Tehran submitted its terms for a peace plan, all of which were turned down by Washington. This was another version of original demands, including restitution of damage caused during the war and unfreezing of all Iranian assets held by Western allies, among other conditions. Tehran also required the U.S. blockade of ports to be lifted.
The trade-off was the re-opening of the Strait of Hormuz to all merchant marine traffic within a matter of weeks. U.S. President Donald Trump said the proposals did not warrant further negotiation, and he expected Tehran to come back to the table during this week.
The economic sanctions on Iran may be starting to work, with pressure being applied to the Islamic Revolutionary Guard Corp and the ayatollahs from outside the ruling factions.
At the weekend there were reports of firing and explosions along the coast of Hormuz, the assumption being that the IRGC was targeting certain vessels trying to make the passage through the strait.
Reports from independent shipping sources such as Kpler have identified a number of vessels successfully transitting through Hormuz – 10 last week and 18 the previous week. Notes to the report emphasize that these are vessels that can be clearly identified from transponders and IMO registrations. “Dark” vessels are also getting through.
Some vessels switch off transponders and maintain radio silence during the transit, evading Iranian radar and drones. Saudi Arabia has been successful in getting a number of crude cargoes through the strait, but there have been no further reported ships carrying base oils from either Adnoc or Bapco.
One vessel with a cargo of 40,000 metric tons of Group III grades from Al Ruwais managed to negotiate Hormuz and made a ship-to-ship transfer of the cargo in the Gulf of Oman. It is not understood how the first vessel was able to make the transit unchallenged, but reports are that the same vessel has returned to the Gulf, perhaps looking to repeat the operation.
The cargo mentioned above is now en route to discharge in the U.S. Gulf of Mexico.
Effectively, the Strait of Hormuz remains closed, limiting the exports of crude and products from Gulf Cooperation Council states. In addition, Saudi Arabia’s East-West pipeline is still non-operational following an attack by Houthi militants, piling on the supply problems for refineries relying on crude from Middle East exporters. The positive news is that Saudi Aramco intends to re-open the pipeline later this week, which will allow crude and products to once again flow to Yanbu, Saudi Arabia, where material can either be processed or loaded on to sea-going vessels.
The Houthi problem remains in the Bab-al Mandeb Strait in the southern Red Sea, with attacks promised on any Saudi-flagged vessel attempting to transit this channel. With the Houthi rebels taking more prominent positions within Yemen, it is expected that Saudi forces may go into action against this Iranian proxy to enable cargo to flow from Yanbu and Jeddah to points east.
Base oils have been greatly affected, with a severe downturn in the number of cargoes moving to India, Pakistan and Fujairah on the Indian Ocean side of the United Arab Emirates.
Developments are awaited across the Middle East regions, with hope being pinned on an early resolution to the opening of Hormuz and a cessation of hostilities in Iran.
The conflict in Ukraine is being taken to Russian energy sources as two refineries were hit last week. In Yaroslavl, production of Group II and III base oils will be affected, whilst another attack on Lukoil’s Perm refinery has halted base oil production there.
Robotics and drones are being used by Ukraine to respond to a constant bombardment of Kyiv by Russian missiles and drones, targeting civilian apartments and stores.
Meanwhile eastern member countries of the North Atlantic Treaty Organization are on full alert against Russian incursion into territories holding borders with that country. Poland, Lithuania, Estonia and Finland have taken defense measures as precautions against any Russian activity.
With winter approaching, Putin’s forces seem to be short of personnel as untrained and unsuitable troops are being sent to the front line only to be taken out by Ukrainian technological warfare.
The conflicts continue to affect base oil supply chains and logistics, and now Russia is experiencing shortages of base oils for blending operations, causing a lack of available finished lubricants in resale outlets. The outlook looks grim for the winter months to come.
Due to a lack of gas oil, power outages are becoming common and routine, with blackouts occurring in major centers such as St. Petersburg and districts of Moscow.
