Lubricant producers in the Middle East Gulf described business conditions as becoming increasingly serious in the face of the ongoing war between the United States, Israel and Iran.
Among the terms used by sources for this column were “the unknown,” “commercial disaster,” “frightening,” “scary,” “into the abyss,” “financial ruin,” “complete Armageddon” and “total nightmare.”
Many lube companies in the United Arab Emirates, Qatar and Bahrain have temporarily halted operations due to their inability to receive raw materials or ship product out of the region. Very little supplies of base oils or additives have reached receivers since the end of February.
Some light appeared at the end of the tunnel last weekend, when Iran announced the reopening of Hormuz, but then the United States. continued its blockade on Iranian shipments and Tehran decided the Islamic Revolutionary Guards Corps should close the strait again. As of Tuesday, prospects for negotiations were uncertain.
Comments received during last week forebode financial ruin for many companies in the gulf. Basic requirements for food, medicines and day-to-day necessities are not getting through to distributors and retail outlets. Supplies by air are severely limited and are certainly not comparable to normal container-based traffic moving in and out by sea.
Base oil cargoes that were to be loaded from Asia-Pacific, the U.S. and European sources have been placed on hold or have been allocated to alternative receivers in other regions. With no end in sight for cargoes to enter the gulf, traders and suppliers have had little choice other than to find alternative buyers in locations such as India, South Africa and even Europe.
Some companies in the region have considered steps such as having smaller quantities sent by truck from suppliers such as Luberef in Yanbu and Jeddah, Saudi Arabia, and also from Iraqi sources, but these supplies are not sufficient to maintain the industry in countries such as the UAE. Some UAE blenders have tried to take deliveries from vessels discharging partial cargoes outside the strait, in Muscat, Oman, and Fujairah, UAE, but here too quantities are minimal and need to come by road, which entails high costs and poor supply chains.
The situation in the Gulf is dire, but lubricant suppliers elsewhere are also feeling the effects of the war, with API Group I and Group III base oils moving shorter throughout Europe and prices moving to levels never witnessed previously.
Buyers are desperate to lay hands on Group I grades in Europe as a number of producers are electing to optimize output of distillates rather than base oils. Europe is net short of distillate grades such as kerosene (jet fuel) and diesel. Airlines have issued warnings for flight cancellations any time after four weeks from present, when severe restrictions may see jet fuel shortages.
European buyers are looking internationally for support for cargoes of diesel and jet fuel, but with prices being hiked with high demand, the economics raise concerns as to sustainability of supplies.
Base oil prices have spiraled even as gas oil levels fall back in line with crude dips over the weekend, when Iran announced the opening of Hormuz. Base oil numbers have only gone one way — upwards, with no sign of stopping. Product is short and demand is high, hence prices are being supported all along the line. One major oil company in Europe is selling Group I neutrals close to Group II levels at between $2,050-$2,350 per metric ton, and bright stock is approaching levels around $2,550/t.
Buyers are being forced to purchase quantities at these inflated levels. Finished lube blenders are immediately transferring these increased costs to these products, which are required for the peak season in the Northern Hemisphere.
One large blender operating in Europe told this report of a contract factory-fill obligation that had to be met for large quantities of various automotive lubricants. When the vehicle manufacturer was told of the increases required in price, the contract was cancelled, only to be reinstated within hours, after the end-buyer had scoured the market unsuccessfully looking for an alternative supplier.
The realities of the market are starting to be felt, with economists in a number of countries fearing the effects of inflation, which will certainly rear its ugly head in months to come.
Crude and Gas Oil Prices
Responding to news and announcements from the U.S. and Iran, crude oil prices remain extremely volatile, with levels for dated deliveries of Brent crude falling towards $80 per barrel over the weekend when news of Hormuz opening came out, only to reverse and climb to over $95 when the channel closed again.
Whilst Asian countries are perhaps the most severely affected by the closing of the strait, nations in Europe and East Africa are also feeling the effects of not receiving allocated crude or cargoes of distillates from Middle East Gulf suppliers. Europe is net short of distillates from a refining stance, and is also dependent on supplies of liquefied natural gas, diesel and jet fuel from Middle East Gulf sources.
African nations are continuing to utilize sources from Angola, Nigeria and Egypt for heavy and light crudes. Saudi Arabia is exporting crude from Yanbu, via a pipeline crossing the country from Al Jubail in the eastern region.
West Texas Intermediate crude has given up the premium it briefly traded at compared to Brent, re-establishing the traditional crack between itself and the European benchmark. The crack now stands at around $7/bbl. Low-sulfur gas oil prices fell around $130/t the past week.
