This is a base oil pricing report, and it would be negligent not to look at how this latest action could affect both prices and logistics for the supplies of base oil, both in and out of the Middle East Gulf regions.

Had Iran tried to disrupt ship traffic through the strait, conduit for a fifth of the world’s crude oil supply, it would have antagonized other Middle East Gulf nations, whilst also hurting receivers of large quantities of Middle East crude, such as China.

Base oil supply would have been hurt in multiple respects. First, supplies of API Group I and Group II material moving into Middle East Gulf hubs for distribution in countries such as the United Arab Emirates, Qatar, Bahrain and Kuwait would have been severely curtailed. At the same time, Group III exports from Bahrain, Qatar and the UAE – important to markets from Europe to Asia-Pacific to the United States – could have been at least partly cut off.

Blenders in Middle East Gulf have worried about such a scenario, where inability to lay hands on required base oils would halt their operations – operations that supply both local markets and receivers around the world.

Conditions were already becoming difficult before the ceasefire took effect. Base oil buyers were scrambling to procure quantities before Iran took action but were having difficulty lining up vessels willing to voyage into the region. Likewise, customers of Bapco, Adnoc and Shell were rushing to arrange prompt cargoes but vessels were hard to come by thanks to war risk insurance costs and obvious risks to crew and cargo.

A number of cargoes already on the water to ports in the UAE were diverted to alternative discharge ports, though they were not classified as distress shipments. Such changes are full of difficulties since they require amendment of documents and banking details.

Other cargoes that had been due to be loaded were delayed and were being held in tank, leaving their assigned vessels in limbo. 

Beyond all of this were the potential implications for global base oil prices since a major interruption for the strait could have caused a large spike in crude oil costs.

Now that a strait blockade has been headed off, trade should begin returning to normal. However, industry players near and far will keep an eye out for any new flaring of conflict because of the potential for large negative impacts.

Crude oil prices spiked early Monday but fell back after a muted Iranian response to the U.S. bombings and later the ceasefire agreement.

Dated deliveries of Brent crude ended Monday at $71.60 per barrel, for August front month settlement. West Texas Intermediate was at $68.60/bbl, having moved to August front month. The crack between the benchmarks had widened to around $3 per barrel.

European low-sulfur gasoil prices rose sharply early Monday – by around $100 per metric ton but later dropped more than $50 to $695/t, for July front month. All of these prices were obtained from London ICE trading late Monday.

Europe

Demand and supply of Group I base oils in Europe are currently described as balanced, with a  number of imported cargoes helping to even out any mini peaks in demand. Temporary maintenance shutdowns at multiple refineries are mostly completed, availabilities are adequate, and a demand spike forecast a couple months ago did not materialize.

Some players were anticipating that base oil prices would rise because of the Middle East conflict and were planning to adapt to that possibility. Now they are reconsidering in light of the ceasefire.

In Europe bright stock remains tight. Sources suggested last week that there is sufficient bright stock around to satisfy demand, but buyers are having to pay relatively high prices for this grade.

Even before the ceasefire announcement, prices remained stable – with FCA Rotterdam numbers of $1,035/t for solvent neutral 500 and $1,545/t-$1,565/t for bright stock. In both cases the material was imported Group I.

Pan-European euro numbers remained €825/t-€875/t for SN150 and €885/t-€925/t for SN500 or SN600. Bright stock holds a large premium to the solvent neutral grades, being placed in a range of €1,320/t-€1,375/t.

The euro-dollar exchange rate rose to $1.15470 Monday.

European Group II base oil prices are steady, with sellers still trying to increase sales. Some importers have offered “special” prices to some customers, whilst maintaining higher levels to others. There is almost a two-tier market for Group II base oils, with those able to purchase large quantities enjoying better terms, than smaller buyers.

Larger quantities of material are being sold at the low ends of the ranges.

Availabilities are more than adequate for Group II base stocks with large quantities of imports coming into Europe during May, bolstering European inventories. Sources report that there could be more buying activity but that suppliers are content with the direction of Group II uptake.

Prices are assessed at €980/t-€1,045/t for 110 neutral and 150N, while 220N is at €1,055/t-€1,090/t and 600N at €1,135/t-€1,200/t. These values apply to a wide range of Group II base oils from Europe, the U.S., the Red Sea and Asia-Pacific. For imports, the ranges refer to bulk shipments, but smaller quantities are transported in flexi-tanks.

European Group III prices continue to firm. The fighting between Israel, the U.S. and Iran threatened additional upward pressure, but that factor is falling away now.

The European market has seen fewer cargoes arriving over the past couple months, and this has reduced availabilities at a time when Group III demand was rising across Europe.

Some analysts estimate that European Group III demand will grow to around 25,000 t/y by 2030, up from around 18,000 t/y currently.

