Base oil could be badly affected by any escalation in hostilities through supply chain interruptions, limitations placed on transportation and severe impediments to the flow of material both in and out of Middle East Gulf regions.

Imports of API Group I and II base oils into Middle East Gulf countries would be delayed or cancelled because of the insurance risks – and resulting higher costs – of sending cargoes into defined war zones. The same impacts could hit Group III exports from the region, delaying replenishment cargoes from base oil producers in the United Arab Emirates, Bahrain and Qatar, impacting markets in Europe, Asia-Pacific and the United States.

European, Middle Eastern and African regions are braced for any eventuality and taking practical precautions against interruptions. Many blenders directly affected by the war have already taken steps to lay in stocks of base oils, additives and packaging, ready for any situation which might occur.

Other news brings an update on the fire at Motor Oil Hellas’s refinery in Agioi Theodoroi, Greece. The incident has interrupted production of base oils, but damage is still being assessed, though it is not known yet for how long. The domestic market in Greece will be most affected, and some blenders have issued calls for interim supplies.

It was heard that ExxonMobil may step in to help cover parts of the Greek market, using quantities of Group I from their hub in Valencia, Spain, or taking Group I from Sonatrach’s plant in Augusta, Italy.

A temporary shutdown for maintenance began this week at Repsol’s facility in Cartagena, Spain, nixing that source as a potential substitute supplier. Cepsa may be able to offer some quantities of Group I material but is not exactly flush with stocks, having just brought back availability of SN600 following a fire in March.

Prices for Group I base oil grades have weakened a bit from the high levels of summer. Group II prices are also showing weaker levels, perhaps in part because the demand spike forecast for the fourth quarter does not appear to be happening in Europe.

Group III prices remain under severe pressure, although some sources contend that an escalation of the Israel-Hamas war could ease that pressure.

Fundamentals, including crude oil prices, relinquished some of the gains from the last ten days of September, falling back to levels seen a couple weeks ago. Dated deliveries of Brent slid to $71.90 per barrel, still for November front month settlement, around $4 lower than last week. West Texas Intermediate crude retreated to $68.65/bbl, for November front month.

Low-sulfur gasoil prices drifted around $7 lower to $663 per metric ton, for October front month. All of these prices were obtained from London ICE trading late Sept. 30.

Europe

The Greek market may start to shorten up due to the fire at Agioi refinery and the closing earlier this year of Eni’s base oil plant in Livorno, Italy. Add in the turnaround at Repsol’s refinery in Spain, and availabilities could tighten around the Mediterranean. This will only be temporary until operations are restored at Motor Oil.

Imports from the U.S. and Red Sea sources may bolster European availabilities in the next few months. Traders are looking to take Group I grades from sellers in U.S. Gulf and East coasts in various quantities. Some of the supplies were to be routed to the Nigerian market but it has not been confirmed if traders have achieved acceptable payment terms. Sellers are keeping options open to take supplies into Europe if the Nigerian angle does not work out.

ExxonMobil continues to ship large parcels of various base oils to receivers in South Africa, West Africa and occasionally East Africa. Supplies of Group I base oils are also being arranged from Singapore, mainly due to the Houthi situation in the Red Sea.

One trader has secured a small cargo of 2,000 to 3,000 tons of Group I grades from a U.S. seller, and this parcel will be landed in Rotterdam, where the trader has ample storage facilities.

Bright stock remains in demand amid tight supplies in the European market.

Group I Prices in Europe are seen to be slightly weaker, although numbers are not tumbling dramatically. Hungary-based Mol issued new prices for October that are slightly lower than previously. Solvent neutral 150 is put at $1,160/t and SN500 at $1,255/t.

In the Mediterranean, prices were heard at $1,035/t-$1,070/t for SN150, $1,140/t for SN500 and SN600, whilst bright stock was being pitched at $1,375/t. SN500 and SN600 have been in short supply in Spain for a couple months, but Cepsa announced it will have barrels of SN600 available in October.

With its maintenance turnaround starting Monday, Repsol’s Group I production may be limited, although the company built up buffers stocks to bridge the scheduled shutdown, which is scheduled to last three weeks. Operations at Repsol’s refinery in Puertollano, Spain are unaffected.

Group III production at Cartagena is not thought to be affected by the maintenance work and will carry on as normal with stored quantities of feedstocks available.

Prices for Group I sales in Europe are generally assessed at €1,015/t-€1,075/t for SN150, €1,020/t-€1,270/t for SN500 and €1,340/t-€1,485/t for bright stock.

