Many market participants say exceptional tariffs could be the final blow for European manufacturing following the COVID-19 period. They warn that long, complex supply chains may collapse and not be replaced, with recovery taking years if it occurs at all.

Some blending operations are evaluating whether to remain in the business long term and are considering their future options. The market remains tense, awaiting a decision from Washington. Negotiations between Brussels and Washington appear headed down to the wire.

Tariff uncertainty, combined with the European holiday season, is holding back base oil activity. The market in Europe remains quiet. Sellers are attempting to stimulate sales ahead of what is expected to be a slow August. Base oil prices for Group I and Group II are weakening across Europe. Premiums over distillates and diesel are slipping, though this has not yet deterred refiners from maintaining current production levels.

Even Group III base oils have paused their recent upward trend and have stabilized. This contrasts with earlier increases driven by a lack of replacement barrels from the Middle East Gulf and Asia-Pacific.

With several cargoes now en route from various suppliers, the supply situation is expected to normalize in August and September, when multiple parcels are scheduled to arrive in Antwerp-Rotterdam-Amsterdam.

Elsewhere, base oil trading is slowing in regions such as the Middle East Gulf, where many market participants are away for the summer due to extreme heat. The United Arab Emirates has seen fewer arrivals from Asia-Pacific and the United States. With India quiet due to the monsoon season, cargoes that typically include two-port discharges are decreasing. All signs suggest the Middle East Gulf market will remain subdued until September.

In South Africa and East Africa, winter has cooled both weather and demand. Base oil markets there are looking ahead to September and October in preparation for a spring uptick in finished lubricant and base oil demand. Large cargoes are being arranged from Europe and the United States for arrival over the coming months.

West Africa remains quiet. Major market players have relocated to Europe or the United States for the summer. Meetings between traders and receivers are scheduled to take place in European centers over the next few weeks. The rainy season is affecting product movement in countries such as Cote d’Ivoire, Ghana and Nigeria, with few new deliveries of Group I base oils.

Some West African receivers are reportedly considering a shift to Group II base stocks, moving away from the traditional Group I products long supplied to the region. Pricing remains the primary consideration for potential Group II buyers. For now, the region may not be ready to transition to premium base oils.

Crude oil prices have held steady over the past few weeks. Levels rose briefly following Iranian-Israeli tensions but have since stabilized at or just below $70 per barrel for dated Brent. Dated Brent crude was at $68.70 per barrel, slightly down from last week for September front month settlement. West Texas Intermediate was at $66.75/bbl, also slightly lower, for August front month. The price gap between the two benchmarks has narrowed to about $2.

European low-sulfur gasoil prices remain stable near previous levels, around $722 per metric ton for August front month. All of these prices were obtained from ICE London trading July 21.

Europe

Heavy rainfall has improved river levels enough to resume larger barge movements of base oils, though waterways like the Rhine and Mosel are still being monitored.

Demand for Group I base oils remains weak across Europe. Prices have continued to decline throughout July. With August typically slow, sellers are now looking to the fourth quarter in hopes of a turnaround. However, the fourth quarter traditionally brings seasonal demand declines.

Refinery turnarounds have concluded, and Group I production has normalized. Arbitrage from the United States remains technically open, but high local output may reduce the need for imported cargoes unless traders can negotiate prices that allow margins. Lower-priced imports could depress local pricing, offering only short-term gains while reducing Group I margins overall.

Saudi Arabian producers are considering regular Group I exports to Europe. If this materializes, it may add another layer to the European supply chain, where some Group I facilities are under review for possible closure. One or two producers are assessing the market with short-, medium- and long-term scenarios. Though not discussed publicly, insider comments suggest more than one Group I producer may close within three years. Some companies traditionally involved in Group I production are exploring asset sales or transitioning to Group II production.

Tariff announcements from the United States have not spurred strong inventory purchasing. Export tariffs may influence blender decisions in the months ahead.

Crude and feedstock conditions are stable. With solvent neutral prices weakening, bright stock remains the only grade priced significantly above diesel.

FCA Rotterdam prices are unchanged with solvent neutral 500 at $1,035 per metric ton and bright stock offered between $1,545/t and $1,565/t, representing the remaining balance of an import cargo from the U.S. Gulf of Mexico coast.

Pan-European euro prices are lower at €810/t-€840/t for SN150 and €860/t-€900/t for SN500, while bright stock remains strong at €1,300/t-€1,355/t.

