In the Middle East, still no clear progress toward the reopening of the Strait of Hormuz. Statements continue that Iran is negotiating a deal with Oman to do just that, but Iran again has said that reopening would hinge on the U.S. agreeing to several demands by Iran – demands that Washington has repeatedly rejected.
U.S. President Donald Trump, meanwhile has threatened to turn on Oman if it impedes the reopening of the strait on his terms, stating the U.S. will “bomb the hell out of” the small nation. Yet another less-than-veiled threat from Trump.
From comments heard locally in the United Arab Emirates and elsewhere, it would appear that Tehran has kept the war on its terms and that it is not close to capitulating to Washington, even with the approach of mid-term elections in the U.S. The Iranian economy is in tatters, with inflation up more than 50% since the start of the war and shortages of everyday goods including medicines and foodstuffs. Of course these hardships are only experienced by ordinary Iranians, while the elite theocracy and high-ranking members of the Islamic Revolutionary Guard Corps remain insulated.
Fuel rationing has been introduced nationally after U.S. and Israeli airstrikes early in the war caused major damage to refining and distribution assets. The blockade of Iranian ports continues, reducing exports of crude oil and petroleum products to marginally more than zero. This appears to be the new U.S. tactic, to impose an economic stranglehold on the Iranian economy, rather than bombing and using weapons that may have been seriously depleted by the initial attacks.
Perhaps this course of action has an intention of creating civil strife and the eventual fall of the government. The resistance however, is strong, with the governing classes firmly ensconced in various protected bunkers around the country. In the days and weeks to come, only time will tell if this strategy will work.
Meanwhile Trump’s envoy has been negotiating with the new Hamas leader in Egypt, who appears to accept the Trump 15-point plan for peace in Gaza. Jared Kushner was headed to meet with Israeli Prime Minister Benjamin Netanyahu to discuss the disarmament of Hamas and Israel’s withdrawal from Gaza. Getting both events to happen simultaneously, still seems improbable, with Trump’s envoy perhaps wasting time and breath in attempting to merge the two critical trams of the agreement.
Russia’s war against Ukraine continues four and a half years after it began and 20 months after Trump returned to office promising to end that conflict within a day. Ukraine has been successful in hitting refineries and petroleum product storage complexes, in addition to disrupting civilian life by targeting warehouse belonging to “Wildberries,” the equivalent of Amazon in Russia. These attacks are bringing the war home to the ordinary Russians, who up until now have been blinded and deafened by the Kremlin propaganda machine.
Reports today indicate renewed attacks on Yaroslavl and Volgagrad refineries, causing more destruction to the Russian energy industry, which is reeling from strikes across the country. The country has banned exports of all petroleum products, and the populace is coping with fuel rationing and shortages of raw materials, including base oils to produce finished lubricants.
Against the background of these two conflicts, the European, Middle Eastern and African base oil scene has had to adapt and transform itself in order to survive. Some situations have proved more difficult than others, but a superb example comes from a large cargo of premium base oils now heading from Singapore towards the UAE. This will be the first sizeable cargo to arrive into the UAE since February. It will be discharged in Fujairah and then be transported by truck and freight train to receivers in Dubai and Abu Dhabi to help meet the rising demand for finished lubricants in the UAE.
Europe is facing a shortage of API Group III base stocks, due to the loss of supplies from sources within the Middle East Gulf, and enterprising efforts have been made to obtain quantities of these grades from sources around the globe. Cargoes from Indonesia, Malaysia, South Korea and India have all been arranged to try to fill the void created by the Iran war.
Extra Group III cargoes from Cartagena, Spain, have been rallying to supply large quantities into a supply hub in Antwerp, trying to cover any deficit. However, this refinery is about to go into turnaround in September, having delayed and postponed maintenance from earlier in the year. The temporary shutdown’s impact on the Group III supply scene in Northwestern Europe will play out over the coming weeks.
