Weekly EMEA Base Oil Price Report

There are also reports of the U.S. running short on defensive munitions for troops based in the Gulf, but this is denied, with the U.S. military stating that they are merely running out of targets to hit. Where the truth and the facts lie may be somewhere in the middle.

Iran has not declared that a ceasefire should be reinstated, and the Houthis, the Iranian proxy in Yemen, continue to attack Saudi Arabian targets, hitting the East-West pipeline near Yanbu and identifying various locations within Saudi Arabia to disturb, disrupt and destroy the export of crude and petroleum products from the Kingdom. In the southern Red Sea, Somali pirates are once again targeting merchant shipping. This is mentioned since there appears to be a tie-up between the Houthis and the resurrection of Somali activity, obviously, under the cloak of the IRGC in Tehran.

This effectively means that base any oil cargoes moving from Asia-Pacific sources to receivers in Europe and U.S. will have to detour around the Cape of Good Hope in South Africa, adding valuable time and cost to voyages. For example, API Group III cargoes on the water from South Korea bound for U.S. Gulf Coast, will be affected, and whilst the re-routing will not be disastrous, it certainly doesn’t help.

Group III cargoes from Indonesia headed for Northwestern Europe will have no option other than to accept the more southerly route, adding around ten days to the voyage. These cargoes are trying to cushion the effects of the lack of Group III supplies from Middle East Gulf sources, which are still at least largely cut off by constraints at the Strait of Hormuz.

Adnoc’s refinery in Al Ruwais, United Arab Emirates is undamaged and is able to produce Group III base stocks, but moving these stocks is nigh impossible, so distributors in Europe and the U.S. having issued force majeure statements, indicating that they cannot supply Group III grades from the UAE until further notice.

One of the strangest tales emerged last week concerning a large 30,000-ton cargo of Group III+ base oils that had loaded from the Shell-Qatar Energy gas-to-liquids facility in Ras Laffan, Qatar, before the war began Feb 28. The vessel, fully laden, was then unable to transit Hormuz after the strait was closed and remained stranded within the gulf for months.

At some point it anchored or berthed in Al Jubail, Saudi Arabia. Then during the first days after the June memorandum of understanding between Washington and Tehran, the vessel transited Hormuz with cargo, vessel and crew intact. The owner of the cargo has been scrambling around the U.S. and European markets to find base oils to replace the barrels now not being produced in Ras Laffan, so it was astonishing that this vessel sailed to Hong Kong to discharge part of its cargo, then made a call a Singapore into two refinery sites group owned by the charterer.

The latest reports from Hong Kong are that quantities of base oil from that vessel are now being sold on a spot basis in the local market at inflated prices. There may be very good practical, legal and logistical reasons behind the decision not to divert the vessel either to Europe or U.S., but these reasons remain an enigma.

The war in Ukraine against Russia’s invasion is now four and a half years old, but there are signs that Ukraine may be turning the screws on its adversary. Most Russian refineries have been targeted and struck by Ukrainian drones, causing significant cumulative damage to production. Catalytic conversion units have been specifically targeted showing both knowledge and skill in hitting these units.

Spares and replacements are not widely available, and some reliable sources in Russia have informed this report that orders for spares have been placed in China and India but that lead times in some cases are more than two years. Russia has banned all exports of petroleum products and is heard to be importing products such as gasoline, kerosine and diesel from China and North Korea.

Base oil blending plants have been coincidentally damaged, as have petroleum product storage facilities and pipelines. These facilities will take months if not a year to repair, and Russian oil companies such as Gazprom, Lukoil and Rosneft are having to give almost daily updates about production capabilities to the Kremlin. The strategy, obviously, is to cause Russia to crumble from within.

To crown the news this week, Kyiv announced Monday that it has struck and may have sunk an Iranian cargo vessel sailing from Astrakhan, Russia, to Angali, Iran, possibly carrying or having carried arms and munitions. The event is thought to demonstrate to Donald Trump the relationship between Russia and Iran.

Crude and Gas Oil Prices

The escalations in exchanges between U.S. and Iran has seen crude prices rise sharply. But more importantly the crack between crude and petroleum product prices has been at the highest ever seen. Even with crude subsiding Monday, after the cessation of strikes by both sides, the crack remains even higher, with product prices remaining relatively higher.

This a dangerous situation for the West, a scenario that could cause ignite inflation at a time when chinks of recovery may have been in sight.

Gas oil prices remained above $1,200 per metric ton this week, with rising demand amid a shortage of incoming cargoes from Middle East sources. Prices for crude and European low-sulfur gas oil did retreat from past-week highs above $100 per barrel (for dated deliveries of Brent crude) and $1,275, respectively. The key element still remains the Strait of Hormuz, and as long as Iran seems to exert control, vessel owners will not take chances on transitting the strait.

Dated deliveries of Brent: $88.68/bbl, September front month
West Texas Intermediate: $82.70/bbl, August front month
European low-sulfur gas oil: $1,223.00/t, August front month

These prices were obtained from London ICE trading late Monday, July 27.