Dated deliveries of Brent crude: $95.55/bbl, June front month
West Texas Intermediate: $88.95/bbl, May front month
European low-sulfur gas oil: $1,086/t, May front month
Source: London ICE trading late Monday, April 20
Europe
Group I base oil in Europe is now tight, with production being limited by a number of producers, in trying to maximise distillate output.
As already mentioned, base oil prices have moved in one direction and are being maintained at new highs, perhaps never seen previously.
Group I base oil prices have ditched any relationship with gas oil levels, and with suppliers issuing almost weekly increases to existing levels, there may be scope for prices to escalate further.
Demand is strong for all available barrels of Group I base oils with an open auction for available product. European values have continued to firm, creating a vastly different market from normal. Prices remain in wide ranges, with some sellers honoring commitments as far as possible to contracted and regular buyers, whilst other sellers have hiked numbers to new highs on the basis that buyers have little choice other than to pay the going rate.
Some time ago this report stopped referencing an export market for Group I base oils since supplies of these grades were starting to tighten around Europe and there were few surplus barrels which could have constituted spot export sales to markets such as Nigeria, India and the Middle East Gulf.
There still is no export market for Group I base oils, for very different reasons obviously, but the essence is that Group I remains very tight, with high demand and less availability than in previous years.
One oil major is supplying cargoes of Group I material to contracted receivers in West Africa and cargoes on a regular basis to affiliate blending plants via Durban, South Africa.
Group I
European Exports, FOB basis
Prices not quoted
Northwestern Europe, FCA basis Antwerp-Rotterdam-Amsterdam
SN150: $1,995/t-$2,135/t
SN500: $2,250/t-$2,365/t
Bright stock 150: $2,425/t-$2,575/t
Eastern Europe FCA
No prices available from PKN Orlen or Mol
Mediterranean prices, FCA Spain
SN150: $2,055/t
SN600/500: $2,250/t
Bright stock: $2,480/t
Pan-European, FOB/FCA
SN150: €1,825/t-€1,900/t
SN500/600: €1,910/t-€1,995/t
Bright stock 150: €2,325/t-€2,400/t
Pan-European prices are assessed on an aggregate basis taking values 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 quoted $1.17847 Monday.
European Group II base oil prices continue to climb spectacularly higher with another round of increases being announced by all major European suppliers, amounting to $250/t-$300/t. Some buyers are trying to procure Group II grades from international suppliers, by buying in flexi-tanks to be transported in containers. There are reports of some successes, but sources in the U.S. and Asia-Pacific are resisting requests for discounts and are escalating values to the point of being uneconomic.
Price levels are subject to change, and offers have little to no validity. Levels are now around €1,895/t-€1,950/t for 150 neutral and €2,010/t-€2,100/t for 600N. Ranges have been widened to take account of various sellers’ prices.
Group II, FCA basis
110N: €1,875/t-€1,955/t
150N: €1,865- €1,950/t
220N: €1,825/t-€1,875/t
600N: €2,010/t-€2,155/t
Prices refer to a wide range of Group II base oils which may be sourced from within Europe, the U.S., the Red Sea and Asia-Pacific.
The reality of the European Group III base oil scene is starting to sink in to buyers who are facing zero supplies from distributors of Middle East Gulf grades, since production from those sources will be suspended for a considerable period of time following drone and missile damage. One distributor has announced that come June they will be dry, with nothing to replace missing barrels coming from Middle East Gulf.
There are Middle East Gulf cargoes on the high seas, but these will be the last to arrive, with vessels due in the next couple of weeks into Antwerp-Rotterdam-Amsterdam. Buyers are taking stock of a really bad situation with a number trying to switch to Malaysian or Korean suppliers, but these already have a full list of receivers and customers who have been buying for a number of years.
There is talk of trying to accelerate the opening of Shell’s upcoming Group III plant in Germany, which is programmed to come onstream in 2028. Whether this project can be accelerated is not known, but it will not be running when the Middle East Gulf barrels stop. Two Group III projects in the U.S. are also still in the distance.
The offer of an FOB sale from Indian traders may now come into play assuming that the offer still stands and that the product is available for purchase.
News from Middle East Gulf sources now suggests that the Pearl project in Qatar could take more two years to resume production of its gas-to-liquids Group III+ base oils, and new reports from Sitra indicate at least one year before production can be restarted. No reports have been forthcoming regarding Adnoc’s plant in Al Ruwais, UAE, but the fire was significant and damage assessment may take some time. On the assumption that there are no further Iranian drone or missile strikes, it may take more than a year to eighteen months before base oils once again become available from Adnoc.
