This abundance of material is starting to create price pressure on available barrels of Group I grades, particularly on solvent neutral base oils, though bright stock availability is also rising around Europe. The latter grade had been extremely tight before the summer period, and prices benefited from a dearth of material, reaching record highs in in June and July.

There also appears to be ample stocks of Group II around Europe after importers stocked up over the past few months. Production from Rotterdam continues at pace, whilst smaller production is growing around the European mainland, with pockets of limited supplies available in Poland, Hungary and Spain. More upgrades to Group II production are to be expected, but potential suppliers are keeping their cards close to their chest right now, prompting a guessing game about which location the next new production will come from.

Group III remains relatively snug, although replenishment cargoes are arriving into Europe now and have eased what became a very tight supply scene during the summer.

Middle East base oil markets are getting back not the swing of things, with cargoes of Group I and Group II arriving and being planned for Middle East Gulf ports from Asia-Pacific, Europe and the United States. At the same time, Group III cargoes are moving to locations such as Rotterdam, the U.S. Gulf of Mexico coast and Singapore from main supply hubs in the United Arab Emirates, Bahrain and Qatar. Iranian exports of Group I base oils remain elusive.

African reports contain tales of large base oil imports moving into South Africa and East Africa, whilst West Africa is being routinely serviced by Group I cargoes moving into Guinea, Cote d’Ivoire and Ghana. Nigeria news is that the market is facing a tighter supply scenario, but receivers and traders remain at odds over prices. There are still stocks of Group I base oils in tank in Apapa port in Lagos, but  stocks are running low, and there are few prospects of new arrivals any time soon.

North African trade is brisk as base oils are moving in and out of Alexandria, Egypt, Naftec is sending Group I from Algeria into receivers in Tunisia and Morocco, and Group I material from Sicily is being imported into Algeria to supplement REACH-approved base oils in the local market.

Overall, global base oil prices look likely to face downward pressure over the coming months throughout Europe, the Middle East and Africa. Availabilities are good in most regions, with minimum interruptions to supply being observed in all markets.

Geopolitical events in Ukraine and the Middle East may intercede in proceedings in weeks and months to come, but without any real control over these matters, base oil players have learned to adapt to new circumstances by altering supply chains and buying patterns. Cargo routes have had to change, with almost all Western registered vessels sailing around the Cape of Good Hope, rather than risk marine attacks on ships by Houthi rebels in the Red Sea. Only Chinese-, Russian- and Iranian-flagged vessels are exempted from Houthi attacks, although recent Israeli and U.S. strikes in Yemen may have started to limit attacks.

Crude and Gas Oil Prices

Crude and feedstock price levels have remained in a narrow range for some months now, with a political and economic malaise affecting major markets such as China and India. Russia still supplies a great deal of crude to both countries, but prices are heavily discounted to ensure sales of crude continue. Even against punitive sanctions by the U.S. administration, Indian buyers continue to accept cargoes of crude from Putin, although some are looking for ways to cancel or amend supply agreements.

The European Union and allies such as the U.S. and the United Kingdom are now imposing bans on any imported petroleum products made from Russian crude, limiting the export of surplus production from Indian refineries. Base oils will be largely unaffected by the import restrictions, since the only base oil production that could qualify is from the Tupras refinery in Izmir, Turkey. This refinery ceased using Urals crude a couple of years back, and besides, base oil exports from Turkey into Europe are minimal and relatively rare.

Crude prices are called to soften during the remaining part of this year, as OPEC+ members ramp up production and as there are few signs of economic improvement or recovery in main markets.

Dated deliveries of Brent crude: $66.20 per barrel, November front month
West Texas Intermediate: $62.40/bbl, October front month
European low-sulphur gas oil: $693 per metric ton, September front month
Source: London ICE trading late Sept. 8.

Europe

Group I prices around Europe are softer following a build-up of inventories in refinery storage, which is now peaking, causing sellers to incentivize sales through discounts, ultimately leading to lower FCA and FOB prices. This scenario is progressive, and the market will not be seen to crash, but prices will continue to face downward pressure as long as the dynamic continues. Buyers could counter offers with aggressive ideas on discounts.

Regional or local prices remained relatively stable over the summer, but with weak demand through July and August, this picture of the market was perhaps flawed, and only now, with demand picking up, will the market witness downward moves to all API Group I prices.

Last week there were two export parcels identified, and this report re-introduced prices for European Group I exports. Having taken that decision, no more cargoes have been reported! However, the resumption of these European exports may not be over yet. Sources contacted last week said they would consider lower-priced export offers to clear surplus stocks.

Export prices mentioned last week are trimmed, in the belief that further discounts were applied to the solvent neutral grades to enable the sale to be made. Levels are assessed at $720 per metric ton for SN150, with SN500 at $820/t. Bright stock remains at $1,200/t. These prices were on the basis of FOB two Mediterranean ports.

