Weekly EMEA Base Oil Price Report

U.S. President Donald Trump issued his latest diatribe with the words “sit back and relax” aimed at anyone who happens to be listening. The Strait of Hormuz remains at least mostly closed. Reports describe some vessels being escorted through the straight by the U.S. navy, but verification of these events remains clouded as no ship names have been provided.

What was first thought to be a brief and swift strike against Iran, has developed into an extended and extensive conflict involving a number of nations around the Middle East Gulf region and untold damage to infrastructure and facilities in a number of neighboring countries.

The conflict has caused widescale disruption to international supplies of API Group III base oils from Bahrain, the United Arab Emirates and Qatar and largely halted base oil supply into the gulf region. On a positive front, news is emanating from the UAE that Group III base oils are available from Adnoc at  Al Ruwais, but of course movement of these products is severely constrained by the continuing closure of Hormuz. Traders and distributors have examined the possibility of trucking material from the UAE through ports such as Fujairah and Muscat, but the logistics and costs of putting this type of operation into action are prohibitive.

This report has gained news of a new rail link which is running between Fujairah, Dubai and Abu Dhabi in UAE, with ten freight trains making the return journey every day, supplying essential needs to the three main centers. There may be scope to extend this service to extract supplies of Group III barrels from Adnoc, using flexi-tanks to pack containers that could then be shipped from ports outside the gulf, such as Fujairah. These supplies could reach distributors in Europe, India and the U.S., but quantities would be limited and could not replace bulk cargoes of 7,000-10,000 tons.

Costs of providing this service could render selling prices uncompetitive in markets such as the U.S. and Europe, but if shortages become great enough, then all possibilities are on the table.

Washington officials continue to assure all that Hormuz will reopen, but the question remains when? The strait has now been closed for merchant marine traffic for three months, and several more months seems possible. Trump this month posed the possibility of a settlement not coming until September.

Base oil prices appear to be reaching a plateau, albeit a rather high plateau, but with only minimal increases on Group I and Group II heard during last week from majors, there may be some respite coming down the line, as Group I becomes slightly more available with arrivals of imports from the Red Sea and the restart of production at the PKN Orlen refinery in Gdansk, Poland. All indications point to increasing availabilities even for bright stock, which has been particularly short over the past few months.

Group II availabilities have perked up, with the arrival into Europe of a couple of cargoes from U.S. Gulf of Mexico Coast sources, but hurricane season is approaching, so U.S producers will be trying to build inventories as insurance against weather outages. At the same time, since U.S. Group II exports cannot be shipped to the Middle East Gulf now, some may be redirected to Europe or South America.

Group III remains the real problem within Europe, due to the loss of Middle East Gulf barrels and Asia-Pacific sources moving through maintenance schedules the past few months. Building a cushion of inventories in Europe has been impossible. Supplies have been moving from South Korea, Malaysia and Indonesia, but these are routine quantities that would have normally been entering the European market. They are not filling the vacuum created by the loas of supplies from Bahrain, Qatar and the UAE.

An oil major that lost all supplies of Group III+ from the gas-to-liquids complex in Qatar has embarked on buying large quantities of rerefined Group III base stocks but at the same time has advised a number of buyers of finished lubricants that the company will declare force majeure due to inability to meet some obligations.

Crude and Gas Oil Prices

Following suggestions of good news from negotiations between U.S. and Iran, crude prices retreated from their lofty highs of the past few weeks. Dated deliveries of Brent crude are below the $100 per barrel mark, around $97/bbl, which is similar to last week. The crack between Brent and West Texas Intermediate crude narrowed to around $3/barrel, but there are little signs of backwardation for the U.S. market crude right now.

Petroleum products such as diesel and jet fuel have stabilized, drifting lower on expectations of positive developments. There will not be a universal reverse of price inflation, since there remains a shortage around Europe, the Middle East and Africa. There are signs that the leap to produce distillates may have peaked, with a number of refiners now back producing base oils as normal, perhaps realizing that base oil prices are currently showing exceptional margins over distillates.

