The past week saw a ramp up of strikes and counterstrikes between the United States and Iran, primarily directed toward the opening of the Strait of Hormuz. Now U.S. forces have focused on more general infrastructure targets within Iran, whilst Iranian strikes have hit U.S. bases in Jordan, Kuwait and Bahrain, resulting in three U.S. deaths and another person missing.
Washington has stepped up attacks on Iran in retribution for the deaths over last weekend, and will continue to ramp up strikes over the next few nights.
There are conflicting reports coming out on the latest Hormuz situation, with Iran declaring that no vessels will transit the channel, whilst U.S. bulletins are stating that traffic is able to freely move through Hormuz. U.S. forces have reintroduced the blockade on Iranian ports and shipping, restricting that country’s ability to export crude and petroleum products.
A further development has been announced today ( Monday ), where the Houthis, the Iranian proxy based in Yemen, have closed the Bab-al-Mandeb Strait in the southern Red Sea to commercial traffic. This will principally affect Saudi crude cargoes loading out of Yanbu and sailing to receivers in China, Korea and Japan. This will also affect base oil cargoes which are loading out of Yanbu and Jeddah for points south and east.
The focal point of this exercise is to thwart Saudi cargoes, having been loaded following transfer of crude and products through the East-West pipeline connecting Dammam with Yanbu, thus avoiding the Hormuz problem. There is an ongoing spat between Saudi Arabia and the Houthis in Yemen, which may come to a head now with this latest development.
The Bab-al-Mandeb is a similar choke point to Hormuz and will restrict Saudi Arabian cargoes. Saudi forces will will no doubt take action against the Houthis positions in Yemen to force a lifting of this closure.
U.S. and Israeli forces may also be involved in action against the Houthis, and with this effectively limiting Suez transits, Egypt may also bring political and military pressures to bear on the Yemeni based Iranian proxy. The loss of Suez revenue would be of great significance to Cairo and the overall economy of Egypt.
Cargoes of base oils and other petroleum products moving from Europe and U.S. to AsiaPac destinations, and similarly, cargoes moving from sources such as Korea and Indonesia, are already routing around the Cape of Good Hope, although some vessels carrying base oils to receivers in Turkey have transited, or will be trying to move through the strait.
The implications for marine traffic are significant, and could affect trading routes with associated economic and logistical problems.
The Russian illegal invasion of Ukraine has seen an uptick in drone strikes on Kyiv, with a number of civilians being killed. Kyiv has attacked a number of Russian refineries, storage terminals and transport links with long-range drones, causing damage to refining and production of petroleum products. This action has, in turn, resulted in shortages and allocations being applied to Russians across the country.
There is increasing pressure being exerted on the Kremlin and Putin in particular, with the resultant, almost desperate escalation of strikes against Ukraine.
The largest refinery in Russia at Omsk, where Gazprom produce the full range of products, has been severely damaged, and from reports, repairs may take months if not years, to restore production at this facility. These are major setbacks to the Russian domestic markets which have been reported importing products to cover shortfalls caused by refinery damage.
Refinery spares and parts are not easy to find with China and North Korea being sources tapped for these items, but many are specifically made or manufactured and may take months before these spares can be made available and then installed.
The tables may be turning on Putin, and with further weaponry support from U.S. and Europe, Ukraine is starting to exert real pressure on the Russian military machine, with Crimea now effectively having been cut off, with loss of power and everyday items required for the population. One comment heard last week, was when a question was asked why the Kerch bridge had not been obliterated, the answer was that Ukraine wanted to keep it open so that Russian Crimean residents could flee back to Russia and not return.
The two wars continue to have huge effects on base oil supply chains and trade patterns, with blending operations in Ukraine and throughout the Middle East endeavoring to provide finished lubricants for military and civilian resources which remain crucial to the functioning of the various regions. Without lubrication, nothing moves.
Crude and Gas Oil Prices
With the escalation in the conflicts in both regions, crude oil is firming on the back of recent strikes. In Europe where there is a significant shortfall in diesel and jet fuel, a number of refineries have moved away from base oil production again, optimising distillate yields, particularly during the busy driving season which is now fully underway.
Gas oil prices have exceeded $1,200 per metric ton this week, and may be expected to move higher, with rising demand amid a shortage of incoming cargoes from Middle East sources.
Neither the U.S. nor Iran appear to want to de-escalate the situation in the Gulf, and with renewed attacks on civilian infrastructure in Gulf Cooperation Council states, the likelihood of peace negotiations taking place look bleak.
