Weekly EMEA Base Oil Price Report

The movement of people and goods was being drastically curtailed, and the worst news of all was that Iran blocked the Strait of Hormuz, virtually halting shipping in and out of Middle East Gulf. The threat from Teheran was that any vessel attempting to transit the channel may be attacked and set on fire.

Many vessels were at anchorages on both sides of the Strait, in the Indian Ocean and also inside the Gulf. According to sources in the United Arab Emirates, plans were being developed for attacks on Iranian shore positions, which are the main danger to any attempts to run the channel. Information from official sources was being awaited.

Oil prices spiked as a result, soaring almost to $120 per barrel before falling back toward $80/bbl after U.S. President Donald Trump said Monday that the war was nearly over and after the International Energy Administration proposed a record release from strategic crude reserves. Prices jumped again Tuesday on conflicting messages from the U.S. and Israel and as Iran took further steps to keep ships from traversing Hormuz. The shocks to global economies have yet to filter through, but with crude and product prices escalating, many economies are braced for inflationary times.

Obviously most attention is drawn to the prevention of crude and petroleum product movements by the Iranian regime, but other goods are being prevented from arriving into Middle East Gulf ports, with items such as food, medicines and other necessities for everyday life starting to run low in many countries around the Gulf.

Alternative supply routes are being considered, but supply by road would be slow and exceptionally costly, and will limit the availability of goods available in the markets. Equally, products and materials which are manufactured within Middle East Gulf are being prevented from export, and it is only a matter of time before a complete breakdown of supplies starts to affect the region.

As can be expected, base oil prices have started to move higher for all groups on a global scale, although reactions have been varied between regions. European, Middle Eastern and African markets are trying to assess where prices should be pitched, with some producers assessing crude and feedstock cost increases and raising prices for  base oils currently in storage around the world.

Needless to say, buyers have been delaying purchases wherever possible, so stocks and inventories across the markets are starting to build, and many producers and resellers face containment problems since material is still moving from refineries into storage tanks.

The problems facing the base oil industry are multiplied many times over for lubricant industry participants in the Middle East Gulf, where many blending operations are running short on basic materials such as base stocks, additives and packaging. At the same time, finished lubricants are stacking up in warehouses awaiting dispatch to receivers in other regions of the globe.

Middle East Gulf producers of API Group III base oils have reacted in various ways. Operations of the Pearl gas-to-liquids refinery in Ras Laffan, Qatar – a joint venture of Shell and Qatar Petroleum – were suspended after Iranian drone and missile strikes on production units there. Bapco halted its refinery in Sitra, Bahrain, which includes a Group III plant, after Iranian attacks caused a fire. Bapco declared Force Majeure to all customers and clients for the time being, with no defined timescale for the situation to be rectified.

Iran has attacked on not just military targets, but civilian buildings such as airports and hotels, with considerable damage being incurred in the UAE, Bahrain and Qatar. The primary targets of U.S. bases remain in the crosshairs of the Iranian forces, with surrounding areas close to these bases taking damage and injuries to civilians along with service men and women.

Much guessing is going on about the overall impacts and implications for base oil markets due to the large number of unknowns about the direction of the war. Some base oil sellers have raised prices since the war began, but the rationale is still being worked on by many suppliers, which is adding to a rather cloudy picture of the markets around Europe, the Middle East and Africa.

For example, large seaborne cargoes of Group I base oils are going into West Africa at prices that were agreed sometime back, whilst in Antwerp-Rotterdam-Amsterdam, the same Group I base oils have been hiked by around $200/t-$250 per metric ton for prompt sales. However, there are not many buyers enticed to purchase at these levels.

There are possibilities that levels could move higher should crude and feedstock costs continue to rise, and this fact has to be taken into account by blenders considering when to purchase.

Around 20% of global crude and petroleum products normally pass through the Strait of Hormuz, so shutting down that traffic can quickly wreak havoc on markets and economies. OPEC members are moving to increase output to take advantage of the current prices available in the market, with some refiners looking to adjust crude slates to alternative sources in the short term, but this is easier said than done.

Crude and Gas Oil Prices

Dated deliveries of Brent crude peaked on London ICE trading at $117.50/bbl

Monday, the normal reporting day for this report, before falling to $99.60/bbl near the close of business that day. By mid-day Wednesday (today) the price was down to $91/bbl. West Texas Intermediate was at $96.20/bbl in ICE trading late Monday and was down to $86.70/bbl by noon Wednesday London time.