FCA levels and Eastern European prices are maintained this week, but will be reassessed during the next few days. The East European levels will be valid until the end of September but may be subject to small discounts to some customers.

Group I Prices

Exports, FOB
SN150: $720/t-$745/t
SN500: $795/t-$820/t
Bright stock 150: $1200/t

Northwestern Europe, FCA Antwerp-Rotterdam-Amsterdam
SN150: $885/t-$925/t
SN500: $965/t-$1,020/t
Bright stock 150: $1,340/t-$1,385/t

Eastern Europe,  FCA
SN150: €966/t
SN500:  €1,021/t
Bright stock 150: €1,352/t

Pan-European, FOB/FCA basis
SN150: €755/t-€795/t
SN500/600: €825/t/t-€855/t
Bright stock 150: €1,185/t/t-€1,260/t

Pan-European prices are assessed with representative numbers from Poland, France, Germany, Benelux, Iberia, Italy, Greece and the U.K. The euro’s exchange rage to the U.S. dollar was at $1.17525 Monday.

European Group II prices according to sellers have not been subject to downward moves, but some buyers have intimated that from Sept. 1, they were able to negotiate slightly lower prices. Group II prices are steady but are being nibbled at by buyers looking to achieve the best deal possible.

Buyers continue to cite the large differential between Group I and Group II prices and also the premiums Group II grades hold against distillate and crude levels. European Group II prices are still averaging higher than other regions, providing an incentive for importers to optimize quantities moving into the European arena.

Group II prices, FCA basis

110N/150N: €925/t-€965/t
220N: €945/t-€1,010/t
600N: €1,100/t-€1,125/t

Prices potentially refer to a wide range of Group II oils that can be sourced from Europe, the U.S., the Red Sea and Asia-Pacific. Price ranges refer to bulk shipments, though smaller quantities can be imported in flexi-tanks.

Group III demand shows positive, particularly for 4 centiStoke material, with distributors selling out all available stocks that had been replenished by incoming cargoes over the past few weeks. Availability of 4 cSt remains tight, with distributors frequently selling all available quantities to regular buyers and customers arranging for future deliveries often a couple of months in advance. Distributors are trying to maximize cargo quantities and increase the frequency of parcels arriving into Europe.

There is competition for all available barrels from sources in the Middle East Gulf and Asia-Pacific because availabilities are limited regional producers in the U.K., Spain and Finland, causing reliance on imports. Markets such as the U.S., India and China are also dependent on supplies from the Middle East Gulf, as are buyers in Thailand and Singapore.

One supplier still claims shipping problems for Group III grades from South Korea. The supplier negotiated contracts at keen prices below market levels and now must meet those lower levels.

A producer from Northern Europe has lately showed very aggressive prices, perhaps to move material quickly, but these grades, which previously carried full slates of finished lubricant approvals, may have quality issues due to feedstock variations at the producing refinery.

What is interesting is that at least two market suppliers in Europe are on the last stages of gaining full slates of approvals for their base oils. When this status is obtained, will these players hike prices to the fully-approved levels established in the European market now, or will they gradually increase, or will they remain at current levels. The next two years could be interesting years in the European Group III market.

Prices are maintained with sellers reporting no changes to levels.

Group III Prices

Oils with partial slates of finished lube approvals, FCA Antwerp-Rotterdam-Amsterdam, Northwestern Europe
4 and 6 cSt: €1,070/t-€1,100/t
8 cSt: €1,125/t-€1,145/t

Full slates of approvals, FCA Antwerp-Rotterdam-Amsterdam, Northwestern Europe, Spain
4 and 6 cSt: €1,675/t-€1,715/t
8 cSt: €1,725/t-€1,740/t

Where product is sold on a delivered basis, a premium covering transport costs will be added to the above prices.

Rerefined Group III, FCA Germany
4 and 6 cSt: $995/t/t-$1,045/t, basis FCA Germany.

Baltic Sea

Group I and II oils from Europe and the U.S. have established a regular flow into the Baltic States often by road tanker, but cargoes are also moving by ship into ports such as Riga and Liepaja, Latvia, and Klaipeda, Lithuania.

Group III base oils sold FCA are also being transported into Baltic States for blenders based in those countries. Supplies of Group III base oils from Neste in Porvoo, Finland, are ideally situated to supply Baltic states, but there have been quality issues with this production, and some blenders in Lithuania and Latvia prefer to lift Group III base oils from Rotterdam, from one of the distributors selling on an FCA basis.

The transition away from a reliance on Russian base stocks has been obviously necessary, but it has been a costly exercise since base oils from other sources cost more. Blenders have upgraded operations to reflect EU standards and specifications for the latest ACEA formulations for OEM fully-approved lubricants.

Bulk cargoes of export barrels from Lukoil are loading out of the Baltic, primarily from St. Petersburg. The material is produced at Perm refinery in the northern part of Russia.

