time being until shipments resume. Netbacks from Qatar are also similarly suspended.
Africa
The only cargo identified this week is the parcel of bright stock loaded from Yanbu for EGPC in Alexandria in Egypt. Turkish traders are requesting offers for Group I base oils from AMOC, but no deal has been struck as yet.
It is now uncertain whether the upcoming cargo previously mentioned for South Africa will load or whether the vessel chartered has been redirected to take a cargo of Group I and Group II base oils to Singapore. Confirmation is being sought, but Durban receivers will require replenishment stocks at some time in the near future.
The South Korean cargo for Nigeria loaded with around 10,000 tons of 600N and is en route to Apapa. ETA is difficult since the vessel will stop to take on bunkers, water and perhaps a crew change, possibly in Durban.
Another trader has loaded an 18,000-ton cargo out of the U.S., and a competitor is lifting 10,000 tons from other U.S. Gulf of Mexico sources. With the addition of the Korean cargo, around 38,000 tons of material will discharge in Apapa, during March and April. Another cargo is coming in from the U.S., with vessel fixed and sailing last week. The negotiation for the cargo will have been completed prior to the attacks on Iran, hence the prices will be competitive going int the Nigerian market.
Nigeria is no longer looking for additional supplies, knowing that prices have escalated in the past few weeks, although there are currently no availabilities in the U.S. that would be considered for Nigeria. Receivers in Nigeria are going to have to realize that prices they expect at the moment are no longer possible, and if they wish to buy cargoes they are going to have to cough up and pay the going rate or will end up with no material in tank to be able to resell.
Sellers in Apapa, say that they cannot sell at inflated prices to the market, but a source has indicated that in early February to selling price for one grade of base oils was pitched at 1,400 naira per liter, and by March 13 that price had risen to 1,825 naira per liter. However, sellers are not offering any material that they have in tank at the moment, possibly hoping that prices generally will rise and they will be able to increase selling prices for material already purchased a lower cost.
A trader who previously sold Russian material into the Nigerian market has been scouring to find a relatively large quantity for a cargo.
With no U.S. availabilities at the moment, and perhaps having committed to selling to buyers already without cover, this trader could be in trouble.
Bid levels appear to remain at the following levels:
SN150: $800/t
SN500: $870/t
SN900: $990/t
Levels were impossible previously but now will be totally out of the question with prices possibly around $400/t-$500/t higher than the last levels seen below.
The Nigerian naira black market exchange rate was NGN 1,380 to the dollar March 16.
Group I, CFR Apapa
U.S. origin
SN150: $885/t
SN500: $925/t
SN900: $1,035/t
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.