With the Iran war entering its sixth month, Donald Trump has again backed off from weekend attacks on Iran, which he had warned would be “fearsome,” but have now been put on hold. Washington announced that ship traffic through the Strait of Hormuz situation has been “normalized,” and that the last item on the U.S agenda was the question of nuclear disarmament, which still needs to be ratified.
Trump said negotiations were to restart Tuesday to address any remaining issues to be resolved prior to a peace initiative being put into place.
Iran’s foreign minister said, however, that no discussions between Tehran and U.S. were in process and that there were no plans for meetings or discussions on Tuesday.
Washington also said the decision to delay strikes on Iranian infrastructure targets was made after requests from United Arab Emirates, Saudi Arabia and Qatar representatives to hold back on the offensive.
Given the polar opposite accounts of where matters stand, it is difficult to predict what will transpire until after deadlines have passed.
There are also reports that Iran and Oman have been trying to broker a deal to grant safe passage to vessels transiting Hormuz, using waters close to the Omani exclave. Iran appears to be insisting that it will impose tolls on shipping using the strait, but clarity is required to judge the situation.
Meanwhile, in the war between Russia and Ukraine, the sides have exchanged deadly drone attacks, particularly in Kyiv and Lviv, Ukraine. Ukrainian forces have however, been targeting Crimean locations such as Sevastopol and Russian naval assets.
Ukraine also struck two Lukoil refineries during the past week, in Volgograd and Perm, causing significant damage to key parts of the facilities, such as catalytic crackers and distillation units, which cannot be easily or quickly repaired. Presumably production of base oils from both refineries will be adversely affected. This report is trying to access further details from sources in both locations, but this is difficult given news blackouts.
Ukraine is targeting Russian refineries across the federation, and the strategy appears to be making an impact base on fuel shortages reported in many regions. If Ukraine gains access to Starlink its long-distance strikes may be honed further.
Base oil market across Europe, the Middle East and Africa are quiet as Europe is shifting fully into holiday mode. Most blending operations have either moved into slow-time operations or have elected to have maintenance performed during August when business is slow.
Many contacts and sources are unavailable and will only be back in the offices around the end August or beginning of September.
Even African regions have seen an exodus of people trying to escape the rainy season in sub-Saharan parts such as West Africa. In East and South Africa, many engaged in the base oil business have elected to holiday during the winter months, making leisure or business trips to Europe and the U.S.
Crude and Gas Oil Prices
Trump’s retreat from stepping up strikes on Iran relieved pressure on crude oil values. Prices collapsed Monday morning with dated deliveries of Brent crude sinking at one point showing below $82 per barrel. Prices later rebounded but remained significantly lower than closing Friday.
Markets remained poised awaiting news from Washington, still leaning on hope for an agreement to end the fighting. Gas oil prices remain stubbornly high, around $1,200 per metric ton, on increased demand and a tight market across Europe. Many refiners have once again prioritized distillate production over base oils, and this emphasis will continue through August and September, since most producers have reasonably high inventories of both Group I and Group II base oils, which will not be tapped until September at the earliest.
Dated deliveries of Brent: $83.70/bbl, October front month
West Texas Intermediate: $82.70/bbl, September front month
European low-sulfur gas oil: $1,193/t, August front month
These prices were obtained from London ICE trading late Monday, Aug. 3
Europe
Group l base oil markets have all but closed down for the month of August, with only a few enquiries for potential purchases, other than the odd truck load to tide overvoperations through the slow period.
A huge problem is reaching across Europe due to the low river conditions being reported in almost every country in inland Europe. Fortunately, this situation is happening during August, when markets are slow, but forecasts are that not much rainfall in expected during August, which could impinge on base oil deliveries going forward into September.
Base oil prices have not really moved in tandem with fuels, having instead weakened at the high ends of the price ranges, by dribs and drabs. Many blenders have gone on holiday sitting with full tanks, having purchased “insurance” quantities early in the Iran war.
Prior to the end of July, buyers of Group I base stocks held back, on a forecast that prices will fall during August, when typically demand disappears until September.
The export market remains a distant possibility from a European supply picture, and whilst Group I base oils cannot be described as short, additional cargoes are being imported into Europe from Saudi Arabia, and one cargo arrived during July from the U.S.
Prices are mostly maintained except for small adjustments to the highs.
Group I
European exports, FOB
No current market
Northwestern Europe, FCA basis Antwerp-Rotterdam-Amsterdam
SN 150: $2,025/t-$2,055/t
SN 500: $2,120/t-$2,150/t
Brightstock 150: $2,395/t-$2,450/t
Eastern Europe, FCA, valid for the first two weeks of August
SN85: $1,945/t
SN 150: $1,957/t
SN 350: $2,013/t
SN 500: $2,045/t-$2,055/t
Brightstock 150: $2,261/t
Mediterranean, FCA Spain, Greece, Italy
SN 150: $2,025/t
SN 600/500: $2,135/t
Bright stock: $2,420/t
Pan-European, FOB/FCA
SN150: €1,855/t-€1,900/t
SN500/600: €2,050/t€2,110/t
Brightstock 150: €2,270/t-€2,320/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. was $1.15058 Monday.