A planned maintenance shutdown of the SK Enmove-Repsol joint venture Group III plant in Cartagena, Spain, may be delayed or postponed due to the supply situation in Europe, although this will be a temporary measure since the turnaround will have to take place at some time in the future.
The fully-approved production from Cartagena could fill part of the coming supply void but will not be able to replace all barrels from Middle East Gulf.
European Group III prices are progressively moving higher, including grades from rerefiners. These availabilities could become crucial for the European Group III market. Sellers are resisting offering large quantities of these grades and are instead rationing buyers based on historical purchases.
Group III
Partly approved, FCA Antwerp-Rotterdam-Amsterdam, Northwestern Europe
4 cSt: €2,025/t-€2,065/t
6 cSt : €2,035/t-€2,075/t
8 cSt: €1,985/t-€2,020/t
Fully approved, FCA Northwestern Europe
4 cSt: €2,435/t-€2,475/t
6 cSt: €2,450/t-€2,490/t
8 cSt: €2,495/t-€2,525/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: €1,980/t
5 cSt : €1,985/t
6 cSt: €1,995/t
Baltic Sea
Russian domestic markets appear to be absorbing most, if not all, base oil being produced, with reported rises in domestic prices of more than 25% of current levels. The problem is that this report has no access to what the starting price levels are, and probably vary from region to region depending on logistics and transportation costs from production centres.
No bulk exports of Russian base oils have been reported leaving Baltic supply points, St Petersburg, Vyborg or Primorsk, although shadow vessels could be used to take base oil exports out of the Baltic without being reported in shipping lists or records.
The question is where would these cargoes being going, since they are not moving into Turkey or Nigeria, and other locations are questionable if domestic markets are demanding supplies of base oils.
Black Sea & Turkey
Crude prices and lack of supplies are affecting the Turkish economy, and with Turkish exports of refined products being limited going into European markets, where potential shortages of diesel and jet fuel are now starting to appear.
A shipping inquiry is on the market for a vessel to load a base oil cargo out of a Turkish port, then to sail to Spain to discharge. The base oil can only be Tupras Group l, since there is no Russian base oils being imported into Turkey.
Also Russian origin base oils would not be openly imported into an EU country.
The size of the cargo is not known. Efforts to find out more about this cargo have failed but more digging will be done during this week.
Turkish blenders previously purchased Group I base stocks from AMOC and APC in Alexandria, and Luberef was also supplying Group I and Group II base stocks into Gebze, Turkey, from Yanbu. These supplies will have been paused because rising base oil prices taking their toll on Turkish blenders and traders. The longstanding shortage of access to dollars continues to haunt Turkish traders.
Tupras again raised domestic prices for base oils produced at its refinery in Tupras.
Group I, ex rack Tupras
Spindle oil: Tl 66,674.00/t plus, VAT Tl 15,364.10/t
SN150: Tl 63,197.00/t plus, VAT Tl 14,668.70/t
SN500: Tl 69,437.00/t plus, VAT Tl 15,916.70
Bright stock: Tl 85,835.00/t, plus VAT Tl 19,196.30/t
Sales incur a 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 offers cannot be given for material recently arrived from Taiwan. Traders are holding on to stocks, not knowing if they will be able to purchase future barrels due to high prices and shipping costs. Due to the volatility of prices, the trader will not be offering availabilities.
Group II, ex-works
110N and 220N: no offer
350N: no offer
150N: unavailable.
500N/600N, ex Taiwan or Saudi Arabia: No offers currently due to price volatility and the fact that the Taiwan cargo was purchased at pre-Iran war prices.
The other reason why the trader is not offering material for sale is that the cargo will have been purchased prior to the Iran conflict, thus meaning that prices will be a February levels.
Group III
Partly approved, FCA
Tatneft 4 cSt: no availabilities
Fully approved, CIF Gemlik
From Repsol: €2,525/t-€2,570/t.
Middle East
A cargo has loaded out of Ulsan, South Korea, for Luberef and will arrive during May. This vessel will be carrying a cargo of Group III base oils from S-Oil, which is majority-owned by Saudi Aramco and supplies Group III grades to Yanbu for in-house blending of finished lubricants.
Saudi Aramco has started using a pipeline link from Al Jubail in the Eastern part of the Kingdom, to pump crude and petroleum products across to Yanbu where they can load, thus avoiding the closure of Hormuz. Cargoes moving south would have to run the Bab-al-Mandeb Strait, but base oil cargoes have been moving from Yanbu and Jeddah without getting problems from the Houthis.
UAE companies are either running part time or have closed until supplies of base oils and additives arrive into ports. Some companies have been trying to arrange access base oils from storage in Fujairah or Muscat. Base oils would be loaded in trucks to be driven across to Sharjah and Jebel Ali. This process would be expensive and may not entirely be a satisfactory solution to the problems.
