The oversupply scenario has been eliminated thanks to temporary maintenance shutdowns and shipping delays that interrupted supply chain and caused Group III availabilities in Europe to diminish.

Margins for all base oils remain healthy compared to distillates and feedstocks, incentivizing production of greater quantities of base stocks. Refiners are being guarded however, very conscious that demand can be fickle and that it can be affected by external drivers in a short space of time.

For example, the threat of United States tariffs still hangs over the European Union, with U.S. President Donald Trump first announcing that levies of 50% could be imposed on EU imports beginning June 2. A few days later Trump declared that such taxes would not take effect until July, but it seems quite possible that the U.S. will impose punitive duties on imports from the EU if negotiators in Brussels do not make progress.

Such action could have huge negative impacts for economies such as Germany and France, where the mainstays of EU exports to U.S. are manufactured and produced.

Industries such as cars and other vehicles could be wiped out, with export prices for imported models being taken out of contention in U.S. markets. U.S. dealerships for EU marque cars are lobbying the Trump administration not to impose the tariffs being introduced.

Lubricant blenders across Europe are bracing themselves for a significant downturn in demand, should factory fill demand for finished lubricants be cancelled. With industrial activity in the region decreasing, effects on automotive and industrial lubes will be dramatic. Base oil buyers are aware of the possibilities around the corner and are therefore exercising extreme caution regarding large base oil purchases in case these supplies end up not being needed.

Crude oil prices are showing signs of further weakness, with the news that OPEC cartel members will be increasing production from June 1. The quantities vary from producer to producer, but they add up to an extra 411,000 barrels per day for a market that is already faltering. Weak demand from principal users such as China is depressing a market that is lurching toward surplus even before OPEC loosens the taps.

Dated deliveries of Brent crude were down marginally to start the week at $64.70 per barrel, for July front month settlement. West Texas Intermediate reflect a similar picture, having dipped around one dollar to $61.40/bbl, now for July front month.

European low-sulfur gasoil prices also fell to $609 per metric ton, for June front month. All of these values were obtained from London ICE trading late May 26.

Europe

As stated above, the European base oil market is dealing with uncertainty over the tariff question and could see reductions soon in crude oil costs. Group I availabilities are satisfactory except for bright stock, now that scheduled maintenance shutdowns are ending or have already ended. Supply appears sufficient to meet demand, especially with the inclusion of more imports from Saudi Arabia and the U.S.

Buyers are therefore opting to purchase smaller quantities as and when required, rather than building larger inventories ahead of the quieter summer months of July and August.

There was news today that Repsol lifted the force majeure declaration imposed after a power outage for supply of base oils from its two plants in southern Spain. It also appears that Cepsa has resumed full production at is refinery in San Roque. Both of these developments will protect buyers from availability shortfalls.

Another import cargo from Paulsboro, New Jersey, has been heard underway with around 6,000 tons of SN500 and bright stock, bound for storage in Antwerp-Rotterdam-Amsterdam. Prices have not been released yet, but it is considered that FCA numbers will be in line with the last avails out of this facility. Prices were last heard at around $950/t for solvent neutral 150, $1,020/t for SN500 and $1,550/t for bright stock.

Pan-European prices remain unchanged at €825/t-€875/t for SN150 and €885/t-€940/t for SN500 or SN600. Bright stock is placed in a range of €1,420/t-€1,465/t, but higher numbers have been heard, at €1,485/t-€1,510/t.

Most sales across Europe are conducted in euros, those terms in U.S. dollars are sometimes offered. The euro’s exchange rate with the dollar fell marginally the past week to $1.13771 Monday.

European Group II base oil prices are showing a degree of stability, but buyers are increasingly citing the large and growing differential between Group II values and prices for gasoil and vacuum gasoil. Many are complaining that the former help up the past six months while feedstock prices slid substantially.