Crude and Gas Oil Prices
Crude prices remain bolstered by the continued blockage of Hormuz, and with the emphasis on availabilities of diesel in major markets such as Europe, Donald Trump has suggested banning diesel exports. This would be a disastrous move for receiving parties and, according to economists, for the U.S. U.S. markets could not adjust to such an arrangement and could be seriously damaged should such a ban come into effect. The rationale behind the export ban would be to bring down the prices of diesel in the U.S., but this would not necessarily follow.
Markets have heard these type of comments previously and consider that there may be little or no substance to Trump’s ramblings.
With no progress being made between Iran and U.S., crude prices are once again under upward pressure.
Dated deliveries of Brent crude: $104.65/bbl, November front month
West Texas Intermediate: $92.25/bbl, November front month
Low-sulfur gas oil: $1,409/t, October front month
These prices were obtained from London ICE late Monday, Sept. 28.
Europe
The European Group I market remains tight and may start to become more dependent on imports from Saudi Arabia, although there have been a couple of supply interruptions due to terrorist strikes in the kingdom.
A number of European producers have not been able to offer the full slate of grades for various reasons. Often this is down to local problems at the refinery, but it forces buyers to look at more distant suppliers.
A number of European refiners are currently supplied by Saudi Aramco with Arab Light crude, and there are possibilities that there could be supply problems for crude cargoes arriving into European refineries. A Spanish refiner had started the process of advising customers of a potential force majeure situation arising should the refinery not be able to receive cargoes of crude.
The Saudi East-West pipeline will re-open this week, allowing the flow of crude into Yanbu where it can be loaded on vessels which can sail north through Suez, unimpeded by the Houthi situation that will only affect southbound cargoes.
Demand for Group I base oils has risen over the past few weeks since the end of the holiday period. The increase in demand is putting pressure on producers to offer more material, but the other side of the coin has producers maximizing diesel and other distillates, since Europe is net short of these fuels.
Producers are prioritizing diesel and jet fuel over base oils, with demand and prices for these products remaining high.
Buyers were looking for lower prices, but the market has altered since feedstock costs rose to the highest levels seen for some years, exerting still more upward pressure on base oils. Producers lowered values recently, but from very high levels.
If the base oil premium to diesel were established at around $350/t, which could be described as a normal, that would mean current prices are on the mark.
With refiners diverting production into distillates, there is no longer a surplus of Group I base stocks around Europe. Instead the market is steadily moving tighter. Some sellers are reporting limited quantities of light neutrals, where fuels have been prioritized.
A cargo has just loaded from Yanbu for Amsterdam-Rotterdam-Antwerp, and will arrive toward the end of October. This parcel is a combination of Group I and Group II base oils, and will be resold under the auspices of S-Oil on an FCA and delivered basis.
A tight market does not allow any possibility for a European export market, although one Mediterranean producer offered a quantity of around 6,000 tons of solvent neutral 500 that is being considered for Nigeria.
Prices are unchanged since there have been few reports of discounting, producers seeming content to maintain selling levels at current values. It will be interesting to see if any sellers make changes during this week in advance of October month.
Group I
European exports, FOB
No market
Northwestern Europe, FCA Amsterdam-Rotterdam-Antwerp
SN150: $1,945/t-$1,970/t
SN500: $2,050/t-$2,090/t
Bright stock 150: $2,325/t-$2,350/t
Eastern Europe, FCA
SN 85: $1,910/t
SN 150: $2,045/t
SN 350: $1,955/t
SN 500: $2,100/t
Mediterranean, FCA Spain, Greece, Italy
SN 150: $1,975/t
SN 600/500: $2,085/t
Bright stock: $2,325/t
Pan-European, FOB/FCA
SN 150: €1,800/t-€1,865/t
SN 500/600: €2,005/t-€2,045/t
Bright stock 150: €2,215/t-€2,255/t
Pan-European prices are assessed on an aggregate basis taking prices from Scandinavia, Poland, France, Germany, Benelux, Spain, Italy, Greece, U.K., and Baltic States, where prices are available.
