A U.K. industry spokesperson said some 10% of U.K. steel production goes into the U.S. market, and although this steel is high quality and for use in the aviation and other specialty industries, the new duties will make it harder to sell into the U.S. market.

Tensions continued in the Middle East as the ceasefire between Israel and Hamas frayed amidst accusations of both sides not living up to their obligations. In addition, Iran broke its months-long silence by accusing the U.S. of “false diplomacy” and undermining the Iranian government with economic and military pressure.

Markets are watching for the fallout between the countries, with base oil traders based in the United Arab Emirates and neighboring states monitoring developments.

Base oil demand and supply trends varied from region to region as shortages of some grades developed in some areas for various reasons. In Asia-Pacific a number of producers will undertake major temporary maintenance shutdowns in the first half of the year, and some market participants say this could cause temporary shortages – especially of API Group II and III grades. That in turn could prod buyers in India and the Middle East Gulf to lean more heavily on Western sources, which they have already begun to do.

That said, Group I and II supply in the U.S. is tightening, and heavy grades are relatively short for export markets. Europe is finely balanced for supply within the region, so there is potential for supply disruptions. One oil major has posted a significant price hike for Group II oils in the U.S.

Some market sources claim that there is evidence of upward pressure on Group I and II values in Europe, but there is also word of Group I sales being completed at exceptionally low numbers, muddying the scene.

Base oil premiums over distillates have slipped and are narrower than they were all of last year. Crude and feedstocks remained stable the past week, showing no momentum to move up or down. It is a bit surprising then that some base oil producers are pushing prices higher.

Prices for dated deliveries of Brent crude were at $75.35 per barrel Monday, for April front month delivery, very similar to a week earlier. West Texas Intermediate dropped around $1 to $71.75/bbl, still for March front month.

Low-sulfur gasoil followed a similar track, dropping around $2 to $715 per metric ton, still for February front month. All of these prices were obtained from London ICE trading late Feb. 10.

Europe

The potential for Group I levels to rise in other regions may not necessarily catch up Europe since prices there are already higher and different regions are somewhat insulated.

Traditional markets for European Group I exports, such as West Africa, are mainly depending on U.S. sources for Western quality Group I, but supplies from the U.S. may face upward pricing pressure and could soon face more difficulty competing against low-priced Russian barrels sold there.

For Group I sales within Europe there had been signs of numbers softening until the past week when availabilities started to tighten for some of the heavier neutrals. Buyers had some difficulty finding availabilities of bright stock, causing some to settle for truckloads rather than barge quantities and at relatively high prices.

Group I solvent neutrals are up a few euros this week, offered at €845/t for solvent neutral 150 and €875/t for SN500, on an FCA basis. Bright stock prices, even for relatively small quantities, have risen around €50/t since the end of January.

Prices for Group I sales in Europe are deemed generally firmer this week at €845/t-€880/t for SN150, €875/t-€895/t for SN500 or SN600 and €1,190/t-€1,245/t for bright stock.

The dollar’s exchange rate with the euro coasted to $1.03182 Monday. The average price differential across all grades between Group I sales within Europe and any export market is unchanged at €20/t-€45.

Group II prices are so far relatively stable. Movements in other markets might provide scope for hikes in Europe, but the market appears unconducive as buyers are driving hard deals to ensure values stay around levels seen at the end of January.

Some buyers are looking to take quantities of light-viscosity Group II grades, considering that they can reduce chemical additive costs compared to when Group I SN100 or SN150 are used.

European Group II prices are unchanged at €1,035/t-€1,065/t for 110 neutral and 150N, €1,050/t-€1,080/t for 220N and €1,125/t-€1,175/t for 600N. These prices apply to a wide range of Group II base oils, some produced in Europe and others imported from the U.S., the Red Sea and Asia-Pacific. For imports the ranges refer to bulk shipments, though some smaller quantities are transported directly to lubricant blenders in flexi-tanks.

Group III base oils within Europe are under extreme price pressure as traditional distributors are undercut by a number of opportunistic traders who managed to purchase cargoes through tenders held by a Middle East Gulf refiner.  Another tender is believed to be underway and if won by the same trader will be sent to Europe. Two traders appear to be working together to buy what is purported to be around 12,000 tons of 4, 6 and 8 centiStoke grades.

More cargoes of Group III base oils are on the high seas from the UAE, Bahrain and Qatar, and these will add to growing European inventories and cause an oversupply.

The lowest number heard offered in Europe for 4 cSt is $1,040/t (€1,008/t at current exchange rate), but there are rumors of offers for €985/t. One appointed distributor is offering 4 cSt with a partial slate of finished lubricant approvals at €1,075/t, while other suppliers are selling at €1,095/t-€1,120/t for 4 and 6 cSt, on an FCA basis ex Antwerp-Rotterdam-Amsterdam.