European Group II prices had firmed slightly on the back of exchange rate moves, but they may be coming under downward pressure. For now values remain at €1,095/t-€1,135/t for 110 neutral and 150N, €1,155/t-€1,175/t for 220N and at €1,175/t-€1,225/t for 600N. These numbers apply to a wide range of Group II oils from Europe, the U.S., the Red Sea and Asia-Pacific. For imports these levels pertain to bulk shipments, though smaller quantities are transported in flexi-tanks.

European Group III prices continue to firm on tight availabilities. Replenishment cargoes from the Middle East Gulf and Asia-Pacific have been delayed, and a maintenance turnaround at Sitra, Bahrain, further limited the amount of material arriving into Europe. One distributor of Group III from Bahrain is still unable to supply regular large buyers around Europe. There have been no spot tenders from Sitra, hence considerably less material has been entering the European market. Whether sale tenders will be reintroduced is not known at this stage, but if product is tight, then tenders may be off the menu for now.

European prices for Group III 4 cSt oils with partial slates of finished lubricant approvals firmed the past week to €1,195/t-€1,225/t for 4 cSt, on an FCA basis Antwerp-Rotterdam-Amsterdam. These rates are subject to the arrival of incoming vessels to Rotterdam and Dordrecht. European and United Kingdom prices for partly-approved 6 cSt are unchanged at €1,210/t-€1,230/t, while 8 cSt is at €1,220/t-€1,245/t, on an FCA basis ex Antwerp-Rotterdam-Amsterdam Northwestern Europe.

Prices for Group III oils with full slates of approvals are unchanged at €1,625/t-€1,695/t for 4 and 6 cSt and at €1,720/t-€1,745/t for 8 cSt, all on an FCA basis ex hubs in Antwerp-Rotterdam-Amsterdam, Northwestern Europe and Spain.

Prices for rerefined Group III grades rose the past week to €1,095/t-€1,135/t for 4 and 6 cSt, basis FCA rerefinery in Germany.

Baltic and Black Seas

Russian base oil export prices seem to have risen the past few weeks, and there seems to be consensus that the main reason is increased domestic demand taking up any slack left in production. Price hikes of $150/t-$200/t have in some cases been heard for oils delivered into Gebze, Turkey, for example.

The Russian market is an enigma, though, with many players making guesses as to what is happening in the domestic market with exports. There would appear to be a reduction on the quantities of material allocated for export.

FOB prices ex St. Petersburg are guesstimated to be around $750/t-$775/t for SN150 and $780/t-$795/t for SN500.

These new FOB prices may discourage traders looking to take Russian base oils into Nigeria, yielding CFR delivered prices to levels unacceptable to Nigerian receivers. SN500 at nearly $800/t FOB, assuming freight for a 10,000 tons cargo at around $155/t and a margin of $50/t-$70/t would make for a delivered level of around $1,025/t.

There are fewer Lukoil cargoes moving out of the Baltic to Gebze and Singapore. Turnarounds at a number of Russian refineries including Lukoil’s facility in Perm, and Ukrainian drone strikes on the company’s Volgagrad refinery may have curbed availabilities and forced refiners to focus on domestic requirements. Bashneft and Rosneft still deliver base oils into Turkey from refineries in Ufa and Angarsk, respectively, and prices for those have risen substantially.

A Turkish base oil trader and finished lube blender continues offering imported Russian base oils at $885/t for SN150 and $895/t for SN500, but availability cannot be confirmed. SN900 is currently indicated at $1,210/t – up from $1,045/t, but again there are no assurances on availability.

Delivered prices for LukOil Group I grades imported from the Baltic are confirmed around $855/t for SN150 and $875/t for SN500, on a CIF basis ex Turkish ports such as Gebze. The same grades from Rosneft and Bashneft are around $100/t lower but may have been put into tank around seven or eight weeks ago, when prices were much lower.

New Rosneft levels have been rumored at $845/t for SN150 and $860/t for SN500, but these have not been confirmed.