The euro’s exchange rate with the U.S. dollar was $1.13763 Monday.
European Group II markets are being impacted by the loss of production in Rotterdam, which was affected by a recent explosion at a nearby complex. Group II base oils from the site will not be available until November. However, the producer did sail a very large cargo of Group II base oils from Singapore, reversing the trend for product to move from Rotterdam to Jurong. The vessel will call first at Valencia, Spain, to replenish the hub storage and then take the balance of the cargo to Rotterdam,arriving in late October.
Another cargo has loaded out of Taiwan with destination given on shipping reports as Europe. This could be a Group II cargo. Turkish traders previously imported such a cargo, and this may be a repeat exercise. The cargo is due to arrive during the second half of October.
The prior cargo to Turkey was purchased prior to the Iran war when prices were much lower, but Asia-Pacific producers have shown that they are competitive when looking at export markets, hence whilst the freight will be high, perhaps FOB levels are lower than expectation.
Group II prices are unchanged this week, remaining around €2,175/t-€2,225/t for 100 neutral and 150N, with 600N at €2,210/t-€2,240/t.
Group II, FCA basis
110N: €2,175/t-€2,225/t
150N: €2,180/t-€2,230/t
220N: €2,095/t-€2,125/t
600N: €2,210/t-€2,240/t
Prices refer to a wide range of Group II base oils which may be sourced from within Europe or imported from the U.S., the Red Sea and Asia-Pacific.
Group III markets around Europe continue reacting to the sporadic nature of cargo arrivals from Asia-Pacific.
There are hopes that progress can be made to obtain barrels from Bapco in Sitra and Adnoc at Al Ruwais, and although one large parcel managed to pass Hormuz, the situation in the gulf is highly volatile, with shipping costs running high should traders elect to attempt moving Group III base oils from those sources.
It was rumored that a cargo had loaded from Sitra but had not left the gulf. Perhaps this is another example of loading, then waiting for a window to make the Hormuz transit. A cargo that loaded in Ras Laffan just prior to the breakout of war did just that, remaining at anchorage in Al Jubail, before getting out during the briefly lived memorandum of understanding between Iran and the U.S.
Some buyers have decided to opt for Group III grades with full slates of finished lubricant approvals but are paying higher prices for them. Others are trying to persuade rerefiners to grant larger quantities of material previously purchased.
Quantities of 4 centiStoke material had been shipped to the SK Enmove Northwestern Europe hub prior to the outage, ensuring that regular buyers will be allocated supplies of that grade for the next couple months, despite the supply interruption from Cartagena announced a couple of weeks ago. Oddly, shipping lists have a large cargo loading out of Cartagena, but destination is not known. It is possible that this quantity had been allocated to a contracted supply, perhaps in India. The Cartagena refinery is now in turnaround.
The Indian Group III cargo that was en route to Europe arrived at a port in Italy, but another Indian Group III cargo that was destined for Amsterdam-Rotterdam-Antwerp appears to have been redirected to the U.S. gulf coast.
A cargo from Indonesia arrived into Antwerp at the end of September, and another parcel is due to arrive during the first half of October.
Prices for Group III oils with partial slates of approvals are unchanged this week, while those for fully approved grades have been raised. The increase for 4 cSt oils was particularly sharp. Prices for rerefined Group III are also unchanged. Demand is high, but producers are selling only to contracted customers.
Group III,
Partly approved, FCA Amsterdam-Rotterdam-Antwerp, Northwestern Europe
4 cSt: €3,125/t-€3,145/t
6cst: €3,125/t-€3,260/t
8cst: €3,255/t-€3,325/t
Fully approved, FCA Amsterdam-Rotterdam-Antwerp, Spain
4 cSt: €3,585/t-€3,620/t
6 cSt: €3,565/t-€3,575/t
8 cSt: €3,555/t-€3,580/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: €3,325/t
5 cSt: €3,295/t
6 cSt: €3,325/t
A second supplier from another production location moved its price for 4 cSt to €2,855/t.