European Group II base oil prices were steady up until the end of July and do not appear to have changed moving into August. At the beginning of most months, or towards the end of a previous month, sellers will draft prices for the upcoming period. This does not appear to have taken place either last week, or early this week.
It is assumed that sellers are not expecting voluminous sales during August and so have been relaxed to let prices rollover.
The spread between base oil feedstock and crude oil remains a concern since feedstock prices remain high despite a drop in crude costs, and this may exert downward pressure on base oil values come September. Buyers still complain that prices should be brought into line with an acceptable premium over diesel, but with diesel prices remaining high across Europe, this argument may be lost.
River systems and canals across Europe report water levels at lowest ever seen. For example, the Danube is so low in Hungary that a nuclear power station has been taken off grid because levels for water used as coolant were too low. Barges are not moving other than in ports. Barge operators have suspended deliveries to nearly all locations until September when relief from rainfall is expected.
Prices are unchanged this week around €2,285/t-€2,365/t for 100 neutral and 150N grades and €2,395/t-€2,470/t for 600N.
Group II, FCA basis
110N: €2,325/t-€2,400t
150N: €2,325/t-€2,410/t
220N: €2,245/t-€2,285/t
600N: €2,410/t-€2,500t
Prices refer 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.
With the slowdown in August, it will be September before a real assessment of the European Group III situation make can be undertaken. The current situation in the Middle East Gulf remains too volatile for traders to engage in any cargo movements from the UAE. Vessel owners (if it were possible to find any prepared to risk the transit) are demanding multiple rates, war risk insurance cover paid by charterers and demurrage if the vessel becomes stranded. These conditions are not feasible to embark on trying to move material out of the Gulf.
A cargo from Indonesia arrived into Antwerp, with reports of another cargo loading and en route via South Africa, and thereafter sailing onwards to discharge in Antwerp. It is not clear if the vessel is discharging any 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 will not go cover the shortfall caused by lack of supplies from the gulf. Moreover, a scheduled temporary shutdown for maintenance is due to begin at the Cartagena later this month. The producer will have planned for this interruption by laying down large stocks in the Northwestern European hub in Antwerp to cover contracted supplies.
Interestingly, last week saw further weakening of Group III prices from the recent highs. Prices are still high, but with lower numbers filtering down the beginning of September will be an interesting period.
A number of sources have put forward a reason for some Group III to be lower. The rationale is that many buyers maxed out on quantities available at the start of the Iran war at prices that were climbing but had not reached the dizzy heights seen recently. These purchases, which in some cases are tying up capital, are being offered for sale at high margins but at levels below the recent highs. Hence lower numbers entering the equation.
Prices for Group III oils with partial slates of finished lubricant approvals are unchanged.
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 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
Majors within Russia, such as Lukoil, Gazprom and Rosneft, apparently have little or no stocks of Group I base oils and are looking to import from wherever barrels become available. Some sources have suggested that China is being researched to see if any base stocks can be made available for import into Russia.
Reported strikes on Perm and Volgograd refineries will further curtail availabilities from Lukoil.
Prices for available base oils have skyrocketed, and many Russian blending operations are unable to afford purchasing these base oils and additives.
Fuels rationing and shortages are reported in a number of oblasts, and if fuel is short then base oils will be in the same boat. Refineries and storage terminals deep within Siberia can now be targeted by Kyiv, with supplies of fuels and base oils destroyed or at least disrupted.
Russia is importing fuels and base oils from Kazakhstan and is looking to China and North Korea for supplies of gasoline, jet kerosene and diesel. All exports of fuels and base oils from Russia have been banned to reserve domestic production for domestic markets.
Rumors have suggested that train tracks are being targeted by Ukrainian drones. Shore terminals such as those in Crimea were hit last weekend by drone attacks.
Black Sea & Turkey
The cargo loaded out of Ulsan in South Korea has arrived into Gebze, Turkey. This cargo consisted of Group II base oils from GS Caltex. The vessel transited the Bab-al-Mandeb Strait successfully without Houthi interventions, but that would have been prior to the latest Houthi announcement of closing the channel.
Two large Turkish blenders have confirmed that importation of Group I base oils into Turkey from Iran remains suspended due to the war, and with no Russian base oils available, Turkish buyers have been relying on Turkmeni and Uzbek barrels for Group I imports.
Turkish blenders are also buying quantities of Group I base oils from AMOC and APC in Egypt. One buyer has contacted Sonatrach to inquire as to any available material which may be available for the Turkish market.