Group I base oils are available from the Tupras refinery in Izmir, priced at 44,422 lira/t plus a duty of Tl 8,884/t for spindle oil;

Tl 40,071/t plus a duty of Tl 8,014/t for SN150; Tl 43,203/t, plus a duty of Tl 8,641/t for SN500; and Tl 61,505/t plus a duty of Tl 12,301/t for bright stock. All of these prices are ex rack Izmir refinery and incur a standard loading charge of Tl 8,199.20/t.

Group II base oils offered ex works from a Turkish trader are offered at $1,065/t for 110N and 220N, while 350N grade is offered at $1,265/t. These oils are probably produced in Russia.

Higher grade Group II oils, possibly imported from Taiwan or Saudi Arabia, are offered at $1,645/t for 500N and $1,285/t for 150N.

Imported Russian Group III is offered at €1,155/t for 4 cSt, while partially approved Group III from other sources is priced at €1,375/t-€1,400/t. Some of the latter grades have been supplied into Turkey in flexies from storage in Rotterdam.

Fully-approved Group III grades ex Cartagena, Spain delivered into Gemlik have ‘estimated’ prices between €1825/t-€1855/t FCA.

Middle East

The month of May has so far been a record for Group I and II base oil shipments ex Yanbu and Jeddah, Saudi Arabia, to be delivered into Indian receivers in Haldia, Mumbai port and anchorage and Chennai. A couple more cargoes are still due to be loaded before the month end. The fervent activity is possibly due to the imminent start to the monsoon season, which can complicate discharging by creating difficult conditions at anchorage.

The region is waiting to see if Israel launches strikes on Iranian targets. This is a separate issue from the ongoing talks between the U.S. and Tehran over Iran’s  nuclear program. There are reports from the UAE that Trump is getting frustrated with meeting postponements and other Iranian delaying tactics. The U.S. administration has warned that it is prepared to destroy nuclear sites, which are bunkered underground and disguised from aircraft and drones.

Should attacks undertaken either by Israel or the U.S., it could cause extreme escalation of conflict that is already taking a toll on business and trade in the Middle East Gulf. The gulf could be declared a war zone, with all that implies for logistics and shipping. Transport could be badly disrupted, and shipping insurance rates could rocket.

Fewer Iranian base oil cargoes are being reported loading out of Bandar-e Emam Khomeyni, though most still involve base oils produced by Sepahan Oil. UAE sources have suggested there may be problems in Iran regarding availability of spares and parts for refinery maintenance and that these may be limiting base oil production for local blending. This could explain recent price hikes and decreases in material being exported.

Apparently Iran has been relying on Russian technology and equipment for servicing oil refineries, but Russia is also experiencing difficulties accessing parts. The Iranian economy is generally in poor shape.

Prices for Iranian Group I base oils have been heard around $965/t for premium SN500 and $945/t for SN150. These prices are designated as FOB levels, but with few cargoes actually loading, prices are offered as indications on an ex refinery basis.

CIF or CFR prices in the UAE for imported Group I material have recently been confirmed at $915/t-$930/t for SN150, $940/t-$955/t for SN500 and $1,275/t-$1,300/t for bright stock, at Hamriyah and Fujairah. Material comes mainly the U.S., and a number of recent large shipments have been delivered partly to the West Coast of India, too. Smaller Group I cargoes are arriving into Hamriyah from Rayong, Thailand.

Russian base oil cargoes have not been reported lately coming into the UAE, as they were previously, although a lube blender and base oil trader based in Sharjah is believed to have arranged a Russian cargo loading out of Limas terminal in Turkey. With prices for Russian base oils rising, suppliers such as Lukoil may not be so eager to offer barrels into this market.

UAE prices for Russian base oils were last heard in March at around $785/t for SN150 and $795/t for SN500, on a CFR basis Hamriyah port. These price levels will no longer be valid and are reported here for comparison purposes.