Baltic Sea
Putin has extended the ban on diesel exports through Oct. 31, but it is thought that the ban applies to all petroleum products. The Kremlin has maintained that refinery turnarounds have been responsible for low output of fuels and base oils and that normality will return to markets soonest.
With Ukraine battering refineries with more and more long range drones, it will be hard to see how the export ban is not extended until 2027 – and perhaps beyond.
Ukraine’s relentless targeting of refineries, storage terminals and oil transportation is creating huge supply gaps and shortages of fuels and lubricants, bringing high prices and rationing. After the previously mentioned strikes on Perm and Yaroslavl, base oil supplies from domestic sources are running short, meaning blenders cannot access enough material to conduct their business.
Prices for additives and base oils are sky high, and consumers are complaining of high prices for lubricating oil – in some cases 10 times levels paid before Ukraine started striking refineries.
Russia is importing fuels and base oils from neighboring countries such as Kazakhstan and Uzbekistan and North Korea, but reports are that traders involved with this process are being hit with high prices in U.S. dollars.
Black Sea & Turkey
Russian exports of Group I base oils were halted to patch up the domestic market in that country, and then the Iran war stopped supplies of trucked Group I base oils from Sepahan and Iranol, which were moved through Iraq into Turkey.
Buyers have been struggling to find suitable supplies of Group I base stocks, and options have included North Africa, where producers in Alexandria are supplying regular quantities into Gebze and Derince. Motor Oil Hellas in Greece has not been able to supply of late, but some SN500 material is being offered on the market at a very low price, possibly below $1,400/t FOB. This parcel was primed for Nigeria through a trader, but rumors are that buyers were unable to open a letter of credit to cover the quantity of 6,000 tons being sold at around $1,640/t CFR.
Some Turkey buyers were relying on Turkmeni and Uzbek barrels for Group I imports, but news last week suggested that no Uzbek barrels were available for import into Turkey ports, perhaps being diverted to Russian traders.
Domestic prices for Group I produced at the Tupras refinery in Izmir are unchanged.
Group I, FCA Izmir
Spindle oil: Tl 80,006/t, plus VAT Tl 18,030.50/t
SN150: Tl 78,825/t, plus VAT Tl 17,794.30/t
SN500: Tl 80,560/t, plus VAT Tl 18,141.30/t
Bright stock: Tl 96,914/t, plus VAT Tl 21,412.10/t
Sales incur a standard loading charge of Tl 10,146.50/t that is to be added to the prices above.
The sale tender of Group III and Group II base oils from GS Caltex in South Korea has attracted attention of two Turkish buyers with a shipping inquiry to load out of Ulsan and Gebze as the discharge port.
A cargo that loaded out of Taiwan may be another Group II supply for Turkish buyers. The vessel was nominated to discharge in “Europe,” but this could include Turkey. An update on the shipping will be undertaken during the next few days.
Trader/blenders have notified this report that no resale offers are available for Group II base oils.
Fully-approved Group III from Cartagena, Spain, is no longer being supplied to receivers in Gemlik, but if the GS Caltex tender was won by Turkish buyers, then Group III base oils will be available for local Turkish blending from part of that parcel.
Middle East
With Yanbu about to go into a major turnaround, and with some running repairs going on following Houthi missile attacks foiled by defenses, it is not surprising that cargoes of base oils are significantly down. Saudi flagged vessels risk being attacked and sunk by Houthi missiles and drones if attempts are made to transit the strait. Saudi Arabian news bulletins have not yet mentioned the Riyadh attack nor outlined plans for a military response.
U.S. forces have not made any direct mention of Houthi activity, but have said that in addition to the Strait of Hormuz being fully opened, the Bab-al-Mandeb Strait must also allow all vessels to transit under safe passage.
Perhaps the U.S. and Saudi forces are not quite at the edge of the cliff and the Houthis may be given a chance to turn less confrontational.