Another interesting effect of the wars in Europe and the Middle East is the opening up of new arbitrage opportunities. For example, Russian exports of Group I base oils have ceased due to domestic demand. Countries such as Turkey and India had Russian base oils as part of their market, and have had to change and adapt. Turkey turned for a time to Iranian Group I supplies that were imported by truck across Iraq, but now these too have been halted by the Iran war. Turkish buyers have scoured the markets for new sources and have emerged with South Korea and Taiwan, and now there is talk of tapping Indian cargoes.
European Group I availabilities remain snug due to many refineries shifting towards distillate production rather than producing feedstock for base oils. When one refiner adopts this type of move the effect is marginal, but when six or seven producers make the switch it can alter the demand-supply balance. Hence, there have been few availabilities from Europe to form export cargoes to receivers in Turkey or West and North Africa.
Globally, there have been other examples, for instance in the U.S. where base oils have become tighter, with subtle moves to produce more Group III grades, and being in the throes of a hurricane season, exports to South America have dipped. Enter Asia-Pacific, sources such as India, South Korea and Singapore, where traders and producers are now moving cargoes of Group l, Group II and Group III cargoes to South American receivers.
Base oil markets are continually in a state of flux, but recent events have escalated the pace of changes to trading patterns and cargo flows.
Crude and Gas Oil Prices
Crude oil prices appear to have stabilized, and whilst there is still reaction and counter reactions to news from Iran, the U.S. and Israel, the movements are less pronounced. The distillate crack remains a concern, with diesel and jet fuel remaining tight in major markets such as Europe. European gas oil crested above $1,300 per metric tons but fell back below that benchmark by Monday.
Dated deliveries of Brent: $88.60/bbl, October front month
West Texas Intermediate: $82.30/bbl, September front month
European low-sulfur gas oil: $1284/t, September front month
These prices were obtained from London ICE trading late Monday, Aug. 17.
Europe
There is very little activity in the European Group I base oil market, with most players still on holiday for another couple of weeks. Only a few specific inquiries are heard around, as some buyers who generally rely on barge deliveries are checking out alternative methods. Trucks are in short supply now, with holidays affecting loading and drivers, and whilst many drivers will return early in September, trucks cannot easily substitute for larger quantities normally delivered by barge.
Drought-stricken Europe is experiencing exceptionally low water levels in rivers and canals across much of the continent. This situation is happening during August, when base oil markets are slower, but forecasts are that low rainfall is expected during the remainder of August, which could affect base oil deliveries in September and October.
Experts have said that for the lower reaches of some major rivers such as the Rhine to achieve satisfactory draft levels, could take between four to six weeks from the first heavy significant rainfall. Problems could last for a much more prolonged period than ever seen before, altering the economics and logistics of base oil deliveries over the coming months.
Prior to the end of July, buyers of Group I base stocks held back on purchases, banking on a forecast that prices would fall during August. This seems a remote possibility now, with more to come from the Ayatollah and Trump show.
The European export market does not exist and seems unlikely to emerge again as long as refiners concentrate on producing more fuels rather than base oils.
Prices for all grades are unchanged this week since very little activity is taking place.
Group I
European exports, FOB
No current market
Northwestern Europe, FCA Antwerp-Rotterdam-Amsterdam
SN150: $2,025/t-$2,055/t
SN500: $2,120/t-$2,150/t
Bright stock 150: $2,395/t-$2,450/t
Eastern Europe, FCA
SN85: $1,945/t
SN150: $1,957/t
SN350: $2,013/t
SN500: $2,045/t-$2,055/t
Bright stock 150: $2,261/t
Mediterranean prices, FCA Spain, Greece, Italy
SN150: $2,025/t
SN600/500: $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
Bright stock 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. dollar was $1.15855 Monday.
European Group II base oil markets are extremely quiet with the only activity seeing a few buyers booking in requirements for September. Prices have not yet been announced for September, but most buyers are assuming that with crude and diesel prices hovering around current levels for more than two weeks now, producers will not see any reasons to look to escalate numbers.
Barges traffic is not moving other than within ports and seawater fed canals. Some barge operators have suspended deliveries until September, or perhaps beyond. Some buyers still complain that prices should be brought into line with an acceptable premium over diesel. Prices are maintained with low levels of activity with levels around €2,285/t-€2,365/t in respect of the 100N and 150N grades, with 600N between €2,395/t-€2,470/t.