The euro-dollar exchange rate was flat the past week, registering at $1.16801 Monday.

Group II base oil prices in Europe were reduced earlier this month as suppliers applied discounts of €30/t-€50/t, but values remain higher than in the Asia-Pacific and the U.S., encouraging continued imports. Prices are unchanged this week at €950/t-€995/t for 110 neutral and 150N, €1,015/t-€1,045/t for 220N and €1,120/t-€1,150/t for 600N. These prices refer to oils from Europe the U.S., the Red Sea and Asia-Pacific.

The Group III market is stabilizing. Recent increases are leveling off, and replenishment cargoes from the Middle East Gulf and Asia-Pacific are expected in August and September. This may temporarily lengthen the market, though Q4 forecasts suggest improved demand if prices hold. Some believe Group III grades with partial slates of finished lubricant approvals may return to price levels seen a few years ago, while others expect prices to remain modest due to ample availability.

Prices for partly approved 4 and 6 cSt are assessed at €1,085/t-€1,095/t, on an FCA basis ex Antwerp-Rotterdam-Amsterdam, while 8 cSt, where available, is at €1,100/t-€1,125/t.

Prices for Group III oils with full slates of approvals are unchanged at €1,695/t-€1,725/t for 4 and 6 cSt and €1,745/t-€1,760 for 8 cSt, basis FCA from hubs in Antwerp-Rotterdam-Amsterdam, Northwestern Europe and Spain. Delivered sales include transport premiums.

Baltic and Black Seas

The EU and allied nations have introduced additional sanctions on Russia, targeting the practice of refining Russian crude in third countries and then importing those products into the EU under different certificates of origin. Cases have been cited where material refined in Turkey or India is imported into EU countries. Products such as diesel, jet fuel and mogas, which may have originated from Russian crude, are entering the European market under new certifications. Base oils are included in this practice.

The new sanctions aim to trace the crude origin of refined products. If the crude is Russian, the final products, including base oils, are banned from import into any of the 27 EU countries, as well as Norway and the United Kingdom. It is not yet clear whether finished lubricants blended with Russian base oils or additives in countries like the UAE or Turkey would also be banned. Clarification is being sought from EU officials in Brussels.

While it is not currently believed that base oils are being imported from Turkey or India into the EU or the U.K., the potential exists. Turkey’s only base oil producer, Tupras, operates a refinery in Izmir that switched from Urals crude months ago and now uses Arab Light, thus not violating the sanctions.

There is no current evidence of Indian base oils being exported to the EU or the U.K. Checks with Middle East contacts suggest it is unlikely Russian base oils are reaching Syria’s Lattakia port by sea, due to the port’s limited infrastructure. The method of sea importation, if occurring, remains unclear.

Accurate pricing for Russian base oils exported from the Baltic Sea remains elusive. If Russian base oils are discharged at Turkish ports, customs or shipping agents may disclose CIF pricing, from which approximate FOB values can be inferred.

Based on the latest known cargo to Gebze, Turkey, notional FOB St. Petersburg prices for SN150 are around $750/t-$775/t, while SN500 is at $780/t-$795/t.

A Turkish blender recently bought two grades of Group I base oils from a Spanish producer. Prices were approximately $785/t for SN600 and $1,055/t for bright stock, on an FOB basis. The quality may have been subpar, or a trader may have brokered the deal and arranged the vessel.

Russian base oils continue to flow into Turkey from Sea of Azov ports. Delivered prices for oils from Rosneft and Bashneft are reported at $895/t and $900/t, respectively, on a CIF or CFR basis ex Gebze.

Tupras Group I base oil pricing ex Izmir refinery is as follows, with an additional loading fee of 8,199.20 lira per metric ton:

• Spindle oil: TL 35,436 per metric ton, plus TL 8,984 duty;
• SN 150: TL 31,872 per metric ton, plus TL 8,271 duty;
• SN 500: TL 35,004 per metric ton, plus TL 8,898 duty;
• Bright stock: TL 53,306 per metric ton, plus TL 12,558 duty.

Group II base oils offered ex works in Turkey are believed to be of Russian origin. Prices are $1,100/t for 110N and 220N and $1,275/t for 350N. Prices for Group II from Taiwan or Saudi Arabia are at $1,275/t for 150N and $1,595/t for 500N.

Tatneft Group III 4 cSt is offered at €1,295/t, while partially approve Group III grades from other sources are at €1,375/t- €1,400/t, though some sellers say these grades are no longer available.