The euro’s exchange rate versus the dollar has remained steady the past week, posting Monday at $1.11628. The average price differential across all grades between Group I sales within the region and a notional export market is unchanged at €10/t-€25/t.

Group II prices are susceptible to price pressure as suppliers are offering temporary volume allowances and discounted prices to reduce inventories after replenishment cargoes arrived during August and September.

Group II prices still have healthy premiums against diesel, incentivizing refiners push base oil production. Group II prices are taken slightly lower this week, reflecting small discounts. Numbers are now assessed at €1,160/t-€1,185/t for 110 neutral and 150N, while 220N is at €1,195/t-€1,225/t and 600N at €1,285/t-€1,320/t. These rates apply to a wide range of Group II oils from European, U.S., Red Sea and Asia-Pacific sources, all imported in bulk.

European Group III markets remain attractive to producers since prices there are higher than in alternative markets in Asia and the Indian subcontinent. Higher shipping costs are affecting margins for distributors, squeezing prices in Europe to the point where it becomes almost uneconomic to transport, store and resell Group III grades in the market. Producers are giving support to distributors acting on their behalf in Europe and the U.S.

One startling fact is that Group III prices in some instances have sunk below some Group II numbers. Some question the sustainability of this situation given that feedstock and production costs are higher for Group III.

One trader is offering 4 centiStoke Group III at €1,145/t, but it is unclear if this supplier will be in the European market for the long term, having secured supplies from a Middle East Gulf source. It has been mentioned that this trader plans to expand its base oil offering in Europe to cover Group l, II and III oils

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A South Korean seller is offering 4 cSt oils for €1,230/t-€1,240/t and 6 cSt for similar rates, on an FCA basis ex Antwerp-Rotterdam-Amsterdam. The main market in Europe for Group III oils with partial slates of finished lubricant approvals or without approvals is at €1,145/t-€1,355/t for 4 and 6 cSt and at €1,235/t-€1,275/t for 8 cSt, all on an FCA basis ex Antwerp-Rotterdam-Amsterdam and Northwestern Europe. Prices for rerefined Group III grades are unchanged this week at €1,155/t-€1,185/t, basis FCA ex rerefinery in Germany.

Prices for Group III oils with full slates of approvals are at €1,775/t-€1,810/t for 4 and 6 cSt and at €1,820/t-€1,835/t for 8 cSt, basis FCA ex hubs in Antwerp-Rotterdam-Amsterdam, Northwestern Europe and Spain.

Baltic & Black Seas

The cargo that loaded out of the Baltic Sea for Nigeria was done some time ago and has been sitting in tank in storage in Lagos’ Apapa port waiting for buyers. The trader involved with this cargo is believed to be receiving payment for part of the quantity. There were multiple receivers involved in this cargo, creating difficulties collecting payments.

Another large cargo appears to have loaded for receivers in Singapore, although a vessel to transport it has not been identified. The cargo reportedly consists of 12,000 tons of SN150 and SN500. Another cargo loaded in September from St. Petersburg for Turkey, discharging around 5,000 tons SN150 and SN500 in Gebze.

South American destinations are still being suggested by sellers, but putting together such a trade will require patience and a great deal of ingenuity. There could be shipping problems, payment issues, quality concerns and political pressures from alternative sources for Group I base oils, such as the U.S. Letters of credit are necessary for receivers to access import licenses required for foreign base oils to enter South American countries. Letters of Credit can be difficult for Russian banks to process without assistance from prime European banks.

FOB prices for Russian exports from St. Petersburg or Vyborg continue to be assessed from prices offered into Nigeria, after taking account of typical freight and assumed margins. Other cargoes such as the Singapore parcel should also be taken into account, but landed prices in Singapore are unavailable at this time. Efforts to contact shipping agents in Singapore may yield indications in weeks to come.

FOB numbers are assessed at around $745/t-$775/t for SN150 and $785/t-$795/t for SN500. Blended SN900 for Nigeria may be priced around $840/t if made using SN1200 or Russian bright stock. This is based on a typical freight cost of around $185/t-$200/t for a parcel of 7,000-10,000 tons, which would necessarily include a significant quantity of SN900 – perhaps as much as 6,000 tons, since this is the main grade utilized in Nigeria. SN900 has taken the place of bright stock in Nigeria because the latter has become too expensive for receivers there.