The key remains the Strait of Hormuz, and as long as Iran purport to have control of this channel, owners of vessels have instructed their masters to avoid taking chances on transiting the strait, hence the impasse continues, with the U.S. navy blockading Iranian crude cargoes from moving out of the Gulf.
European gas oil values have now climbed more than $300/t in the past month.
Dated deliveries of Brent crude: $88.40/barrel, September front month
West Texas Intermediate: $82.75/barrel, August front month
European low-sulfur gas oil: $1,194/t, August front month
These prices were obtained from London ICE trading late Monday, July 20.
Europe
API Group I base oil availabilities have started to decline with many refiners prioritising the production of distillates, sacrificing base oils. Those approached during last week, commented that they forecast that base oil offtake would be extremely low between now and the beginning of September, hence it was decided to optimize diesel and jet fuel production to meet rising demand for both these products.
Base oil prices do not appear to have firmed on the back of rising crude and feedstock values, perhaps partly due to a lack of demand, with many blenders having full tanks, having purchased whatever quantities were around early in the Iran war, but having paid high prices for these stocks in tank.
Blenders deemed it necessary to buy quantities available to protect their operations should the war escalate prices further, limiting availabilities.
Base oil prices have been slower to adjust lower over the past month, and now with rising feedstock costs it may be that prices will remain around current levels. Demand is the key to what happens next in the European Group I market, and with the holiday season now underway, there is no impetus for buyers look for more product, perhaps hoping that September will bring lower numbers.
Buyers of Group I base stocks are holding back, hopeful that prices will fall across the summer period, when typically demand disappears until September. Blenders contacted confirmed that, they could wait until September before replenishing inventories, when they believe, prices will be lower than current numbers. Some say that irrespective of what happens to crude and feedstock prices, base oils levels will have to adjust lower. September will tell whether this outlook is ultimately confirmed.
The export market remains missing with the European Group I market importing cargoes from sources such as Saudi Arabia.
One major continues to send large cargoes to group companies in Singapore and South Africa, and also to contracted buyers in West Africa. These relatively large cargoes have been described as European exports in other base oil reports, although the practise is really about rebalancing global supplies. Singapore remains a major receiver of Group I and Group II quantities from Netherlands
Prices are raised slightly, with some sellers adjusting levels to reflect crude and feedstock increases.
Group l
European exports, FOB basis
No current market
Northwestern Europe, FCA Antwerp-Rotterdam-Amsterdam
SN150: $2,025/t-$2,070/t
SN500: $2,120/t-$2,175/t
Bright stock 150: $2,445/t-$2,500/t
Eastern Europe, FCA
SN150: $2,010/t-$2,045/t
SN500: $2,150/t-$2,185/t
Bright stock 150: $2,395/t-$2,485/t
Mediterranean prices, FCA Spain, Greece, Italy
SN150: $2,075/t
SN600/500: $2,190/t
Bright stock: $2,450/t
Pan-European, FOB/FCA
SN150: €1,875/t-€1,920/t
SN500/600: €2,050/t-€2,160/t
Bright stock 150: €2,275/t-€2,325/t
Pan-European prices are assessed on an aggregate basis using 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 $1.14131 Monday.
European Group II base oil prices are steady but with a hint of upward drift with buyers not looking to purchase any large quantities prior to the summer slowdown. Major suppliers maintain their high “posted” price levels, but with few purchases.
Crude and feedstock prices rose during last week, and there may be pressure on producers to raise Group II prices, but the timing is not right at this moment, and sellers may pause and wait to see how the markets pan out over the next few weeks.
Rhine water levels are “critical,” with a number of barge operators suspending deliveries to certain locations. All European waterways have now announced draft restrictions, with more deliveries being made using trucks rather than barges which are being severely limited by draft levels.
Buyers are still complaining that prices should be brought into line with an acceptable premium over diesel, but with diesel prices rising across Europe, the price levels remain at around $2,575/t for 150 neutral and $2,630/t for 600N, on the basis of FCA sales Antwerp-Rotterdam-Amsterdam.
Group II base oils are being imported from Saudi Arabia with cargoes arriving from Yanbu.
Prices are unchanged this week at around €2,285/t-€2,365/t for 100N and 150N grades and €2,395/t-€2,470/t for 600N.
Group II, FCA basis
110N: €2,325/t-€2,400/t
150N: €2,325- €2,410/t
220N: €2,245/t-€2,285/t
600N: €2,410/t-€2,500/t
These values apply to a wide range of Group II base oils that may be sourced from within Europe or imported from the U.S., the Red Sea and Asia-Pacific.