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
Prices refer to a wide range of Group II base oils sourced from within Europe or imported from the U.S., the Red Sea and Asia-Pacific.
Group III supply within Europe is making a go of whatever supplies are available and from wherever. A problem could be looming however, since no one is yet aware of the pricing attached to supplies coming in from Malaysia and Indonesia. The freight will be high, since it is imagined that vessels will not try to transit the Bab-al-Mandeb Strait in the southern Red Sea where Houthi rebels may attack said which are not “approved” by Tehran.
Cargoes from Asia-Pacific will not reach Europe until September at the earliest, and with a number of turnarounds about to start, supply issues may be coming down the line. With Hormuz still effectively closed, the situation in the Gulf remains too volatile for traders to even consider any cargo movements from United Arab Emirates. Vessel owners (if it were possible to find any prepared to risk the transit) are demanding multiple freight rates, war risk insurance cover paid by charterers, and prompt demurrage payments if a vessel became stranded. These conditions are not possible to work with.
A cargo from Indonesia arrived into Antwerp, with further reports of another cargo loaded and now en route via South Africa. The vessel will ultimately sail to Antwerp for final discharge.
Perhaps a final Group III cargo is loading on a prompt basis from Cartagena in Spain, but the delayed turnaround will start at the beginning of September. The producer has planned for this interruption by laying down large stocks in the northwestern European hub in Antwerp.
Prices for Group III oils with full and partial slates of finished lubricant approvals are unchanged, at least until the latest arrivals from Asia are assessed. Prices for partly approved grades are almost on a par with fully approved grades.
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 and 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
Russia continues to show vulnerability with Ukrainian drone strikes on Yaroslavl and Volgagrad refineries over the weekend. Volgagrad has been hit a number times, and it would be interesting to see if Lukoil are still able to extract base oils from this refinery.
Russia always retaliates with punitive drone strikes on major Ukrainian cities, targeting civilian accommodation and ad hoc sites which Russia says: “are being used for covert military use.”
Prices for available base oils and finished lubricants have ballooned with some blending operations now unable to afford to purchase base oils and additives. Packaging is in short supply with problems obtaining drums and smaller containers. There are reports of cardboard being in short supply with cartons unavailable for packing.
Russia is importing fuel from Kazakhstan and North Korea and is looking to China for supplies of gasoline, jet kero and diesel. All exports of fuels and base oils from Russia have been banned by government decree, with all available material being allocated to domestic markets.
It is now illegal for any Russian base oils to be exported.
Black Sea & Turkey
A Group II cargo loaded out of Ulsan in South Korea has discharged in Gebze, Turkey,. This cargo comprised of Group II base oils from GS Caltex. This is the second Group II cargo to enter Turkey following the parcel which arrived in June from Taiwan.
Turkish blenders confirmed a few weeks back that Group I base oils which were being imported into Turkey from Iran remain missing, with comments received saying that it may not be possible to restart this trade until some time next year. Quantities of Group I base oils were being trucked through Iraq, and across the Turkish border.
Turkish buyers have been relying on Turkmeni and Uzbek barrels for Group I imports in addition to Group I grades from Luberef ex Yanbu and from the two Egyptian producers in Alexandria.
The Turkish market is extremely quiet, with a number of blenders closed for one month, with operations suspended until first week of September.
There have been no updates or news from Izmir. Tupras’ last prices ex rack Izmir refinery are shown here:
Group I, ex rack Izmir
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 resale 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 removed and missing from the Turkish market, and with the Tatneft refinery being hit by Ukraine drones, and a total ban on all base oil exports, no Group III supplies will be available any time soon, at least from any Russian source.
Fully approved Group III from Cartagena, Spain, is no longer being supplied into Gemlik.
Middle East
Yanbu loading of vessels carrying base oils has slumped in numbers with the Houthis still declaring that the Bab-al-Mandeb Strait is closed to all Saudi Arabian vessels.