Prices for 4 centiStoke Group III with partial slates of finished lubricant approvals were slightly higher this week at €1,225/t-€1,255/t, on an FCA basis ex Antwerp-Rotterdam-Amsterdam. There are limited quantities of 4 centiStoke grade available around Europe, partly due to a lack of material arriving from Middle East Gulf. European levels for partly-approved 6 cSt are assessed at €1,220/t-€1,245/t and 8 cSt at €1,235/t-€1,250/t, on an FCA basis ex

Antwerp-Rotterdam-Amsterdam or Northwestern Euorpe.

Prices for Group III oils with full slates of approvals appear to have risen a little, perhaps on the back of tighter supplies of partly-approved products, or maybe this is an opportune time to try to maintain the premium over partly-approved base stocks. Prices are placed at €1,685/t-€1,720 for 4 and 6 cSt grades and €1,740/t-€1,755/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 4 are unchanged at $1,035/t-$1,075/t for 4 and 6 cSt, FCA rerefinery in Germany.

Baltic and Black Seas

There appears to have been a cargo loaded out of St. Petersburg for Lukoil with around 6,000 tons of base oils. Without any specific knowledge of the cargo, it would appear bound for Gebze, Turkey. It is imagined that two grades will be on board, SN150 and SN500.

This was the first cargo loading out of the Baltic for some time and may signal that availabilities for export sales have returned. Domestic supplies within Russia appear to have been prioritized, and reports that local prices have risen may suggest significant problems or issues within refineries. A number of base oil producing refineries have undergone maintenance, and tales continue to circulate about shortages of spares and equipment for Russian factories.

Putting numbers on Group I exports from Russia remains impossible, but CIF prices will become known when the cargo is discharged in Turkey, allowing calculations to estimate the FOB levels out of Russia.

For now, this columnist’s estimates of hypothetical FOB prices ex St. Petersburg are unchanged at $750/t-$775/t for SN150 and $780/t-$795/t for SN500.

Less Russian base oils are moving into Turkey, a market that until recently was awash with Russian barrels but is now searching for Group I sources. Europe has few availabilities for selling into Turkey, and even if material were available, Turkish blenders could not afford to pay European prices.

There is still some Uzbek and perhaps some Azeri material arriving into Turkey, but Iranian material that was arriving cross border from Iraq seems to have dried up.

Turkish traders no longer offer Russian material at low prices, but “indication” prices are heard at $895/t for SN150 and $920/t for SN500. No delivery or supply dates are offered, so these numbers are judged to have no validity. SN900, previously offered at $1,225/t, is no longer available.

Delivered prices for Rosneft Group I grades were suggested at $785/t for SN150 and around $800/t for SN500, CIF Turkish ports such as Gebze. The problem is that these prices are for material that has been in tank for some time and therefore do not reflect current pricing.

Current Rosneft levels are assessed at around $855/t for SN150 and $875/t for SN500.

Tupras prices for Group I base oils ex Izmir refinery are: Spindle Oil – 44,422 lira/t, plus a duty of Tl 8,884/t; SN150 -Tl 40,071/t, plus duty Tl 8,014/t; SN500 -Tl 43,203/t, plus duty Tl 8,641/t; bright stock -Tl 61,505/t plus duty Tl 12,301/t. These prices are basis ex rack Izmir refinery and incur an additional loading charge of Tl 8,199.20/t.

A Turkish trader offers two tiers of Group II grades on an ex-works basis: light Russian imports at $1,125/t for 110N and 220N but higher spec 350N for $1,315/t.

Excellent spec Group II from Taiwan or Saudi Arabia is offered at $1,655/t for 500N and $1,295/t for 150N.

Group III 4 cSt from Tatneft in Russia is offered at €1,275/t. Other Group III oils with partial slates of approvals are still assessed at €1,375/t-€1,400/t, but there are few avails for some of these grades. Dollar prices are available for Group III base oils.

Fully-approved Group III grades ex Cartagena, Spain, are being delivered into Gemlik, and their prices are estimated at €1,825/t-€1,855/t, basis CIF.

Middle East

Even before this week’s ceasefire, Group I and Group II base oil cargoes continued to load from Yanbu and Jeddah, Saudi Arabia, in apparent defiance of the Iranian threat to close the Strait of Hormuz.

Similarly, these vessels sail through the Bab-al-Mandeb Strait in the Red Sea without any problems from Houthi militants in Yemen.

With the start of the monsoon season, a lower number of cargoes will go into Indian ports, so it is assumed that most of loading is destined for Pakistan or the UAE. Group I cargoes are also loading for South Africa and Singapore along with northbound parcels for Egypt, Jordan and Europe. One vessel fixture is to deliver base oils into the UAE ports of Fujairah, Hamriyah and Jebel Ali.

Iran, of course, became the center of attention the past two weeks. One of the sites attacked by Israel and the U.S. was a nuclear facility in Isfahan, which is reportedly near a refinery that makes base oils.

Sources in the UAE suggested the refinery may have been damaged and this may affect base oil production from that unit. More information is being sought.

Iranian sellers have stopped trading base oil cargoes from any ports, and source in Haldia, India, was told no further cargoes would be available.