Dated deliveries of Brent crude: $97.30/bbl, August front month
West Texas Intermediate: $94.20/bbl, July front month
European low-sulfur gas oil: $1,095/t, June front month

Source: London ICE trading late Monday, June 1

Europe

Group I base oil availability remains tight, but there are one or two indications that supplies may be improving thanks to imports from Saudi Arabia and a resumption of base oil production from a main supply source in Poland. Other suppliers also seem to have more availabilities, perhaps due to shifting feedstock toward base oil production. Europe remains short of jet fuel and diesel, so there is still an emphasis for refiners to optimize output of distillates, but some have tempered the enthusiasm to max out on fuels and have reverted to producing more Group I base oils.

Ultimately, if refiners return to normal base oil production, it will have the effect of diluting the market, improving availabilities and perhaps exerting downward pressure on prices. This scenario is some way off at the moment due to high demand for available supplies.

Only last week, one major supplier announced another price hike of €45/t across all Group I grades. This raised the value for solvent neutral 150 to around $2,680/t. Prices are perhaps starting to peak and may be preparing, but demand remains high.

Rerefiners are in vogue as buyers are taking material from Egyptian, Saudi Arabian and  Greek rerefiners, who are supplying receivers in Northwestern Europe and the United Kingdom.

Some blenders were expecting base oil prices to fall should a peace deal be announced between Trump and Iran, but with time moving on and the war now running for over three months,  European Group I base oils will remain short in a tight market.

Export sales remain an elusive part of the European base oil markets as almost every available European barrel of Group I base oils being purchased by regional buyers. One major continues to send large cargoes to affiliated companies in locations such as Singapore and South Africa, and whilst these large cargoes can be described as exports from Europe, they basically form a global supply rebalancing. These cargoes may contain a modicum of Group I grades, but are predominantly comprised of Group II base stocks.

One producer has moved prices upwards ten times since the end of February but only announced a small upward adjustment during last week.

European Group I prices are more or less unchanged except for one or two increases at the lower ends of the ranges.

Group I

European exports, FOB
No current prices

Northwestern Europe, FCA Antwerp-Rotterdam-Amsterdam
SN150: $2,675/t-$2,930/t
SN500: $2,730/t-$3,050/t
Bright stock 150: $2,950/t-$3,200/t

Eastern Europe, FOB
SN150: $2,475/t-$2,495/t
SN500: $2,540/t-$2,575/t
Bright stock 150: $2,800/t-$2,855/t

Mediterranean prices, FCA  Spain, Greece, Italy
SN150: $2,780/t
SN600/500: $2,850/t
Bright stock: no availabilities

Pan-European, FOB/FCA
SN150: €2,200/t-€2,485/t
SN500/600: €2,125/t-€2,585/t
Bright stock 150: €2,560/t-€2,730/t

Pan-European prices are assessed on an aggregate basis taking prices from Scandinavia, Poland, France, Germany, Benelux, Spain, Italy, Greece, the U.K. and Baltic states.

The euro-U.S. dollar exchange rate was $1.16209 Monday.

European Group II base oil prices remain high, although numbers have stopped moving up by the large increments seen during previous weeks. Buyers are complaining that they cannot pay ever higher levels due to finished lubricant prices becoming unsustainable. A number of end users have declined to accept finished lube hikes.

Prices are pushed slightly higher this week as one major applied an across-the-board increase of €45/t on Group I and II grades, taking values to  $3,055/t for 150 neutral and $3,185/t for 600N, on the basis of FCA sales Antwerp-Rotterdam-Amsterdam.

Availability of Group II base stocks was previously declared adequate, but some buyers reported supply issues including delays to imported cargoes from U.S. sources. Until a couple of weeks ago, one supplier had very little stocks in tank, but the arrival of a Group II cargo into Antwerp-Rotterdam-Amsterdam solved the immediate crisis. It is assumed that this supplier will look for another cargo to land around the end of June. A U.S. Gulf cargo is en route to Antwerp-Rotterdam-Amsterdam to discharge. The vessel will arrive in the next couple of weeks, replenishing inventory for this major supplier.