Overall prices for Group III oils with partial slates of approvals are assessed at €985/t-€1,120/t for 4 and 6 cSt and at €1,085/t-€1,125/t for 8 cSt, on an FCA basis ex Antwerp-Rotterdam-Amsterdam or Northwestern Europe.

Prices for rerefined Group III grades are lower this week at €1,055/t-€1,090/t for 4 and 6 cSt, on an FCA basis ex rerefinery in Germany.

Prices for Group III oils with full slates of approvals decreased due to buyer pressure to €1,675/t-€1,725/t for 4 and 6 cSt, while 8 cSt prices are reckoned at €1,735/t-€1,755/t, on an FCA basis ex hubs in Antwerp-Rotterdam-Amsterdam, Northwestern Europe and Spain.

Baltic and Black Seas

Calculating prices for Russian base oil exports is an eye-opening exercise these days. Starting with offers for Russian barrels imported into Gebze, Turkey, and assuming the lowest possible freight rates from the Baltic Sea, costs of storage and handling plus a margin for the traders involved in reselling these base oils, the netback FOB price ex St. Petersburg would equate to something like $585/t.

If the costs of rail transport from refinery to storage in the loadport on the Baltic are then subtracted from the FOB price level, it yields guesstimated refinery gate price of around $535/t. Without even accounting for refinery margins and costs, this level is approximately $200 below open market feedstock costs. It connotes a picture of

Russian refiners desperate to move base oils into any market that accepts these grades, without regard for economics.

Lukoil barrels shipped from the Baltic tend to be priced higher, selling into markets such as Turkey and Nigeria.

FOB prices for Group I oils sold ex St. Petersburg or Vyborg, Russia, are estimated from prices delivered into receivers in Nigeria and are estimated at $580/t-$595/t for SN150, $585/t-$600/t for SN500 and $625/t for SN900. These values are only published as indication prices.

Every week there are new reports of more Russian Group I base oils dominating the Turkish market, leading to excess quantities being offered and sold around the Black Sea regions by a number of traders, some to receivers in the EU.

Confirmation has again been received that Russian base oils are being openly sold to Ukrainian blenders looking for low priced Group I. Blenders in Ukraine traditionally used Russian base oils following the cessation of production at the Kremenchuk refinery. After Russia’s invasion, those still functioning purchased base oils from Poland and Hungary by truck and rail. Now they are supplementing or even replacing these supplies with material exported to Turkey, Moldova or Georgia and then shipped to Ukraine by road or small tankers.

Russian barrels are being bridged from Black Sea ports such as Taganrog, Russia, and Turkish ports to Egyptian ports such as El Dekheila, then re-exported to markets such as Nigeria and even the the U.K. The certificates of origin say Egypt, which allows the material to be imported into the EU and the U.K.

Russian levels for SN900 delivered into Nigeria are heard at $1,080/t on a CFR basis. A Turkish trader is still offering a blend of Russian and Uzbek SN150 for $775/t, SN500 for $790/t and SN900 for $1,055/t, on an ex works basis from Gebze.

Sources in Turkey said there are no availabilities from Tupras, but the refiner has ex rack at Izmir at 33,553 lira/t for spindle oil; Tl 27,405/t for SN150; Tl 32,716/t for SN500; and Tl 42,953/t for bright stock. A standard loading charge of Tl 8,199.20/t also applies.

Group II FCA prices advised by a Turkish trader and lube blender are unchanged at $890/t for 110N and 220N and at $1,100/t for 350N. Group II oils imported from Formosa Petrochemical in Taiwan are offered at $1,150/t for 150N and $1,500/t for 500N.

The market in Turkey for Group III oils with partial slates of approvals or no approvals includes 4 cSt from Tatneft in Russia, which is now priced at around €955/t. Other partly-approved grades are at €1,095/t-€1,170/t, lower than previously noted.

Fully-approved Group III grades from Cartagena, Spain, are delivered into Gemlik and are estimated at €1,845/t-€1,865/t, on an FCA basis.

Middle East Gulf

January reports show lower quantities of Group I and II base oils being loaded out of Yanbu and Jeddah, Saudi Arabia, for Mumbai anchorage. Most of the cargoes are Group II going to multiple receivers, although deliveries to receivers in the UAE and Pakistan were all shown in shipping reports. There was also a slowdown in January of Group I and II seen moving into UAE ports of  Fujairah, Ras al Khaimah, Hamriyah and Jebel Ali.

This report contacted major container shipping lines Hapag-Lloyd and Maersk, which have confirmed that they will not yet resume sending vessels thorough the Red Sea to the Suez Canal.

The latest information from a contact in Hodeida, Yemen, is that Houthi rebels say they would cease attacking Israeli and allied vessels once the final part of the Gaza ceasefire arrangements have been completed. Prospects for reaching this phase are in doubt now that Hamas has halted releases.