Iranian Group I prices were last heard at around $965/t for premium SN500 and $945/t for SN150. These prices are no longer valid and are mentioned only as indications.

CIF/CFR prices and offers for Group I base oils imported into the UAE are confirmed at $925/t-$945 for SN150, $955/t-$975/t for SN500 and $1,395/t-$1,425/t for bright stock. These cargoes were purchased from traders based in the U.S. and a European registered trader with representation in Dubai, but the base oils all originated from the U.S. Gulf of Mexico coast.

Offers for base oil to move into UAE ports were withdrawn or suspended before the ceasefire pending assessments by protection and indemnity clubs of shipping risks, but traffic should return to normal soon. Operators considered redirection vessels that were already on the high seas.

The cargo from Spain’s Mediterranean coast that would have partly discharged in Haifa, Israel, was suspended and will not be loaded until the situation has been examined and approved by management. No vessel was fixed to make this voyage, hence sellers comment that they will “review the situation on an ongoing basis.”

The rumor that a blender-trader in Sharjah had arranged a Russian cargo to load out of Turkey appears to have been false. Suppliers such as Lukoil may not be able to allocate barrels to service export business in regions such as the UAE due to shortages in Russia.

Russian base oil cargoes do not appear to have come into Hamriyah since March. Prices back then barrels being discharged into Hamriyah port were around $785/t for SN150 and $795/t for SN500.

The ceasefire relieves a large risk for Group III cargoes loading out of the UAE, Qatar and Bahrain. Netbacks for Group III base oils from Al Ruwais, UAE, and Sitra, Bahrain, are unchanged at $1,225/t-$1,260/t for 4, 6 and 8 cSt grades.

Netbacks for gas-to-liquids Group III+ base oils loading ex Ras Laffan, Qatar, remain unchanged at $1,255/t-$1,290/t, thought these numbers are offered as indications only. FOB netbacks are calculated using distributor selling prices in known markets minus marketing costs, margins, handling, storage and freight.

Group II base oils are imported to the UAE from the Red Sea, the U.S., South Korea, Europe and Singapore then resold either ex tank or on a truck-delivered basis in the UAE and Oman.

Some sellers have imposed allocations on buyers, indicating they will meet only part of requirements until replenishment quantities arrive into tank.

Prices for these Group II oils are unchanged at $1,425/t-$1,475/t for 110N, 150N and 220N and $1,510/t-$1,555/t for 600N. The highs of the ranges refer to RTW deliveries to buyers in locations in the UAE and northern Oman. Transactions are conducted either in UAE dirhams or U.S. dollars. The UAE currency is pegged to the greenback at AED 3.67 per.

Group III base oils from both Al Ruwais and Sitra continue to be delivered into the UAE either in smaller local vessels or, in the case of Adnoc, from Abu Dhabi, sometimes by road tankers to Sharjah, Dubai and Fujairah. Prices rose the past week to $1,335/t for 4 cSt, $1,350/t for 6 cSt and $1,375/t for 8 cSt, all basis FCA Hamriyah by truck deliver. The latter incurs an RTW delivery charge of $20/t-$55/t.

Prices ex refinery from Adnoc and Bapco are not disclosed, so the numbers above include a reseller margin of around $45/t to cover storage, handling and profit margin

Africa

South Africa and East Africa

The next parcel to load for Durban discharge should be loading during this week or next and is giving an ETA into Durban around the end of July or beginning of August. The vessel will load as usual from Rotterdam and Fawley, U.K., with 18,500 tons of mixed base oil and a small quantity of chemicals.

No shipping reports have listed any vessels being chartered for the next cargo to Guinea, Cote d’Ivoire and Ghana, but suggestions are that a vessel will load around early to mid-July.

Nigeria reports contain news of receivers or buyers requesting offers for one of more cargoes of Russian base oils, but a number of traders involved in this trade are apparently unable to offer anything firm. This may be down to a lack of availability of a quantity large enough to make this trade an economic reality.

One trader who tends to operate out of Turkey and Egypt may offer for a cargo to arrive in August. This trader delivered a cargo into Apapa during the past few weeks.

A vessel that was to be delivering a quantity of base oils into Apapa, left the anchorage at Lagos and has apparently sailed for Luba, Equatorial Guinea, perhaps to discharge the base oil cargo in that port.

The Nigerian naira’s official exchange rate to U.S. dollars is NGN 1,550N, around the same level as last reported. Many cargoes are prepaid in naira, which involves local representatives plying the black market for dollars to account for the cargo total.

Prices in Nigeria for the last material from the U.S. Gulf coast are unchanged at $890/t-$910/t for SN150, $920/t-$940/t for SN500 and $1,040/t-$1070/t for SN900, all on a CFR basis ex Apapa port in Lagos.

Current prices for Russian Group I base oils imported from Russia or Egypt have risen to $930/t for SN150, $955/t for SN500 and $1,035/t for SN900, all basis CFR Apapa.

Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London. 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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