Supplies of Group II base oils are being directed towards Northwestern Europe from Yanbu, Saudi Arabia. The European market is tight and typically has higher prices than alternative markets such as India and South Africa. Since Luberef (owner of plants in Yanbu and nearby Jeddah) has surplus product due to no base oils moving into the Middle East Gulf, the European market is a natural choice.

Values are marginally increased this week reflecting the latest increase advised last week and are now assessed around €2,425/t-€2,570/t for 100N and 150N grades and €2,550/t-€2,680/t for 600N.

Group II, FCA basis
110N: €2,470/t-€2,610/t
150N: €2,475- €2,620/t
220N: €2,445/t-€2,510/t
600N: €2,600/t-€2,720/t

Prices apply to a wide range of Group II base oils that may be sourced from within Europe and imported from the U.S., the Red Sea and Asia-Pacific.

Without some moves to unlock the Strait of Hormuz, there will be no European Group III base oils available after the next couple of months. As the market stands at the moment, the only supply from Middle East Gulf could be from Adnoc, but shipments will take time to resume even after the strait is reopened. Production at Group III plants in Qatar and Bahrain will be hampered until after repairs of damage from Iranian strikes.

Distributors have issued force majeure notices to contracted customers. Some of the notices are effective immediately while others were backdated to May 1. The reasons cited are the current logistical and supply issues caused by the war. One distributor has been investigating the possibility of loading flexies on trucks and moving these to a container port, but trucks are few and far between, and the operation would be too costly to allow sales of the base oils in the European market.

A new alternative could be a freight train service which is running between Abu Dhabi and Fujairah, the latter being a container port that may be able to handle supplies of base oils.

Buyers are vainly searching for alternative suppliers of Group III base oils, but established suppliers have their own portfolio of buyers, many of whom been customers for many years.

Middle East Gulf supplies are nearly halted as there is only one cargo arriving into Antwerp-Rotterdam-Amsterdam from Bahrain around about this week. The vessel sailed through the Strait of Hormuz on Feb. 28, narrowly escaping the blockade that followed, and will have charted a route around the southern tip of Africa.

Blenders are looking at options to use polyalphaolefins to replace Group III and Group III+ base stocks, but there are only a few large PAO producers in Europe, such as ExxonMobil, Ineos and Chemtura, and all are committed to contracted customers. Prices for PAOs have rocketed, with metallodecene grades such as PAO 100 topping $5,000/t the past few days.

Two large Group III cargoes loaded out of Cartagena, Spain, with the last vessel en route to Antwerp to discharge another large Group III cargo into hub storage. Another cargo has loaded out of Cartagena for Indian receivers, but it has not been confirmed if this is Group III or a light Group I solvent neutral grade, which is often sold into Mumbai anchorage for producing transformer oil.

Prices for Group III oils with partial slates of finished lubricant approvals, sold FCA Antwerp-Rotterdam-Amsterdam and Northwestern Europe, are unchanged from last week, but the imminent shortages are likely to cause upward pressure.

Group III

Partly approved, FCA Antwerp-Rotterdam-Amsterdam, Northwestern Europe
4 cSt: €3,350/t-€3,400/t
6 cSt: €3,345/t-€3,395/t
8 cSt: €3,150/t-€3,250/t

Fully approved, FCA Antwerp-Rotterdam-Amsterdam, Spain
4 cSt: €3,375/t-€3,425/t
6 cSt: €3,365/t-€3,420/t
8 cSt: €3,400/t-€3,450/t

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

Rerefined, FCA Germany
4 cSt:  €3,050/t
5 cSt:  €3,040/t
6 cSt:  €3,040/t

Baltic Sea

Russian domestic base oil prices have apparently risen by 75% during April, year on year, though this report lacks actual values. This report can assume that prices one year ago may have been as low as $700/t for SN500, which would imply rates of around $1,225/t today, a very low price compared with current European levels of around $2,850/t.

There are no reports of Russian bulk base oil cargoes loading or leaving Baltic ports. Shadow fleet vessels might be used.