When other traders offer cargoes from Europe or the U.S., bright stock is used to produce quantities of SN900. The inclusion of bright stock as a blend agent means that prices are inflated for cargoes originating from Western sources.

Turkey reports that more than 87,000 tons of base oils have been exported to North Africa and Europe during the first eight months of this year. Tupras, the country’s only base oil producer, has only accounted for around 12,000 tons of this total, suggesting that most of the exports were imported to Turkey. At least some cargoes, however, carry certificates identifying their origin as Turkey.

Speaking of Tupras, another inquiry has been raised for its Izmir refinery to assemble a parcel of 5,000-8,000 tons of multiple Group I grades. This parcel would be exported to the mainland European market, where prices remain higher than those achievable in Turkey. And as explained above, Group I is in demand in Europe now.

Russian imports from the Baltic and from Lukoil’s Volgograd refinery continue to swamp the Turkish market. Prices are estimated to be around $845/t-$860/t for SN150 and $855/t-$875/t for SN500, basis CFR Gebze.

Tupras base oils sold in Turkey are priced as follows, although it is not clear what quantities are available: 36,465 lira per ton for spindle oil; Tl 31,739/t for SN150; Tl 34,258/t for SN500; and Tl 46,246 for bright stock. Prices in lira and are offered ex rack and incur an additional loading charge of Tl 5,150/t. These oils may face upward pricing pressure given the lira’s slide in value against the U.S. dollar.

Prices in Turkey for Group II base oils, which have been imported and are resold on an FCA basis, are unchanged this week at €1,425/t-€1,465/t for 100N, 150N and 220N and at €1,595/t-€1,625/t for 600N. These base oils can be imported from the Red Sea, the U.S., and South Korea.

Russian Group II oils are also being offered ex tank in Turkey, reportedly for around €100/t-€150/t less than grades from other countries. It is surprising that Russian Group II is being sold into Turkey since domestic demand for premium base oils is rumored to be at an all-time high due to the lack of II imports from companies such as ExxonMobil, Chevron and Phillips 66 because of sanctions.

Turkey’s market for Group III oils with partial slates of approvals also features Russian imports – in this case 4 cSt from Tatneft. The latest price heard was around €1,255/t. Such products from Middle East Gulf sources were previously available in the market but are not now.

Group III oils with full slates of approval from Cartagena, Spain, are still being delivered into Gemlik and resold to local blenders. Prices are unchanged this week at €1,960/t-€1,995/t, on an FCA basis.

Middle East

Base oil shipments from Yanbu and Jeddah, Saudi Arabia, are booming, with around 60,000 tons of various Group I and II grades loading for the U.A.E. and the West Coast of India. Receivers in these countries are taking large parcels of up to 20,000 tons per cargo. Transportation is conducted in vessels sailing under Indian, Pakistani and U.A.E. flags, which apparently gives them safe passage from the Houthi rebels in Yemen.

Luberef aims to move more cargoes towards Europe – Group I to Northwestern European under the auspices of S-Oil, which like Luberef is majority owned by Saudi Aramco.

In the Middle East – and many other corners of the world – all eyes are watching Israel’s invasion of Lebanon and waiting to see what reprisals it brings. In the days leading up to the ground invasion, which targets Iran ally Hezbollah, Israel assassinated the organization’s leader, Hassan Nasrallah, and killed a number of other high-ranking Hezbollah commanders – some in air strikes on Beirut itself.

Many feared that such actions would bring Iran directly into the fray, and indeed the country fired roughly 200 ballistic missiles Tuesday toward Jerusalem and Israel’s Jordan River Valley, leading Israel’s government to direct the entire country to seek shelter in bomb shelters. Most of the missiles were reportedly intercepted by air defenses of Israel and a coalition of allies, led by the U.S., and no casualties were reported in Israel.

Tehran said afterward that it aimed its missiles against Israeli military bases in response to aggression in Gaza and against Hezbollah in Lebanon. It also said it would not attack Israel further unless provoked. Israel’s government vowed a harsh response against Iran, so situation appears to have reached a very high level of volatility and risk.

Iranian base oil producers Sepahan and Iranol continue to export small cargoes of Group I SN500 and SN150 through the southern Iranian ports of Bandar Bushehr and Bander Khomeini. These exports go into ports such as Ras Al Khaimah, U.A.E., where they are assembled into larger parcels for shipping to Pakistan. Exports of rubber process oils follow a similar routine but from the U.A.E. are shipped in parcels of 3,000-4,000 tons to South Korea.