Receivers in India have been told that cargoes will be delayed, but are not cancelled at this time. How long the delays will take is not known by receivers in India, who have had letters of credit released until such time as vessels can safely sail through the strait.
Saudi vessels attempting to move any crude or products through the Bab-al-Mandeb Strait are experiencing threats against Saudi flagged ships with a number of vessels turned around, fully loaded and currently at anchorage in Yanbu, Jeddah or other safe Saudi ports.
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. What is not clear is if this ship was Saudi flagged and if so, is the vessel trying to return to the Red Sea.
As mentioned, a large cargo, possible of Group II base oils has loaded and sailed from Singapore for receivers in the UAE. The cargo is destined for Fujairah port where discharge will take place, and thereafter, the material will be transhipped by road and by train to blenders in Sharjah and Abu Dhabi. Receivers in Sharjah will take delivery at the Dubai railhead, with base oils being packed in flexies in containers.
Confusion continues to reign over what is happening regarding the Strait of Hormuz. Iranian reports that Tehran is close to completing or finalising a deal with Oman to allow vessels to transit Hormuz. What terms and conditions are attached to this scheme are unknown, but the likely outcome is that there will be some form of tolls payable prior to transit.
Trump appears to have changed tack on the war in Iran and is now trying to squeeze the Iranian economy to such an extent that either Tehran admits defeat and requests for lifting of sanctions to allow access to markets to purchase goods and services including everyday items such as food and medicines.
Washington has confirmed that the blockade of Iranian ports will continue until Iran gives up on proposals for tolls and charges for vessels to transit Hormuz, and Trump wants safe passage immediately for all ships entering or leaving the Gulf.
Iran had previously made demands that financial reparations are to be made by the U.S. and that all Iranian assets and funds frozen under sanctions by the West are to be released without delay. These terms appear to hold for any future negotiations.
No further news has been heard regarding the new refinery to be built by a Texas corporation in either Saudi Arabia or the UAE. Where and how this refinery will help solve the problems remain an unknown, although Fujairah has been put forward as a potential site.
Supplies of Group I and Group II base oils which had been in storage in the UAE prior to the start of the war are exhausted and long gone. These stocks were being resold on an FCA basis, or delivered by truck.
FCA prices are therefore suspended until new cargoes can be discharged.
Reporting here of UAE prices for Group I, II and III base oils is suspended for lack of availability, and so netbacks for Group III base oils ex Al Ruwais, Sitra and Ras Laffan.
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 and with the size of the whole cargo and the vessel, it is understood that the ship will discharge around 3,000 tons of bright stock this week in Alex, and then proceed to northwestern Europe to discharge the remaining cargo, believed to be Group I grades.
A Group II cargo from Luberef has discharged in Durban. This may the last for some time until the Houthi situation can be solved.
A cargo of Group II base oils has loaded out of Ulsan in South Korea during second half June arriving in Durban
Another large Group II parcel loaded ex U.S. Gulf Coast during mid-July will be arriving into Durban port on prompt basis.
A large base oil cargo loaded out of Rotterdam and Fawley at the end of June and will be supplying distributors and affiliated companies in South Africa. The vessel will discharge in Durban during second half August, but will only discharge part-cargo. The vessel will then proceed to Mombasa to discharge the balance of the parcel.
A Group I cargo for a major has loaded out of Fawley with around 10,000-11,000 tons of three Group I grades for delivery into Conakry in Guinea, Abidjan in Cote d’Ivoire and Tema in Ghana.
This report will not be reporting on the Nigerian market until buyers and traders get together to negotiate new cargoes to arrive into Apapa. There is nothing to report. With FOB prices as they are today, values that would be necessary in to get material to Nigeria are much higher than acceptable for receivers in Nigeria.
The Nigerian market has been ruined over the last few years by certain traders introducing deals with extended credit terms, open ended payment options including part payment or full settlement in naira, which then have to be converted on the black market into dollars and then transferred.
The official exchange rate for the Nigerian naira was NGN 1,366 to the dollar Monday and the black market rate between NGN 1,405 and NGN 1,428.
For the sake of historical data and price comparison, 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
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.