The day following Trump issuing an edict that all vessels will be subject to a “20% of cargo value” toll to transit the Strait of Hormuz, this announcement was withdrawn. The strait remains practically closed with few vessels willing to risk hull and crew by sailing through what are very dangerous waters.
Trump has reinstated the blockade on all Iranian cargoes leaving the Gulf, although how successful this operation actually is, becomes open to questions.
Group III cargoes to load from Al Ruwais and sail through Hormuz is impossible. The current situation is too volatile for traders and vessel owners to engage in any movements from the Middle East Gulf. Vessel owners, if it were possible to find any prepared to risk the transit, are demanding multiple rates, insurance cover by charterers, and demurrage if the vessel becomes stranded. These conditions are not feasible to consider.
The report of a vessel being chartered to lift a cargo for distributors in U.S. has been ridiculed. This was completely false information which was published in another base il report. Fake news, as some would say.
Group III base oils will not be arriving into Europe from Sitra in Bahrain or from Ras Laffan in Qatar, due to Iranian missile damage. Reports are that one of the two base oil trains producing gas-to-liquids Group III+ grades is functioning, but the same criteria apply, i.e. finding an approved vessel, sailing into and out of the Middle East Gulf, and paying through the nose for freight and insurances just does not compute.
There has been another report that a “large” cargo arrived into Singapore from a Qatari port, loaded with Group III grades. This event was supposed to have occurred within the last few days. Unless this vessel had loaded prior to the Iran war start, and the vessel has been at sea for around 122 days, this is impossible. Another red herring story, being published by reports which are destroying their reputation.
European buyers are vainly searching for alternative sources of Group III base oils, but established suppliers maintaining stocks of Group III base oils, have their own set of customers.
One cargo from Indonesia is arriving into Antwerp-Rotterdam-Amsterdam later this week, and there are reports that another cargo has loaded and is en route via South Africa and thereafter will sail onwards to discharge in northwestern Europe. It is not clear if the vessel is discharging part-cargo in South Africa, and the size of the cargo and vessel remain unknown. The vessel is giving an estimated date of arrival in Antwerp-Rotterdam-Amsterdam of July 12.
Group III cargoes continue to load from Cartagena in Spain, but quantities allocated to the European market do not go near to covering the shortfall caused by lack of supplies from Middle East Gulf. A vessel loaded around 15 days ago and will arrive into Antwerp later this week.
A smaller cargo also loading from Cartagena is bound for Italian receivers, but this is a much smaller parcel, considered to be around 3,000 tons in total.
Group III prices in respect of partly-approved material are unchanged.
The remnants of the last cargo loaded out of Sitra are being sold to regular and contracted buyers, but one trader is complaining that an allocation of only three loads will be dispensed for resale.
Prices for all Group III cuts and for oils with full and partial slates of finished lubricant approvals have gravitated to the same general level.
Demand for rerefined Group III is high, with one major blender tying up a large offtake contract with a rerefiner, linking prices to diesel. With diesel prices having dipped to $876/t four weeks ago, this supply would have been very much in the buyer’s favor, but diesel prices have rallyied to around $1,200/t, so perhaps the supplier made the right decision.
Group III
Partly approved, FCA Antwerp-Rotterdam-Amsterdam
4 cSt: €3,395/t-€3,425/t
6 cSt: €3,395/t-€3,430/t
8 cSt: €3,250/t-€3,295/t
Fully approved, FCA Antwerp-Rotterdam-Amsterdam, Spain
4 cSt: €3,395/t-€3,445/t
6 cSt: €3,380/t-€3,420/t
8 cSt: €3,425/t-€3,460/t
When sold on a delivered basis, all the above products will be subject to transportation charges, added to the prices above.
Rerefined Group III, FCA Germany
4 cSt: €3,120/t
5 cSt: €3,125/t
6 cSt: €3,125/t
Baltic Sea
If blenders within Russia can locate base oils, then they are probably in a privileged position. The majors within Russia apparently have little or no stocks of Group I base oils and are looking to import from wherever barrels become available.
Prices have gone through the roof, with less or no availabilities from refineries which have been targeted and hit by Ukrainian drones. The latest is the Gazprom refinery at Omsk, where massive damage has been caused by Ukrainian long range drones.
Rationing and shortages are being reported in a number of regions. Ukraine has the capability of drones with a range of up to 2,500 miles. This means that refineries and storage terminals deep within Siberia can be targeted, with supplies of fuels and base oils disrupted.