Black Sea & Turkey

The Turkish lubricant market is in dire straits, with Turkish buyers unable to purchase sufficient quantities of European quality Group I base oils. Receivers are looking for any availability from Yanbu or Jeddah. Supplies that were coming from Iran have halted due to the war, and no Russian base oils are available for import into Turkish buyers. Some blenders are looking at Azeri and Uzbek sources, but logistics are difficult and expensive.

Prices are high, and there is still the perennial problem for Turkish traders to access dollars through the Central Bank of Turkey. Purchases would require to be made against letters of credit or payment in advance, but are difficult from within Turkey, although some Turkish traders have access to funds in banks outsite Turkey, for example in Germany and Switzerland.

Turkish blenders recently purchased Group I base oils from AMOC and APC in Alexandria. Group I base stocks were supplied into Gebze, Turkey, but these companies are no longer looking to sell into Turkey, commenting that the local Egyptian market is desperate for Group I base oils.

Turkish buyers have been encouraged to share bright stock cargoes with EGPC supplied material from Yanbu, but so far no reports of this practice have been heard. EGPC will be reticent and unwilling to share cargoes and vessels with third parties.

Tupras prices are unchanged this week, but availability is doubtful at least for all grades.

Group I, ex rack Izmir refinery
Spindle oil: Tl 82,410.00/t plus, VAT Tl 18,511.30/t
SN150: Tl 78.933.00/t plus, VAT Tl 17,815.90/t
SN500: Tl 80,668.00/t plus, VAT Tl 18,162.90/t
Bright stock: Tl 99,318.00/t, plus VAT Tl 21,892.90/t

Sales incur a standard loading charge of Tl 10,146.50/t that should be added to the prices above.

Traders in Turkey have advised that no sale offers will be forthcoming for the Group II material that arrived from Taiwan. Traders are using this material to blend, and will sell finished lubricants at current high prices, but revenue generated will be required to finance replenishment barrels to continue blending finished lubes selling in the Turkish market, and also being exported to markets such as Ukraine and Greece. That is, if Turkish buyers are able to find base oils to purchase.

Group II, ex-works
110N and 220N: no offers
350N: no offers
350N: no offers
150N: no offers
500N/600N, ex Taiwan: Product being used in blends locally

There have been no Turkish imports of Russian base oils, including Group III for months, due to Russian domestic demand. In the fully approved segment, it is not confirmed if Repsol is still shipping small (800-1,200 tons) cargoes from Cartagena, due to significant price increases.

Group III
Partly approved
Tatneft 4 cSt, FCA: no availabilities

Fully approved
From Cartagena, CIF Gemlik: €3,450/t-€3,520/t

Middle East

Cargoes loaded from Yanbu during May are en route to Antwerp-Rotterdam-Amsterdam, with one cargo loaded around mid May and another two parcels loaded at the end of May. These parcels are expected to discharge around mid June.

An exceptionally large cargo has loaded for Fujairah and following discharge of part-cargo will probably then sail onward to discharge the remaining cargo in the west coast of India. The cargo size was unconfirmed by reports are that the vessel chartered would carry around 30,000 tons in total. Usual quantities moving into Fujairah are around 10,000 tons, but on this occasion a larger cargo may be required for bridging into Dubai and Sharjah.

Middle East Gulf

While talking to and old friend in Fujairah last week, this report was made aware of a new rail freight service running ten trains per day between Fujairah, Dubai and Abu Dhabi. Most of the freight is containerized, and the service is proving a lifeline for supplies of goods moving across the UAE.  A passenger service also runs at fast speeds and will ultimately connect Fujairah to London. Trains will travel through the UAE, Saudi Arabia, Jordan, Lebanon, Syria and into Turkey before taking up the route of the original Orient Express to London.

Two vessel owner-operators were approached last week regarding vessels that have been at anchorage outside the Middle East Gulf for a number of weeks. Vessel owners gambled that the Hormuz closure would be short, and that free passage would be available within a couple of weeks following the U.S. attacks on Iran. Fourteen weeks later, it has proved to be an expensive exercise. This report was told that crew rotation, stores and bunkers required for safety and to maintain air conditioning on board are regularly being provided by ships’ agents based in Fujairah.