Dated deliveries of Brent crude: $99.60/bbl, May front month
WTI: $96.20/bbl, April front month
European low-sulfur gas oil: $1,161/t, March front month

Source: London ICE trading late March 9

Europe

European prices for Group I base oils spiked by varying numbers depending on supplier and their location. In Antwerp-Rotterdam-Amsterdam, FCA levels were raised Monday morning to new recent highs, mirroring the percentage increases for crude and vacuum gas oil. Many sellers acknowledged that they were keeping levels under constant review for sharp increases or decreases.

If crude and feedstock values continue to swing sharply, base oil prices could change more quickly than normal. By the close of business Monday, many sellers had not imposed any changes since the fighting with Iran began. Given the amount that crude has risen, though, significant upward pressure exists. Generally, European base oil levels are set higher by between $250/t-$300/t, with producers reviewing feedstock costs, and applying varying increments to base oil prices in order to maintain an acceptable premium over diesel prices.

Following a mini spike in demand at the beginning of last week, possibly as a reaction to events unfolding in Iran, the markets have gone quiet with buyers declaring hold on purchases to see where the markets are heading.

A number of European Group I refiners are dependent on crude oil supplies from Middle East sources such as Saudi Arabia, and they will be adversely affected by the delays and postponement of cargoes leaving the Gulf. Those with two or more crude sources may attempt to increase allocated barrels from alternative suppliers, although this practice will not be easy, and will require technical input depending on product runs at the respective refinery.

It was too early to start adjusting prices last week, but producers have taken the bull by the horns and have applied relative increases to base oil prices. Values detailed below reflect the new levels heard and seen from a number of sources around the markets this week.

Numbers will be kept under review and may change quickly during the days and weeks to come.

Group I

European exports, FOB (hypothetical levels deemed necessary to complete sales)
SN150: $1,020/t-$1,060/t
SN500: $1,125/t-$1,200/t
Bright stock 150: $1,475/t-$1,550/t

Northwestern Europe, FCA Antwerp-Rotterdam-Amsterdam
SN150: $1,255/t-$1,295/t
SN500: $1,325/t-$1,360/t
Bright stock 150: $1,565/t-$1,625/t

Eastern Europe, FCA
Supplier A
SN150: $995/t-$1,000/t
SN500: $1,020/t-$1,070/t
Bright stock: $1,475/t

Supplier B
SN150: €680/t
SN500: €770/t
Bright stock: €1,255/t

Mediterranean prices, FCA Spain
SN150: $1,180/t
SN600: $1,240/t
Bright stock: $1,655/t

Pan-European, FOB/FCA
SN150: €1,060/t-€1,120/t
SN500/600: €1,155/t-€1,195/t
Bright stock 150: €1,470/t-€1,540/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 $1.15930 Monday.

European Group II base oil prices were being adjusted as this report was being written, and with crude levels moving upwards by around 20%-25% in early trading this week. A measure of anticipation is therefore added into the numbers listed below. It is expected that demand will take a hit as buyers put off purchases except what is absolutely necessary, hoping the situation in Iran will ease over the next few days or weeks.

With European values maintaining a healthy delta over other regions, it may make the European market even more attractive to exports from Asia-Pacific sources.

Group II, FCA basis
110N: €1,170/t-€1,200/t
150N: €1,185- €1,220/t
220N: €1,155/t-€1,175/t
600N: €1,270/t-€1,295/t

Prices refer 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.

Group III base oil cargoes from the Middle East Gulf have come under greater pressure with the halt of production at the Pearl facility in Qatar and Bapco in Bahrain. This effectively leaves Adnoc as the sole suppliers of Group III from Middle East Gulf. There is other bad news for Europe: A Petronas cargo from Malaysia has been delayed, and there is no news of any further parcels arriving for S-Oil in South Korea.

A cargo out of Adnoc’s refinery at Al Ruwais, UAE, did seem to make it out of the Middle East Gulf prior to last weekend’s events and is thought to be en route to Dordrecht, Netherlands.

Group III producers in North America will possibly be inclined to produce extra quantities of Group III at the expense of Group II production, which would take up some of the vacuum which will be created by the lack of Shell barrels from Qatar and the temporary loss of Bapco barrels from Sitra.