News received from sources in Belarus confirmed that Russian is importing fuels and base oils from Kazak sources , and is all looking to China and North Korea for additional supplies. All exports of fuels and base oils have been banned, with any and all available material being allocated into domestic markets. Lukoil, Rosneft and Bashneft production has also have been affected by strikes at Volgograd, Novokuybyshevsk and Ufa refineries respectively.
Rumors heard around the market were suggesting that trains used to deliver base oils and other petroleum products from refineries to shore terminals were being targeted by Ukrainian drones. Shore terminals such as those in Crimea are being hit with relentless attacks from Ukraine.
Sea drones are being used by Ukraine to disable ships in the shadow fleet including vessels used to transport base oils.
Black Sea & Turkey
The cargo loaded out of Ulsan, South Korea, for receivers in Turkey is on the high seas and this cargo will comprise of Group II base oils having been purchased from GSC. The vessel appears to have transited the Bab-al-Mandeb Strait successfully without Houthi interventions.
Two large Turkish blenders have confirmed that Group I base oils imported into Turkey from Iran remain suspended due to the war, and with no Russian base oils available for import, Turkish buyers have been relying on Turkmeni and Uzbek barrels for Group I imports.
It may only be question of time before Russian buyers emerge to lift from these same sources, as availabilities are very tight within Russia.
Rerefined base oils from Greece, Egypt and Saudi Arabia are being purchased in flexies, moving into Turkish ports such as Gebze, Turkey.
Turkish blenders are currently buying quantities of Group I base oils from AMOC and APC in Alexandria. Buyers have also contacted Sonatrach to enquire as to any available material which may be useful for the Turkish market. Base oils produced in Algeria do not hold REACH accreditation, so are limited in blends.
Group I, ex rack Izmir refinery
Spindle oil: Tl 82,393/t plus VAT Tl 18,507.90/t
SN150: Tl 81,212.00/t plus VAT Tl 18,271.70/t
SN500: Tl 82,947.00/t plus VAT Tl 18,618.70/t
Bright stock: Tl 99,301/t plus VAT Tl 21,889.50/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 no sale offers available for Group II base oils. In fact there are no offers out of Turkey for either Group I or Group II base stocks. All material is being retained in house for blending or perhaps local sales.
Group III grades appear to be totally removed and are missing from the Turkish market. This report has tried to investigate how blenders in Turkey are coping and adapting in light of this supply problem. It is unclear as to what steps blenders have adopted, with the considered thoughts that additive suppliers may have stepped in to aid formulations using greeter quantities of Group II.
Middle East
A vessel has loaded a cargo out of Yanbu for a two port discharge, with the first parcel being delivered to Jordanian receivers in Aqaba. This parcel is thought to be around 4,000 tons of Group I grades. Thereafter, it looks like the vessel will proceed to a European port to discharge the balance of the remaining cargo.
A cargo of Group II base oils has loaded for discharge in Durban. The vessel sailed from Yanbu around ten days ago, and will discharge in Durban around end July. it is assumed that the vessel navigated the Bab-al-Mandeb Strait without any problems prior to the Houthis closing the channel today. Smaller Group I cargoes are in planned for Port Sudan, Sudan; Mombasa, Kenya; and Alexandria. These may be loaded out of both Yanbu and Jeddah.
The situation in the Gulf is becoming more and more of a problem for Donald Trump, with no end in sight for hostilities to ceases. The 60 day period for negotiations has been discarded by Trump, with the U.S.is now targeting Iranian positions around the shoreline of Hormuz, trying to knock out any capabilities the IRGC have to attack any arbitrary vessel attempting to transit the Strait.
From reports it appears that a return to a full-scale war will not take place, with the U.S. reported to be short of missiles required to conduct such an offensive.
Strikes and counter strikes from each side are being traded on a nightly basis with no end in sight. Iran has targeted U.S. bases in Kuwait, Bahrain, Jordan, Oman, and Iraq.
What negotiations there are hinge around the Strait of Hormuz opening for all merchant marine vessels transiting the channel, and with Trump immediately cancelling his 20% toll for all vessels transiting the strait, to pay for protection and safe passage, stating that GCC states would be investing large sums into the U.S. economy, although details of these ‘investments’ are rather cloudy and indistinct. The U.S. blockade on all Iranian ports and vessels has been reinstated.
No further announcements on possible negotiations between GCC nations and Iran, without the U.S. being involved. These talks would seem unlikely with Iran targeting Kuwait and Jordan.