The total costs are rising every day, and although one vessel has looked at moving to an Indian port, this has not been successful due to many reasons, one of which was the negotiation for the transfer of the base oil cargo on board. The cargo consists of two grades of Group II base oils, but the owners of the cargo were looking for receivers to pay current prices. The would-be Indian buyers were adamant that the cargo should be sold at pre-war rates. The vessel remains at anchorage off Khorfakkan.

Some sources in Dubai and Sharjah report financial problems developing with state banks, and governments stepping in to “furlow” companies during this period of unrest. This would involve financing companies by way of loans to protect businesses from the effects of the war and in doing so would allow employee salaries to be paid during a period when there is no cash flow to support the payroll.

With capital tied up in cargoes that have had to be paid to traders, local banks in the UAE are turning to government in Dubai and Abu Dhabi for bail-outs until normal trade and business resume.

Base oil prices in the UAE spiked during the early days of the war, but very little or no product is left in storage, and there are no reported sales. The last Group I prices are taken down since they are no longer relevant or valid.

Group II base oils are basis FCA, or on an RTW delivered basis U.A.E. and Oman. Supplies of Group II in storage are all depleted, and prices have been suspended until new cargoes are discharged. Small quantities are arriving by truck and rail from Fujairah but are not being resold, and are being used in blending to produce lubricants for the local markets.

Group II
110N, 150N and 220N: Prices suspended
600N: Price suspended

Group II base oils were/will be imported into the UAE and other Middle East Gulf ports in Qatar, Bahrain and Kuwait and were supplied from a sources in the Red Sea, the U.S., South Korea, Singapore and Europe. Cargoes were discharged into storage in the UAE, then smaller parcels were transshipped to ports around the Middle East Gulf or delivered by RTW.

Group III base oils, FCA Hamriyah/Sharjah port, or delivered by RTW in the UAE and Oman, are once again available from Adnoc at Al Ruwais. Quantities are not large, but the difficulties have been in finding other base oils to blend with Group III and laying hands on additives. Thus demand is slow and prices are yet to be confirmed during this week.

Our distributor in the UAE had temporarily closed shop but has recently re-opened operations. Sales are slow for the reasons stated above and will only return to normal following the re-opening of Hormuz, when other base oils and additives can be made available to blending operations.

Group III prices are still suspended.

Netbacks for Group III base oils ex Al Ruwais, Sitra and Ras Laffan are suspended for the time being.

Africa

A very large cargo of Group II base oils has recently loaded out of U.S. Gulf Coast for receivers in Durban. Part of the cargo will discharge in that port, before the vessel then proceeds to the West Coast of India to discharge the balance. The cargo is from a major supplier for Group II base oils and loaded out of Pascagoula, Louisiana.

Another large composite base oil cargo has loaded or will in the next few days out of Rotterdam and Fawley, U.K., for a major, supplying distributors and affiliated companies in South Africa. The vessel will discharge in Durban during the second half June or early July.

There is very little new reporting to be gleaned from the West African market. The supply to Ghana, Guinea and Cote d’Ivoire is proceeding, but no new activity has been reported from Nigeria.

It is likely that no more cargoes will be supplied into Nigeria for some time as receivers there face purchasing base oils at three times the prices paid for the last to cargoes to arrive. Secondly, trading in Nigeria has become more and more risky, and would now involve large financial exposure to unsecured debt.

Dollar exposure, the constant risk of buyers back trading (re-negotiating the price after the cargo is loaded and on the water or even after discharge). No demurrage payments, the list is endless, traders are asking why would they do any business in Nigeria right now. The third reason is that there are no large availabilities of Group I base oils either in the U.S. or Europe, or anywhere else for that matter.

There is rumor that if no base oil cargoes arrive into Apapa port in Lagos, then the Nigerian government or Nigerian National or Nigerian National Petroleum Co. may get involved. To what extent, and how this might happen is completely unknown.

For those sellers still collecting funds from their last cargoes, the Nigerian naira exchange rate was NGN 1,372 to the dollar, as of Monday. No new offers have been made, nor do any appear to be under practical negotiation.

Cargoes that arrived into Apapa, were sold at prices valid prior to the Iranian war. Levels were around the following numbers.

Group I
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.