Fully approved Group III grades from Cartagena, Spain, are delivered in small parcels of 800-1,200 tons into Gemlik and are priced at €1,825/t-€1,855/t, on a CIF basis.

Middle East Gulf

The Luberef refinery Yanbu, Saudi Arabia, remains a key supply source for Group I and Group II base oils bound for the Middle East, India, South Africa, Singapore and Thailand. Yanbu is also shipping to Europe, and this route is being considered for regular supply. As part of the Saudi Aramco group, Luberef may use its European presence to expand Group I and II deliveries.

Cargo volumes arriving into the Middle East from Asia-Pacific and the United States were lower in June and continue to decline in July. There is a shift toward use of premium Group II base oils, with UAE blenders aligning to U.S. and European lubricant standards. Much of the UAE’s finished lubricant output is exported to regions where those standards apply.

Iran has halted Group I base oil loadings from its southern and western ports. Indian sources confirm no recent offers of Iranian Group I. Last recorded Iranian prices in early June were $965/t for premium SN500 and $945 for SN150, both indications only.

CIF and CFR prices for Group I base oils delivered to UAE ports are as follows.

• SN150: $925/t-$955/t
• SN500: $965/t-$985/t
• Bright stock: $1,395/t-$1,425/t

These cargoes come from U.S. and European traders, some with UAE offices.

Group III cargoes are again shipping from Abu Dhabi and Bahrain, the Bapco refinery in Sitra, Bahrain, having returned to full operational capacity after a prolonged turnaround. FOB netbacks for Group III from Al Ruwais, UAE, and Sitra are estimated at $1,270/t-$1,300/t for 4, 6 and 8 cSt oils. Netbacks for gas-to-liquids Group III+ from Ras Laffan, Qatar, are around $1,255/t-$1,290/t, on an indication basis.

Group II base oils are being imported into the UAE primarily from the Red Sea but also from the U.S., South Korea, Europe and Singapore. FCA pricing:

• 110N, 150N and 220N: $1,425/t-$1,475/t
• 600N: $1,510/t-$1,555/t

Prices are quoted in U.S. dollars or UAE dirhams, which are pegged at an exchange rate of AED 3.67. High-end pricing reflects road-transport–delivered values within the UAE and Oman. Group III stocks from Al Ruwais and Sitra are offered by a Sharjah distributor at the following FCA prices ex Hamriyah port:

• 4cst: $1,360/t
• 6cst: $1,375/t
• 8cst: $1,390/t

Delivered prices within the UAE and Oman include a surcharge of $20 to $55 per metric ton. Prices include a reseller margin of roughly $75 to cover costs and profits.

Africa

A 3,500-ton cargo of bright stock loaded at Yanbu has sailed to Alexandria to fulfill part of Luberef’s EGPC contract.

Samir in Morocco is seeking SN150, SN500 or SN600 and bright stock, all of which are needed for blending. Typical supply would come from Spain, though some Spanish sellers may not have all three products. Morocco is also exploring options in Northwestern Europe and may be negotiating a purchase out of Valencia.

A vessel loaded in Rotterdam and Fawley will discharge in Durban.

The market in West Africa remains quiet as base oil prices ex tank continue to fall in an attempt to encourage purchases. Rainy season logistics are hampering the movement of goods and people. Nigerian buyers are exploring cargo options from U.S. and Russian traders. Russian barrels may be transshipped through Egypt, Turkey or Azov.

However, buyers’ price expectations are widely considered unrealistic. U.S. suppliers are not offering material at this time, focusing instead on building stocks ahead of the hurricane season. Traders are unwilling to entertain offers at levels $100-$150 below achievable pricing.

Nigerian buyers have been quoted SN 500 at $900/t-$920/t CFR Apapa and SN 900 at $1,000/t-$1,025/t. These levels are unworkable, as current FOB costs are likely higher than the prices requested.

The official naira-to-dollar exchange rate remains NGN 1,529 NGN, unchanged from last week.

Last known prices for Group I imports from the U.S. gulf coast were 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 ex Apapa port in Lagos.

Prices for imported Russian base oils are at $885/t for SN150, $929/t for SN500 and $995/t for SN900, basis CFR Apapa.

No firm offers have been issued at these levels. Sellers suggest Russian prices are no longer as low as previously advertised, and Nigerian buyers may face a series of pricing shocks.

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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