Few base oil cargoes have passed through the strait, but those that did may have been Indian- or Chinese-flagged vessels, which would have been granted safe passage both from Houthis and from the IRGC in Tehran.
Another vessel loaded from Yanbu for Europe, sailing through Suez. These cargoes are dependent on the Saudi East-West pipeline resuming operations this week.
The economic sanctions being imposed by the U.S. on banks and other financial institutions involved in trading with Iran appears to have started to work, with a couple of Turkish banks pulling back from transactions on crude oil shipments. Indian companies are concerned about taking supplies of Iranian crude, even if it were possible to deliver them through the blockade.
The UAE has severed all diplomatic and economic relations with Tehran, and it is difficult to see how long Iran can continue to function. Inflation is rife in the country, with prices climbing to impossible levels for everyday foodstuffs such as bread and vegetables.
Some vessels have made it through Hormuz, but it is not known whether these ships were granted safe passage from IRGC, or whether they went dark by turning off transponders and radio contact during the transit.
Base oils are finding a way out of Iran to nearby Iraq, but since the UAE cut all economic and trading links with Iran, only some Indian vessels are trying to load base oils in ports such as Bander Abbas, where the U.S blockade is ineffectual due to the presence of the IRGC around the Hormuz coast.
Supplies of Group I and Group II in the UAE are now exhausted. Material is being delivered by truck from Fujairah but are allocated to service local requirements such as municipal and government departments.
There have been a number of STS operations for Saudi crude and products in the Gulf of Oman, but how the original quantities get through Hormuz is not apparent. Some sources say that Saudis are using tankers that go dark during transit.
With base oils being supplied into the MEG on an ad hoc basis, FCA prices are suspended until base oils are again discharged into storage from sea-going vessels. Listing of UAE prices for Group III base oils is also suspended, as are netbacks for Group III oils exported from Middle East Gulf plants.
Africa
Further cargoes of 2,000-3,000 tons of Group I base oils are loading from Alexandria for receivers in Derince and Gebze. The vessels are chartered by Turkish traders, using local Turkish-flagged vessels.
A large Group II cargo has loaded in the U.S. gulf coast last week and is now sailing towards Durban to discharge. The vessel is giving an ETA of Oct. 25.
Another large base oil cargo loaded out of Rotterdam and Fawley, U.K., prior to the supply interruption of available Group II base oils. This composite cargo will possibly have Group I, Group II and Group III grades on board, in addition to a small quantity of polyalphaolefin. The vessel will discharge the full cargo in Durban, probably in early November, subject to exact loading dates.
A Group I cargo of three grades is en route to West Africa to service contracted buyers in Ghana. This cargo has once again been mistakenly reported as moving into Nigeria in another publication giving base oil information.
In Nigeria, prices remain problematic for buyers looking for low priced Group I base oils. It would appear that receivers in Nigeria are no longer looking to take SN900, perhaps because that grade is much more expensive than SN500, which is not the highest viscosity grade being imported. When brightstock is used as a blend material for SN900, prices for the blend move sharply upwards due to bright stock FOB numbers.
One trader has been awarded the NNPC base oil tender but has been very aggressive in the prices offered. Two other traders offered in the same ballpark, at around $150/t higher for each of the three grades offered – SN150, SN500 and bright stock. It is thought that the supply for this tender will come out of India.
Another trader is looking to load a cargo from Asia-Pacific during October and has offered various prices of $1,690/t-$1,750/t, CFR, but final offers have not yet been made, so these levels could change again.
Buyers are looking for lower numbers, but the market is moving upwards with the realization that receivers are not going to get the low levels seen before the Iran war.
A trader may be offering some Greek material at extremely low numbers, which would suggest some kind of quality problems with a parcel of SN 500.
Buyers in Nigeria are getting short on material now and may be considering options to be able to continue supplying blenders and resellers around Nigeria.
The official exchange rate for the Nigerian naira was NGN 1,326 to the dollar Monday, while the black market rate was NGN 1,390.
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.