Late on Monday evening, news has been heard that French President Emmanuel Macron had ordered naval vessels to peacefully give escort to ships in transit through Hormuz. When this operation would commence has not yet been announced, and the Iranian reaction is also an unknown at this time. Further clarification will be sought during the next few days.

The big question is whether supplies from Ras Laffan and Sitra can be re-established and whether vessels be available given the situation at Hormuz and the potential for further Iranian strikes on refineries in the gulf. 

Two large cargoes of Group III base oils loaded from Cartagena, Spain, for a reselling hub in Northwestern Europe. Substantial quantities of stocks will now be in storage – perhaps 40,000 tons-45,000 tons.

Availabilities of Nexbase Group III grades from Porvoo are in doubt after the distributor announced problems with supplies of these grades.

European Group III prices – for grades with and without full slates of finished lubricant approvals and also for rerefined oils – are up this week for two reasons. First, there could be shortages given the breakdown in availabilities from Middle East Gulf sources and secondly, raw material costs of production have spiked and will be reflected in new loadings of material from all sources.

Group III

Partly approved, FCA Antwerp-Rotterdam-Amsterdam, Northwestern Europe
4 cSt: €1,465/t-€1,480/t
6 cSt : €1,455/t-€1,470/t
8 cSt: €1,420/t-€1,445/t

Fully approved, FCA Northwestern Europe
4 cSt: €1,885/t-€1,925/t
6 cSt: €1,895/t-€1,935/t
8 cSt: €1,940/t-€1,965/t

All the above products sold on a delivered basis will be subject to transportation charges, added to the prices above.

Rerefined Group III, FCA Germany
4 cSt:  €1,265/t
5 cSt: €1,250/t
6 cSt: €1,280/t

Baltic Sea

No exports of Russian base oils are reported leaving the Baltic supply points, St Petersburg or Vyborg, yet there are reports of Russian domestic prices for SN500 dropping around by $35/t rouble equivalent.

However, given the situation in Iran and the rising prices of crude and feedstock, it will be interesting to see and hear what reactions will come from Russian producers, and whether base oil prices will be increased as a result of Middle East Gulf activities.

It has not been possible to obtain any news or reports from Russian sources, hence this report will try to make circuitous approaches to contacts in the Baltic and Black Sea to investigate what steps Russian producers intend to take.

Lukoil and Rosneft remain under sanctions, with no export sales reported to any region previously identified such a Nigeria, and is doubtful whether Russian sellers would consider offering into Middle East Gulf, being ‘friendly flagged’ as an Iranian ally.

Notional levels are being removed from this report, since no verification can be established if any offers are being made for the supply of Russian base oils.

Black Sea & Turkey

Turkish blenders have purchased Group I base stocks from AMOC and APC in Alexandria in Egypt. Luberef are also heard to have been involved in supplying quantities of Group I and Group II base stocks to receivers in Gebze, Turkey,.  It has been confirmed that a Turkish blender will receive a cargo of Group II grades from Taiwan. This cargo may opt to transit the Bab-al-Mandeb Strait in the Red Sea, avoiding the new Houthi threats of renewing attacks on vessels which have any ties to U.S. , U.K. or other allied supporters against the Iranian regime.

MOH have also been approached by buyers in Turkey, and the Greeks have offered prices for heavy neutrals, with suggestions that this supply would discharge in Derince. Offers are possibly now withdrawn for re-offers once new prices are established.

Rising base oil prices will be a huge blow for Turkish receivers, since they would be looking to purchase at the low end of any pricing spectrum.

Group I

Tupras, ex rack Izmir
Spindle oil: Tl 32,978.00/t plus, VAT Tl 8,624.90/t
SN150: Tl 29,501.00/t plus, VAT Tl 7,929.50/t
SN500: Tl 35,741.00/t plus, VAT Tl 9,177.50/t
Bright stock: Tl 52,139.00/t, plus VAT Tl 12,457.10/t

Sales also incur the standard loading charge of Tl 10,146.50/t which should be added to the prices above

Group II, ex-works
110N and 220N, all price offers will be reviewed in light of events in Iran
350N : prices will be advised in due course.
150N, ex Taiwan or Saudi Arabia: $1045/t ( This price has been withdrawn )
500N/600N, ex Taiwan or Saudi Arabia : Prices to be advised around end of March

Group III
Partly approved
Tatneft 4 cSt, FCA: €933/t (last known price, no availabilities)

Fully-approved
SK Enmove from Spain, CIF Gemlik: €2,120/t-€2,155/t.