Group III cargoes are loading out of Al Ruwais, UAE; Ras Laffan, Qatar; and Sitra, Bahrain. One vessel was identified loading for mainland China, so base oils from the Middle East Gulf are still moving into that market.

Netbacks for Group III oils from Al Ruwais are unchanged, indicated at $1,185/t-$1,240/t for 4, 6 and 8 cSt grades. Your columnist is assuming that netbacks for cargoes loading out of Sitra are on the same level until feedback is received.

Cargoes of gas-to-liquids Group III+ oils loading ex Ras Laffan are moving into the U.S., Thailand and Singapore. Netbacks are offered as indications only but remain unchanged at $1,255/t-$1,290/t. FOB netback levels are assessed from distributor selling prices in various markets minus estimated marketing costs, margins, handling, storage and freight.

Group II demand in the UAE is rising. Oils in this category are imported from the Red Sea, the U.S., South Korea, Europe and Singapore and are resold ex tank in the UAE or on a truck-delivered basis in the UAE and Oman.

Prices are unchanged at $1,425/t-$1,475/t for 110N, 150N and 220N and at $1,510/t-$1,555/t for 600N, on an FCA basis. The highs of the ranges refer to RTW deliveries to buyers in the UAE and northern Oman.

Group III base oils from Al Ruwais and Sitra are transported in smaller vessels to UAE delivery points or from Abu Dhabi by road tanker into Sharjah and Dubai.

Prices for oils offered by a source in Sharjah are confirmed at around $1,325/t for 4 cSt, while 6 cSt is pitched at $1,340/t and 8 cSt at $1,385/t, all basis FCA Hamriyah or for RTW deliveries around the UAE and Oman. The latter incur a $20/t-$55/t delivery charge.

Traders were asked about possibilities of lubricant blending operations restarting in Syria, but such operations appear some way off because port facilities in Lattakia have been destroyed, and storage facilities cannot currently be spared for base oils. All storage tanks are being used for mogas, kerosene and diesel.

Africa

The large 19,000-ton cargo that loaded out of Rotterdam and Fawley, U.K., looks likely to discharge in Durban, South Africa, sometime next week. Another cargo is being arranged for the same route since the closing of a local refinery made South Africa more dependent on imports. Group I and Group III material is also arriving frequently from the U.S. Gulf of Mexico coast.

The Group I cargo previously mentioned here as bound for Tema, Ghana, should arrive during the first half of June.

The Nigerian market is full of base oils, and resellers are trying to move as much quantity out of tank before the start of the rainy season. Almost all base oil storage is in Lagos’ Apapa port, and delivery during the rainy season can become tricky to blenders in other cities such as Abuja and Warri.

Demand local in Nigeria is good, but locals are not acknowledging the rise in international FOB prices and a relatively tighter supply scene, particularly from the U.S.

There is ample material in tank in Lagos, and a cargo of Russian base oils is due to arrive from Egypt any time soon.

Supply of SN900 is an ongoing headache for traders. If loaded from the U.S., the recipe must include a portion of bright stock to reach the correct viscosity. FOB prices for this grade have risen, though, making it impossible to compete on price with Russian SN900, which will be blended using Russian bright stocks or SN1200. The Russian variety tends to be of lower and less consistent quality. When Russian SN900 is sold into Nigeria, only basic properties are guaranteed on the spec.

There is news of a vessel that was to deliver base oils for a new buyer, a gas oil trader. The vessel has been at anchorage for more than six weeks, with no signs of the cargo being discharged.

The naira’s official exchange rate with the U.S. dollar fell marginally the past week to NGN 1,601.

Prices in Lagos for U.S.-sourced base oils are in the neighborhood or slightly above those for Russian material, at $890/t-$910/t for SN150, $920/t-$940/t for SN500 and $1,040/t-$1,070/t for SN900, all on a CFR basis Apapa. Prices for Russian base oils from Russia or Egypt are at $895/t for SN150, $910/t for SN500 and $1,030/t for SN900, all basis CFR 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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