Base oils produced in Algeria do not carry REACH accreditation, so demand for them in Turkey for finished lubes to be exported is limited. It is believed, though, 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/t plus, VAT Tl 18,507/t
SN 150: Tl 81,212/t plus VAT Tl 18,271/t
SN 500: Tl 82,947/t plus VAT Tl 18,618.70/t
Bright stock: Tl 99,301/t plus VAT Tl 21,889/t
Sales incur a standard loading charge of Tl 10,146/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. There are no offers out of Turkey for either Group I or Group II base stocks. All material is being retained for in-house blending and local sales.
Group III base oils appear to have been totally removed from the Turkish market, so prices are suspended here.
Middle East
Troubles continue to build for Saudi vessels attempting to move any crude or products through the Bab-al-Mandeb Strait. Three ships have been turned around and headed back to Yanbu or Jeddah ports.
Two crude carriers successfully transited the strait last weekend, but it is not clear if any more vessels carrying base oils have made the voyage. There were 28 vessels (not necessarily Saudi cargoes) that transited the Bab-al- Mandeb Strait last Sunday, so some are making it through. This report is trying to talk to protection and indemnity insurance clubs to see what arrangements are in place for Saudi-flagged tonnage to make the transit.
A cargo of Group II base oils loaded for discharge in Durban, and the vessel has arrived in Durban and is believed to be discharging. The vessel navigated the Bab-al-Mandeb Strait without any problems prior to the Houthis announcing the closure of the channel.
Indian contacts have confirmed that Luberef has advised of “delays” for some vessels, but the company is not cancelling cargoes at this point.
Trump again cancelled strikes against Iranian infrastructure positions. Likewise, the Islamic Revolutionary Guard Corps stopped sending missiles into neighboring countries. Once again there is confusion as what will happen, with U.S. commentary insisting a meeting was scheduled for Tuesday whilst Iranian officials denied any negotiations were taking place between the two sides.
Discussions continue regarding ways to bypass the Strait of Hormuz. with emphasis this week on a new refinery to be built by a Texas oil baron. Where and how this refinery will help solve the problems are completely unknown, although Fujairah, UAE, has been mooted as a site.
Supplies of Group II base oils that had been in storage in the UAE prior to the start of the war are exhausted and long gone. FCA prices are therefore suspended until cargoes can be discharged. Small quantities in trucks are arriving from Fujairah but are not being resold, reserved for “approved” blenders making finished lubricants for local contracts, including the UAE military, police and civil government. Additives are being sourced and provided from containers unloaded in Fujairah.
Group III base oils, FCA Hamriyah/Sharjah port or delivered by RTW in UAE and Oman, are seemingly available from Adnoc at Al Ruwais, but the quantities are very small, and there are difficulties finding other base oils to blend with Group III. Group III prices in the UAE are suspended.
Netbacks for Group III base oils ex Al Ruwais, Sitra and Ras Laffan are likewise suspended for the time being.
Africa
A cargo of around 3,000 tons of bright stock is en route to Alexandria to supply 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 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, and more information will be sought from the vessel’s agent.
A Group I cargo will load out of Fawley, U.K., with around 11,000 tons of three Group I grades for deliveries into Conakry, Guinea; Abidjan, Cote d’Ivoire; and Tema, Ghana. Around 5,000 tons will be discharged in the latter port.
The rainy season is underway in Nigeria, and still there are no signs of buyers in Lagos looking to purchase cargoes from the usual traders involved in this trade. There are probably three or four mainline traders who get involved in this market, and additionally there are a couple of companies who traditionally sold Russian base oils onto the Nigerian market.
There is little appetite to look at new possible cargoes, and it may be some time before traders venture even to offer any available barrels into this market. Buyers have to realise that the market does not stay fixed, and with higher prices, risk assessments have to be made regarding finance and payments.
Traders have given up on Nigeria, saying that they have other regions in which to conduct business, and will not waste time and money with Nigerian buyers who are not prepared to accept traders’ terms and conditions.
There would be huge risks, with buyers not prepared, or unprepared to open L/Cs to cover the value of higher priced cargoes,The value of a large 18kt cargo would be around $60 million. No right minded trader is going to offer extended, open credit with part or full payment in naira just to place a cargo in Nigeria.
Finance is a major issue at current price levels, and coupled with the real possibility of back-trading or non-performance. Traders will demand full coverage for any cargoes under a letter of credit, issued by a local Nigerian bank and then confirmed by an acceptable prime European bank.
Base oil trading is a two-way transaction with buyers and sellers respecting each other in negotiations, and in final agreement. This often does not happen in Nigeria.
The official exchange rate for the Nigerian naira was NGN 1,358-1,368 Monday, while the black market rate was NGN 1412-1425.
For the sake of historical value, the last cargoes which arrived into Apapa, sold at prices valid prior to the Iranian war.
Group I, FCA Apapa
SN150: $885/t
SN500: $925/t
SN 900: $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.