Middle East

It remains impossible to assess what will eventually take place in Middle East Gulf, since with the breaking news that French warships may provide a ‘friendly’ escort through the Strait of Hormuz, there may be hope that vessels stranded outside Middle East Gulf will make the transit through the channel, but it is too early to say when this operation will start and to what extent this will be successful in allowing bulk cargoes to be discharged in Middle East Gulf ports. There are reported parcels of expected Group I and Group II sitting at anchorage outside the Gulf for receivers in United Arab Emirates.

With only Fujairah currently available as an operational port, discharging in that port could be an option, but storage will be at a premium, and the subsequent transportation by road could take some time if cargoes of 10,000 tons or more are involved.

Yanbu and Jeddah are sufficiently distant to avoid Iranian drones but they attacked Ras Tanura refinery on the Gulf coast of Saudi Arabia. and caused a fire which has not caused too much damage.

Smaller cargoes are being loaded out of Yanbu and Jeddah, for receivers in Aqaba, Durban and Alexandria taking delivery of various quantities of Group I grades from both Yanbu and Jeddah, with Group II base oils ex Yanbu going into Durban.

With Iran electing a new Supreme Leader, one of the sons of Ayatollah Ali Khamenei, the war continues, with Israel swearing to eliminate the new leader.

Having talked to a number of sources and contacts in U.A.E. during last week, it became apparent that ‘uncertainty’ and fears not just for life, but for businesses in Middle East Gulf to be able to survive are real.

One blender told this report that without raw materials arriving in bulk cargoes, and additives coming in by container, they could keep going for around six weeks. Thereafter, should supplies of base oils, additives and packaging not be forthcoming, the company would be forced to close the doors and lay off staff.

This situation was not insurable, with the company having to fund and support staff if this eventuality happens.  

With the Strait of Hormuz now officially closed to shipping by the IRGC, getting cargoes of base oils in and out of Middle East Gulf look s like a forlorn hope at this time, unless the French naval plan to escort vessels through the channel actually works.

The insignificant Iranian navy is in tatters with most of the vessels having been sunk or damaged beyond repair. The problems for Hormuz however, is not the Iranian navy, but the fast shore patrol boats and shore based drones which can e fired at any vessel transiting Hormuz. 

P&I clubs were being consulted for advice regarding insurance risks and owners and operators were informing vessels to adhere to instructions from Iran coastguard and navy. Obviously most of the references were being related to tankers, with some receivers having cargoes which were ‘swinging on the hook’ at anchorage, at the mouth of the Strait.

Trump is reputed to be thinking about taking Kharg Island in the north of Middle East Gulf. This is where all the Iranian crude and large quantities of products are shipped to export destinations such as China and North Korea. To accomplish this mission, U.S. boots would have to be on the ground with ‘special troops’ taking the island.

With Ramadan coming to an end during next week there are still tremendous problems regarding transportation of people and goods into ten out of the region. Airspace is limited and all major airports have experienced drone and missile attacks, with subsequent cancellations and delays to flights and people travelling.

Supply chain issues are now being the greatest concern, with most players in U.A.E., unable to come to terms with what is taking place and what the future will bring.

Blenders and traders have purchased a number of cargoes of Group I and Group II base oils as insurance against any conflict, but some cargoes are not loaded, ( good news ) or are on the high seas with few options to divert or delay without substantial financial penalties involved in demurrage.

U.A.E. bound cargoes have been arriving from U.S., South Korea, Thailand and Indonesia, some are discharging in Fujairah, but with no traffic entering the Middle East Gulf at the moment.

Imported base oil prices into U.A.E. are maintained with no evidence to update these levels, since no new material has arrived into storage since the war started.

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

If and when cargoes do make it through Hormuz, additional expenses on vessels will have to be considered, with ships incurring costs on fuel, crew and insurances all with demurrage costs applying to the period at anchorage.

These costs could push selling price higher, if deals are to be completed and contracted supplies honoured.

Additional costs will have to be added to receivers charges f deliveries of cargoes are to go ahead. It is believed that negotiations are currently underway, to arrive at suitable arrangements for cargoes to discharge.