Europe

On the one hand, Group I base oil availabilities have declined as refiners prioritize production of distillates, but at the same time demand has almost totally dropped off, perhaps reflecting the start of the holiday period in Europe. 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. Many blenders are sitting with full tanks, having purchased whatever quantities were around early in the Iran war.

Base oil prices have been slower to adjust lower over the past month, and now with high feedstock costs and basically no demand, prices may remain around current levels. Buyers of Group I base stocks held back, hoping that prices will fall across the summer period, when typically demand disappears until September. But the biggest factor is the war in the Middle East and whether normal shipping traffic through Hormuz resumes.

The export market remains missing, and the European Group I market is importing cargoes from sources such as Saudi Arabia.

One oil 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 practice is about rebalancing global supplies.

Group I prices in Europe are unchanged this week.

Group I
European exports, FOB
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, 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 $1.13731 Monday.

European Group II base oil prices are stable, and again much of the activity in this market has disappeared, with sellers and buyers meeting on the beach over the next few weeks. Suppliers maintain their high “posted” price levels, but very few purchases are happening.

The feedstock crack versus crude could complicate matters for suppliers; if feedstock prices remain high, and crude comes off, then it may be harder for producers and sellers to try to boost numbers come September.

Rhine water levels are so low that most barges are not moving other than in ports. Barge operators are suspending deliveries to nearly all locations until after September, hoping the situation will be helped by rainfall during the second half of August. The problem could be, however, that the rainfall is in the form of thunderstorms which could cause damage and disruption in other ways.

Buyers who are not gone on holiday continue to complain that prices should be brought into line with an acceptable premium over diesel, but with diesel prices rising across Europe, this argument is losing ground fast.

Group II base oils are now being imported from Saudi Arabia with cargoes arriving from Yanbu.

European Group II prices are unchanged this week.

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

For Group III cargoes to load from Al Ruwais and sail through Hormuz is impossible, so distributors in the U.S. and in Europe have issued force majeure notifications to their contracted customers.

The current situation in the Gulf is too volatile for traders 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.

There was reported “large” cargo arriving into Singapore from a Qatari port, loaded with Group III grades. This event was supposed to have occurred within the past few days. This cargo was proved to be true, having first discharged part of its cargo in Hong Kong and then Singapore. It loaded prior to Feb 28 but was stranded in the Gulf until the MOU between Trump and Tehran presented and opportunity to escape the gulf. The tale is related above.

One cargo from Indonesia has arrived into Antwerp, and there are reports of another having loaded and now being en route, destined first to South Africa and thereafter to discharge in Antwerp. It is not clear if the vessel is discharging part of its cargo in South Africa. The size of the cargo and vessel remain unknown.

Group III cargoes continue to load from Cartagena, Spain, but quantities allocated to the European market do not go near to covering the shortfall caused by lack of supplies from the Middle East Gulf. The other interruption this supplier may experience is the maintenance turnaround rapidly approaching for the refinery in Cartagena. The producer will have planned for this break, laying down large inventory in the Northwestern European hub in Antwerp to cover contracted supplies.

Interestingly, the past couple of weeks have seen Group III prices wavering and in many cases dropping from the recent highs. Prices are still deemed to be high, but with weaker numbers filtering down, the beginning of September will be an interesting period. Prices for Group III oils with partial slates of finished lubricant approvals are lower this week, while values for those with full slates are unchanged. Numbers for rerefined Group III are also unchanged on demand that remains high so far but is expected to drop in August.

Group III

Partly approved, FCA Antwerp-Rotterdam-Amsterdam, Northwestern Europe
4 cSt: €3,125/t-€3,160/t
6 cSt: €3,100/t-€3,125/t
8 cSt: €3,085/t-€3,000/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

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

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.

There are more reports tonight of Ukraine targeting Rostov-on Don port in Azov, with explosions and fires breaking out. Also strikes were aimed at a strategic national storage, “Rosrezerv”, which stores fuels and lubricants to be used in times of war or extreme emergency.

Prices for base oils have skyrocketed with many blending operations unable to afford to purchase the raw materials. One trusted source from within the Federation told this report that even if base oils were available, additives were exceptionally difficult to access.

Rationing and shortages are reported in a number of oblasts. 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.

Russia is importing fuels and base oils from Kazak sources , and is looking to China and North Korea for supplies of gasoline, jet zero and diesel. All exports of fuels and base oils from Russia have been banned, with any and all available material being allocated into domestic markets.

Lukoil, Rosneft and Bashneft production has been severely affected with strikes at Volgograd, Novokuybyshevsk and Ufa refineries.

It is now illegal for any Russian base oils to be exported.

Rumors heard were suggesting that trains, and the tracks these trains run on are being targeted by Ukrainian drones. Shore terminals such as those in Crimea are being hit with relentless attacks from Ukraine, such as the overnight strike on Rostov.

The news that Ukrainian drones can target vessels in the Caspian Sea brings the war to a whole new chapter, with the production of relatively low-cost drones spilling out from Ukrainian factories, which are carefully hidden from Russian eyes, the war may be turning.

Black Sea & Turkey

The cargo loaded out of Ulsan in South Korea for receivers in Turkey should be arriving any day soon, this cargo comprising of Group II base oils purchased from GS Caltex. 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 exceptionally tight within Russia.