Base oil exports by Sepahan Oil continue but at lower levels than previously. A shipment of 2,000 tons of rubber process oil has been exported to a large lube blender in India. This quantity may have been stored in Ras Al Khaimah before being shipped, perhaps consolidating small quantities that were bridged there.

Cargoes from the U.S. Gulf of Mexico and Atlantic coasts have been shipped to the UAE by U.S. and European traders.

Prices for imported Group I material are confirmed by local sources at $875/t-$910 for SN150, $915/t-$945/t for SN500 and $1,080/t-$1,120/t for bright stock, all on a CIF or CFR basis ex UAE ports. These prices refer to imports loaded from the U.S. Lower numbers are heard for smaller cargoes of 3,000-4,000 tons arriving from Thailand, India and Indonesia.

With prices starting to rise in the U.S., it may be difficult for the arbitrage to continue working into UAE receivers, but difficulties obtaining availabilities from Asia-Pacific sources could force Middle East Gulf buyers of Group I to cast their nets in a wider sphere, perhaps looking at Thailand and Indonesia.

Russian base oil cargoes discharged in Hamriyah port during January, and there are talks of another Russian ship-to-ship cargo. Unconfirmed rumors are that a cargo of around 15,000 tons, including a large quantity of SN900, loaded out of the Black Sea bound for Hamriyah anchorage. The problems attached to these operations appear to be the time taken for the cargo to sail to the UAE prior to transfer. Afterward the cargo would sail to Lagos, all of which takes a considerable length of time. Receivers will probably negotiate extended credit facilities to reflect the time taken for the material to arrive into Apapa.

Prices for Russian base oils sold on a CFR basis ex Hamriyah port or STS are estimated at $645/t-$785/t for SN150 and $655/t-$795/t for SN500, the higher ends of the ranges applying to material discharged into storage in Hamriyah.

Group III cargoes have loaded out of Al Ruwais, UAE; Sitra, Bahrain; and Ras Laffan, Qatar, destined for India, Europe and the U.S., but fewer cargoes are going into mainland China where increased domestic production has reduced demand for exports. Netback levels to Sitra and Al Ruwais unchanged at $1,125/t-$1,200/t for 4, 6 and 8 cSt.

Netbacks for gas-to-liquids Group III+ from Ras Laffan remain at $1,295/t-$1,325/t on an indication basis. A 10,000-ton cargo from Qatar discharged into a U.S. Gulf port for Shell. Netback levels are assessed from distributor selling prices minus estimated marketing, margins, handling and freight costs.

Group II base oils imported from the Red Sea, the U.S., South Korea and Singapore are being resold ex tank in the UAE or on a truck-delivered basis in the UAE and Oman. FCA prices are unchanged at $1,455/t-$1,500/t for 110N, 150N and 220N and at $1,535/t-$1,575/t for 600N. These grades are priced in UAE dirhams, which are pegged to the U.S. dollar. The highs of the ranges refer to RTW deliveries to buyers in the UAE and northern Oman.

Africa

Smaller cargoes feature in cross-Mediterranean trading with base oils loaded from Italy and Spain for receivers in Morocco, Tunisia and Egypt.

There are vague reports coming out of Durban regarding the timing and the quantities involved in the new large cargo that will load for ExxonMobil. The agents in Durban had confirmed, then altered that information on another cargo loading out of Rotterdam and Fawley, U.K. Further information is being sought.

Another cargo will load out of Fawley for receivers in Ghana, but it is not clear if the vessel will also call at Conakry, Guinea, and Abidjan, Cote d’Ivoire. This may be a stand-alone cargo of 5,000 tons for the Tema tender.

In Nigeria, traders are loading a cargo from the U.S. Gulf of Mexico coast for sailing on a prompt basis to Apapa port in Lagos. This cargo will be a total of around 18,000 tons, with SN150, SN500 and SN900 on board. Another cargo of 10,000-12,000 tons will possibly load towards the end of February, also bound for Apapa. European sources have been ruled out for possible Group I cargoes to Nigeria, since neither price nor quantities are conducive.

Russian base oils from the Baltic, Egypt and the UAE are offered from three traders with extremely low prices – often to the same receivers, who will switch suppliers should price and terms suit.

The Nigerian naira’s exchange rate to dollars fell by NGN 35 the past week to NGN 1,562 Monday. One source said dollars are becoming more available but not through official channels such as the Central Bank of Nigeria.

Prices in Nigeria for Group I imports from the U.S. are confirmed at $985/t-$1,000/t for SN150, $1,045/t-$1,055/t for SN500 and $1,085/t-$1,120/t for SN900. There are other offers from alternative traders with lower numbers of $910/t for SN500, but prices for SN150 and SN900 are not confirmed. Why some traders offer very low prices is puzzling since it does not appear necessary to make a sale. Prices for Russian oils imported from Russia, Egypt and the UAE remain indicated at $905/t for SN150, $910/t for SN500 and $1,050/t for SN900, all on a CFR basis ex Apapa.

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.

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