Group II, FCA or RTW UAE and Oman
110N, 150N and 220N: $1,275/t-$1,325/t
600N: $1,385/t-$1,420/t

High ends of the ranges refer to material being delivered by RTW in U.A.E. and into the Omani exclave, north of Khorfakkan and Fujairah.

Group II base oils imported into U.A.E. and other Middle East Gulf ports in Qatar, Bahrain and Kuwait are supplied from a number of  sources, Red Sea, U.S., South Korea, Singapore and Europe. Cargoes are often discharged into storage in U.A.E., and then smaller parcels are transhipped to various ports around Middle East Gulf.

With drone and missile strikes by Iran on Ras Laffan refinery in Qatar, the Pearl production of GTL Group III+ has halted and no further loading will take place for the time being.

Also hit was the refinery at Sitra in Bahrain, causing a fire and demanding that Bapco declare force majeure to all customers and receivers of material from this refinery. Base oils have been affected and with many personnel injured in the fire and explosion, it may be some time before production of Group III base oil is full restored at this site.

An ironic fact has emerged from this episode, that is that Iran receivers purchased quantities of Group III base stocks from Bapco and will not longer be able to use that source for supplies.

All vessel chartering and movements have been halted in Middle East Gulf, with many vessels under charter, or unfixed, at anchorage points offshore the main ports in the Gulf. Shipbrokers and agents are trying to supply food water and fuel to a number of vessels which are waiting for orders.

Group III, FCA Hamriyah or Sharjah port or RTW UAE and Oman
4 cSt: $1,225/t
6 cSt: $1,235/t
8 cSt: $1,255/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 a further charge of between $20/t-$65/t, depending on delivery location and quantity.

Netbacks in respect of Group III base oils ex Al Ruwais continue to be reported, since material is being delivered and is also currently on the high seas in respect of distributor sales into Europe, U.S., India, China and Thailand.

Netbacks for material loading out of Al Ruwais are maintained between $1,075/t-$1,095/t in respect of 4 centiStoke, 6 cSt and 8 cSt Group III grades.

Netbacks in respect of GTL Group III+ base oils ex Ras Laffan in Qatar, and Sitra in Bahrain are suspended for the time being.

Middle East Gulf Group III netbacks are assessed using selling prices in known markets, less estimated marketing costs, margins, handling, storage and freight.

Africa

Turkish buyers are purchasing Egyptian Group I base oils as the busy time of year starts in the Turkish market. EGPC in Alexandria, Egypt has received a cargo of around 3-3,500 tons of bright stock from Luberef in Yanbu.

With the hostilities in Middle East now being directed at Lebanon where Hezbollah are being wiped out by Israeli forces. Israel has launched a ground operation with armoured vehicles entering southern Lebanon following the execution of a number of Hezbollah commanders in Beirut. Shipping companies have deserted Suez as a route to Middle East and Far East, and have reverted to deviation around the Cape.

A large base oil cargo will load out of Rotterdam and Fawley for Durban, this cargo will load either this month or in April. Still no vessel fixture has been seen or reported in shipping lists.

A cargo of around 9-10,000 tons of three Group I grades will load from Fawley and will deliver to Conakry, Abidjan and Tema. This report is still trying to get information on landed prices into Guinea and Cote d’Ivoire.

A source in Ghana known to this report indicated that landed prices are published in government statistics and data. Attempts have been made to secure access to documents, but apparently there is a delay of up to three months before the release of this information.

WIth a trader source visiting Lagos this week, this report will hope to glean Information regarding the cargo coming into Nigeria from South Korea. The cargo is believed to have been loaded with around 10,000 tons of 600N. ETA is difficult to work out, but taking average sailing speed of around 13,500 tonss per hour, the vessel should arrive in Lagos around mid-April.

The visiting trader has loaded an 18,000 tons cargo out of the U.S., with a competitor trader lifting 10,000 tons from other USG sources. A total of 38,000 tons of material will discharge in Apapa, during March and April.

No reports of Russian offers are being currently heard.

Bid levels remain at $800/t for SN150, $870/t for SN500 and $990/t for SN900. These numbers are incredibly low, and adding freight, margin and other expenses to cover items such as demurrage would require FOB levels of around $630/t for SN150, $700/t for SN500 and $820/t for SN900.

What will be interesting is the establishing of new levels of prices following the rises in crude and feedstocks caused by the Iranian war.

The Nigerian naira black market exchange rate was NGN 1,389 to the dollar Monday.

Nigeria 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.

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