There are discussions going around between the GCC states regarding looking at ways to bypass the Strait of Hormuz. Currently there are two pipelines in operation, the first links the Habshan oilfield in Abu Dhabi with Fujairah in the Gulf of Oman. This pipeline had been handling around 1.8Mbd, but since Hormuz, has increases by around 66%. The problems are storage and loading facilities in Fujairah ports, but there could be scope to extend or develop this pipeline in the future.
The second is known as the “East-West’ pipeline and links the eastern part of Saudi Arabia around Dammam with the port and storage facilities at Yanbu on the Red Sea. Prior to the Iran war this pipeline handled around 770Kbd, but since the war, is now pumping around ten times that quantity.
This has allowed Saudi Arabia to continue exports of crude to receivers in China, South Korea and Japan, and to European refineries using Arab Light crude.
The problem facing this operation is the Houthi announcement today, closing the Bab-al-Mandeb Strait in the southern Red Sea. This action by the Iranian proxy, is seen as a move against Saudi Arabia, where there have been skirmished of late with Saudi strikes on Houthi targets in Sa’naa, where the airport runway was bombed to prevent an Iranian aircraft from landing, presumably carrying arms and munitions for the Houthis.
This action by the Houthis will affect base oil cargoes loading from Yanbu and Jeddah for points south and east, halting the export of Group I and Group II base oils to India, Singapore, and South Africa. One vary large cargo is programd to load for Fujairah and then Mumbai anchorage or JNPT. If this cargo has not passed the Strait then there could be problems.
Other alternatives are bing investigated but with countries such a Bahrain and Kuwait, working together on joint pipeline projects will take a lot of cooperation and political wrangling, but for the future pipelines may be the only way to eradicate the problem of Hormuz and control by Iran.
Supplies of Group II base oils which had been in storage in United Arab Emirates are exhausted and long gone, FCA prices have been suspended until replenishment cargoes can be discharged. Small quantities in trucks are arriving from Fujairah. Quantities are not being resold, and are only being delivered to approved blenders, being used to blend small quantities of finished lubricants for local markets, including contracts for the UAE military, police and civil government.
Group III base oils, FCA Hamriyah/Sharjah port, or delivered by RTW in the UAE and Oman, are seemingly available from Adnoc at Al Ruwais, but the quantities are very small, and with difficulties in finding other base oils to blend with Group III, in addition to accessing the additives required to meet formulations.
Reporting here of Group III FCA prices is suspended for the moment, as is netbacks for Group III base oils ex Al Ruwais, Sitra and Ras Laffan.
Africa
A cargo of around 3,000 tons of bright stock will be delivered into Alexandria under the EGPC contract. The cargo loaded out of Yanbu during last week.
A Group II cargo from Luberef has loaded and will discharge in Durban later this month, or early in August
A cargo of Group II base oils has loaded out of Ulsan in South Korea during second half June and has arrived in Durban and is currently discharging.
Another large Group II parcel ex the U.S. Gulf Coast will arrive into Durban port around mid August
A large composite base oil cargo loaded out of Rotterdam and Fawley, supplying distributors and affiliated companies in South Africa. The vessel should discharge in Durban during second half July.Another composite Group I cargo has a vessel enquiry for deliveries into Conakry, Abidjan and Tema.
The inquiry is for a cargo of between 10-11,000 tons in total with three Group I grades
The rainy season is underway in Nigeria. There is very little appetite for looking at new possible cargoes, and it may be after the end of the rainy season before traders even look at possibilities to offer material into this market. One offer was made for a cargo from the west coast of India comprising of Iranian and Russian Group I grades, but with too high a price tag this cargo did not work for receivers in Nigeria.
Traders have almost given up on this market, with some saying that they have more appealing regions in which to conduct business, and will not waste time and energy chasing shadows around the Nigerian market which is not prepared to pay the market rate.
There are huge risks, with buyers not prepared to open letters of credit to cover the value of highly priced cargoes, Hence no deal from reputable traders. The value of a large cargo would put at around $60 million, there is no way any right minded trader is going to offer extended, open credit with part or full payment in naira just to do business in Nigeria. .
Finance will be a major issue at the current price levels, with the dangers of back-trading and non-performance leading to traders demanding full coverage for any cargoes under a letter of credit. Nigeria is not a place to be doing business.
For those still collecting receipts for the last round of cargoes, the official exchange rate for the Nigerian naira was NGN 1,371 to the dollar Monday while the black market rate was NGN 1,412.
For the sake of historical value, the last cargoes which arrived into Apapa, sold at prices valid prior to the Iranian war. Levels were around the following numbers.
Group I, FCA Apapa port
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.