Re-refined base oils from Greece, Egypt and Saudi Arabia are being purchased in flexies, moving into Turkish ports such as Gebze, Turkey.

Turkish blenders are 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 the blending of finished lubricants which are destined for export markets, although it is believed that these base stocks are being used locally within Turkey, and for export to regions such as Syria.

Group I, ex rack Izmir refinery
Spindle oil: Tl 82,393.00/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 99,301.00/t, plus VAT Tl 21,889.50/t

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

Traders in Turkey have advised that no sale offers will be 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 and 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 remains unclear as to exactly what steps blenders have adopted, with the considered thoughts that additive suppliers may have stepped in to aid formulations using greater quantities of Group II.

Group III

Partly approved
Tatneft 4 cSt, FCA: No exports, therefore no availabilities

Fully approved
From Cartagena, Spain: Currently not being supplied into Gemlik

Middle East

The troubles have started for Saudi vessels attempting to move through the Bab-al-Mandeb Strait with the Houthis claiming to have damaged two vessels, one a product carrier, and the others crude carriers. Another three ships have been turned around and presumably have headed back to Yanbu or Jeddah ports.

A cargo of Group II base oils has loaded for discharge in Durban. The vessel sailed from Yanbu during first half July, and will discharge in Durban around end July. it is assumed that the vessel had navigated the Bab-al-Mandeb Strait without any problems prior to the Houthis closing the channel last week.

Smaller Group I cargoes are in planned for Port Sudan and Alexandria, but a cargo to Mombasa is now in doubt, as are alll the major large cargoes of Group II base lis primed for the Indian market. This report talked with Indian contacts who have confirmed that Luberef has advised of “delays” with some vessels that have already loaded. These ships are seeking Saudi government guidance and perhaps some form of escort to move through the blockade.

The situation in the Gulf took another turn over the weekend, with Trump suspending strikes against Iranian positions around Hormuz. Likewise the IRGC stopped sending missiles into neighboring territories. Iran has declared that the U.S. is in trouble, that Trump has very few options left and the war will end when it decides. Negotiations to secure free passage for shipping through the Strait of Hormuz seem to be making no progress as Iran still says it plans to charge a toll for all vessels. Also unknown is whether the U.S. blockade of Iranian ports and vessels continues.

Gulf Cooperation Council states continue to discuss possible ways to bypass the strait. The emphasis this week involved construction of two huge container ports, one in Fujairah and the other in an Omani port. Obstacles are twofold. First, construction would be very costly and take time. Second, once containers were unloaded in the ports, how would contents be dispersed to centers around the Gulf?

Until the war, container traffic being unloaded in Fujairah was re-loaded onto smaller feeder vessels that then entered the gulf and delivered to various receiving points, retrieving containers that have been filled for export. As long as such practices are off the table, all containers destined for UAE centers would have to be trucked or delivered by train. Thereafter, other forms of transportation could be possible by sea.

This report covered the two pipelines last week, but even as this report is being written, Houthis are attacking the East-West pipeline, which crosses Saudi Arabia to Yanbu.

Supplies of Group II base oils that had been in storage in the UAE are exhausted and long gone, so reporting here of Group III prices for the region is suspended until new cargoes can be discharged. Small quantities in trucks are arriving from Fujairah, but they are not being resold. Instead they are being delivered to “approved” blenders to make 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. In addition, it is difficult to find other base oils with which to blend Group III or to access required chemical additives.

Group III prices in the UAE are also suspended, as are 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.

A Group II cargo from Luberef has loaded and will discharge in Durban later this month or early in August. This may be the last for some time until the Houthi situation can be sorted out.

A cargo of Group II base oils has loaded out of Ulsan, South Korea, during the second half of June and has arrived in Durban. 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 the second half of July. More information will be sought from the vessel’s agent.

A Group I cargo has had a vessel fixed for deliveries into Conakry, Guinea; Abidjan, Cote d’Ivoire, and Tema, Ghana. The inquiry is for a cargo of 10,000-11,000 tons of three Group I grades. The mainstay of the cargo is the supply under the Ghana tender for the supply of 5,000 tons of three Group I grades, SN150, SN500 and bright stock 150.

The rainy season is underway in Nigeria. There remains very little appetite for looking at new possible cargoes, and it may be some time before traders venture even to offer any available barrels into this market.

The Indian offer consisting of Iranian and Russian Group I grades carried too high a price and poor specifications.

Traders have given up on the Nigerian market, with some saying that they have other regions in which to conduct business. Doing business in Nigeria would entail huge risks, such as buyers not being prepared to open letters of credit to cover the increased price of cargoes, The value of a large cargo would be put at around $60 million. No 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 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.

Base oil trading is a two-way transaction with buyers and sellers respecting each other in negotiations and in the final agreement. This does not happen in Nigeria with some of the players.

For those traders still collecting receipts, the official exchange rate for the Nigerian naira was NGN 1,371 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
SN150: $885/t
SN500: $925/t
SN900: $1,035/t

The next round of prices will be interesting to say the least.

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.