Some vessels may try to discharge partial cargoes at the ports on the Arabian Sea coast, but there is congestion in Fujairah now, and berthing is not available to vessels that have been at the anchorage.
A number of receivers in the UAE have cargoes waiting at Khorfakkan and Fujairah.
Traders and resellers in the UAE are no longer allocating supplies, but have informed customers that they are unable to supply base oils until further notice.
A specialty oils producer has suspended operations due to a lack of base oils, additives or packaging for finished lubricants. Without base oils arriving in bulk or additives coming in by container, the operation has closed.
A new problem facing receivers will be that as and when Hormuz reopens, there is bound to be major congestion in UAE ports. Ship agents in Sharjah said it may take weeks following the opening of Hormuz before cargoes can be discharged. Priority will be given to vessels with crew who remained on board for the duration, although the agency did comment that many crew have been changed and have been taken off vessels by launch during the waiting period at anchorage.
Base oil prices in the UAE have risen, but with little product left in storage sales are few and far between. Prices are again shown below since these have been confirmed, but caution is added that product may or may not be available.
Group I, CIF/CFR UAE ports
SN150: $1,860/t-$1,895/t
SN500: $1,925/t-$1,975/t
Bright stock 150: $2,385/t-$2,425/t
Group II inventories in storage are depleted, and prices have been suspended until new cargoes arrive. Some buyers are investigating the possibility of trucking Group II base oils from Yanbu, across Saudi Arabia, but this is a very expensive operation — adding perhaps $500/t to each grade on a delivered basis.
Group II, FCA RTW UAE and Oman
110N, 150N and 220N: Prices suspended
600N: Price suspended
Group II base oils were and will be imported into the UAE and other Middle East Gulf ports in Qatar, Bahrain and Kuwait and are supplied from a number of sources in the Red Sea, the U.S., South Korea, Singapore and Europe. Cargoes will be discharged into storage in the UAE, then smaller parcels will eventually be transshipped to ports around Middle East Gulf or delivered by RTW in some cases.
Sources in the UAE have commented that the Sitra refinery will be suspended for more than a year. But sources have added that a full inspection and damage assessment are still to take place, and that only after establishing all the facts will a timescale for resumption of production be issued by Bapco.
Shell’s Stasco had another cargo recently arrive into Rotterdam from Sitra, and that may be the last for quite some time. Information is being sought as to what action Shell will take to replace the GTL Group III+ from Ras Laffan, most of which the company has been using for in-house blending.
One of the the Adnoc refineries at Al Ruwais is closed. No news has been heard regarding the latest status of damage and estimated downtime for the refinery.
Group III base oils are no longer available from Hamriyah or Sharjah ports due to the shutdowns at Al Ruwais and Sitra. A UAE distributor has ceased selling product and will only restart as and when material is forthcoming from Adnoc and Bapco. The reseller said that may not happen for two years or more. Prices are therefore suspended.
Netbacks for Group III base oils ex Al Ruwais, Sitra and Ras Laffan are suspended for the time being.
Africa
The Moroccan requirement has been covered by a cargo of Group I base oils that loaded out of the U.S. and is believed to have arrived in Mohamedia, delivering SN150, SN500 and bright stock.
A large cargo of Group I and Group II base oils loaded out of the U.S. Gulf of Mexico coast for discharge in Durban, perhaps delivering around 28,000 tons in total. The entire cargo will be discharged in Durban, restocking inventory for representatives of a U.S. major.
The South Korean cargo for Nigeria arrived in Apapa port in Lagos with around 10,000 tons of 600N and at least started to discharge. An 18,000-ton cargo out of the U.S. also arrived with another 10,000 tons from other U.S. Gulf sources. In addition, a 48,000-ton cargo scheduled to discharge during March and April, and a cargo from the U.S. East Coast also arrived.
With prices moving higher, receivers in Nigeria are shying away from additional cargoes, citing that they would be unable to resell is prices, for example, are north of $2000/t for SN900.
Nigerian resellers have increased prices locally in line with other international numbers. Bearing in mind that all recent arrivals will have been fixed and contracts issued before the Iran war, therefore traders and resellers in Lagos will be making considerable margins. Resellers are holding back from offering material that they have in tank at the moment, hoping that prices will rise further.
The black market exchange rate for the Nigerian naira was NGN 1,366 to the dollar Monday.
Group I prices in Apapa port in Lagos are unchanged since now new offers have been made or received since the war in Iran began. All cargoes recently arrived into Apapa will have been sold at pre-war values.
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.
Historic and current base oil pricing data are available for purchase in Excel format.