Sources in the U.A.E. confirm that receipt of dollars in payment for these parcels is important for Iranian producers, who are then able to exchange that currency on the local black market to cover operating costs at their refineries.

The arbitrage between the U.S. and the Middle East Gulf may open soon in light of notices that at least two cargoes from the U.S. are primed for receivers in the U.A.E.

Russian base oils are also imported into the U.A.E. and are offered for sale in Hamriyah. Prices are unchanged this week at around $845/t for SN150 and $855/t for SN500. It is not confirmed how much Russian material is going into the U.A.E., but sources have confirmed that a number of vessels carrying Russian barrels have discharged in Hamriyah since the beginning of June. Generally two receivers take these parcels of base oils for onward sale to smaller blenders. The United Kingdom government is investigating claims that some of the barrels are used to toll-blend for companies selling finished lubes into the European Union and the U.K. at anti-competitive prices.

Netbacks for exports from Al Ruwais, U.A.E., and Sitra, Bahrain, of partly-approved Group III base oils are down this week in the face of severe downward pressure on prices in Europe and the U.S., where significant quantities are sent. Indication netbacks are assessed at $1,145/t-$1,220/t for 4, 6 and 8 cSt grades.

Netbacks for gas-to-liquids Group III+ base oils ex Ras Laffan, Qatar, are also lower this week at $1,325/t-$1,365/t. These prices are on an indication basis only since cargo economics and cost allocation for Shell, the marketer of these oils, are not disclosed.

Netback levels are assessed from distributor selling prices minus estimated marketing, margins, handling and freight costs.

Bapco is now pursuing a novel practice of selling large parcels of Group III from its plant in through tenders. One case has been bought by a trader and imported into Europe in two cargoes, each of around 7,000-8,000 tons. Prices were believed to be very low, allowing the seller to offer FCA supplies ex-tank at levels close to $1,135/t. How this is rationalized to an appointed European distributor, Stasco, is not understood.

Prices for Group II base oils resold ex tank in the U.A.E., or on a truck-delivered basis around the U.A.E. and Oman, are unchanged this week at $1,685/t-$1,725/t for 100N, 150N and 220N and at $1,775/t-$1,825/t for 600N. These grades are mainly sold in U.A.E. dirhams, since the U.A.E. currency is pegged to the U.S. dollar.

The highs of the ranges refer to RTW deliveries to buyers in the U.A.E. and northern Oman.

Africa

Shipping agency sources in Durban, South Africa, have confirmed that a large cargo of base oils has loaded from Rotterdam and Fawley, U.K. The cargo to be around 19,000 tons in total, including a quantities of Group l, II and III, plus a small quantity of polyalphaolefins or esters.

No news has been received from a trusted source who is currently in Lagos investigating the assembling a cargo for base oils for receivers in Nigeria. The decision will depend on arriving at satisfactory conditions for payment for the cargo.

Trade in Nigeria remains subdued, but a number of buyers are starting to become concerned at the lack of traders offering supplies of Group I base oils.

Elsewhere, 5,000 tons of three Group I grades were supplied to Tema, Ghana, under terms of the annual tender. The supplying major has retained this contract for a number of years now, since traders bowed out of involvement with Group I cargoes loaded out of Livorno, Italy. Now the cargo is often combined with supplies to regular receivers in Guinea and Cote d’Ivoire.

State-owned NNPC has not inquired with traders about arranging a base oil cargo, which is not surprising since part of NNPC can import in its own right, should this become necessary.

A Russian cargo, loaded out of the Baltic discharged in Apapa, leaving material available in tank, but probably unpaid. When this cargo arrived in Apapa is not known, but Russian material is available ex tank at very low selling prices.

Base oil business is still very difficult in Nigeria. Finance is the primary concern, along with exchange rates and access to dollars. The naira’s exchange rate with the U.S. dollar has moved now to 1,683 but is subject to sharp and sudden shifts.

It is impossible for experienced traders to compete with the very low prices pushed around the market for Russian base oils. Receivers are showing little regard for the quality differences between Russian and Western Group I material.

Estimated prices for potential future sales of Western Group I in Nigeria are $1,185/t-$1,200/t for SN150, $1,260/t-$1,285/t for SN500 and $1,335/t-$1,365/t for SN900, on a CFR basis ex Apapa. Russian delivered prices are much lower, last indicated at $995/t for SN150, $1,035/t for SN500 and $1,075/t for SN900, basis CFR Apapa.