Accurate Baltic prices for Russian export cargoes of Group I base oils are still guesswork, but when cargoes are discharged in Turkey or Nigeria, CIF/CFR prices will be released by importers, customs officials or shipping agents. Using freight rates established from shipbrokers, ballpark FOB prices can be worked out.

Notional prices for Russian exports, FOB St. Petersburg
SN150: $625/t-$655/t
SN500: $660/t-$685/t.

Black Sea & Turkey

Russian cargoes are back again, making waves in Turkey with the lowest CIF/CFR prices seen yet. Rosneft price levels were heard last week at $590/t for SN150 and $665/t for SN500, the main grade. These prices are hard to believe as any normal economics would put them below feedstock cost. The reasons for such low levels is unknown. Lukoil prices from the Baltic are around $100/t-$150/t higher. Freight is more expensive from the Baltic than from the Sea of Azov, but the levels seen from Rosneft and sometimes Bashneft seem crazy.

Turkish buyers are trying to buy quantities of U.S. Group I and Group II through a trader well known in the region. No cargoes have yet been fixed. This is not surprising given that receivers were or are looking for levels pitched just above Russian numbers. That will be difficult to achieve as rates for U.S. oils appear to be around $300/t higher.

Turkish Base Oil Prices

Russian Group I Lukoil, CIF/CFR Gebze
SN150: around $835/t
SN500: around $850/t

Rosneft and Bashneft CIF/CFR Gebze
SN150: $590/t
SN500: $655/t

Tupras Group I, ex rack Izmir refinery
Spindle oil: Tl 35,035/t plus value added tax of Tl 8,904.44/t
SN150: Tl 29,849/t plus VAT Tl 7,867.24/t
SN500: Tl 32,969/t plus VAT Tl 8,491.24/t
Bright stock: Tl 52,094/t plus VAT Tl 12,316.24/t

Tupras sales also incur a standard loading charge of Tl 9,487.20/t.

Group II, ex-works
110N and 220N, Russian origin: $1,020/t
350N, blended or from alternative source: $1,180/t
150N, from Taiwan or Saudi Arabia: $1,210/t
500N/600N, from Taiwan or Saudi Arabia: $1,425/t

Partly-approved Group III
4 cSt from Tatneft, FCA: €934/t

Fully-approved Group III from Spain, CIF Gemlik
€1,825/t/t-€1,855/t.

Middle East

Although demand is sluggish compared to pre-summer months, prices for SN500 have risen by around $15/t. Cargoes continue to load from Yanbu and Jeddah, Saudi Arabia. Yanbu can supply both Group I and Group III base oils, whilst Jeddah refinery only produces SN150 and SN500. Bright stock production at Jeddah ceased some time ago.  A 3,000-ton parcel of bright stock is loading out of Yanbu for Alexandria this week. This is a regular supply under the EGPC supply contract.

The Houthi stronghold in Sanaa, Yemen, has been targeted by Saudi Arabia and heavy fire reportedly took place over last weekend. Meanwhile the Houthis struck Israel’s Ramon airport with drone fire. The IDF is considering reprisals in Yemen, perhaps soon.

With supplies of Group I and Group II base oils widely available in the U.S. and now also in Europe, traders are working hard to sell surplus quantities of both types of base oils to receivers in the UAE. Some of these traders are regular suppliers to Nigerian receivers, but current conditions in that market have them focusing elsewhere, for example on sending cargoes to the UAE. Trading in the latter market is done on a regular commercial basis, with banking and payments secured against letters of credit. Terms are agreed and form contractual arrangements.

UAE receivers are also lining up cargoes of Group I and Group II base oils from Yanbu and Jeddah.

Demand seems to have returned to the region, although it only dipped a little during the past couple months due to holidays and key players missing from their desks. Most in the UAE have returned to their offices, although a few stragglers are not due back until October.

Sources indicate that the lubricants market, and thence base oil trading, is buoyant and demand is growing for premium base oils, especially for Group II, which is being imported from Asia-Pacific, the U.S. and now Europe.

There are a number of mixed cargoes of Group I and II have been identified, bound for receivers that use both types to manufacture finished lubes for markets around the Middle East Gulf.

No base oil cargoes are reported moving out of Iranian ports, although sources in Sharjah have told this report that material is still coming out of Iran. Why the cargoes do not appear on shipping reports is unknown. Indian receivers have also confirmed receiving of a parcel of around 4,500 tons of rubber process oil from traders in Ras al Khaimah, UAE. This material is of Iranian origin.

Rubber process oil from Iran is delivered into Ras al Khaimah, in small parcels, then a larger cargo quantity is loaded for receivers in India or South Korea. The final quantity can be up to 5,000 tons, which may take a couple of months to assemble.

UAE Prices

Group I, CIF/CFR UAE ports
SN150: $895/t-$935/t
SN500: $965/t-$1,000/t
Bright stock: $1,245/t-$1,275/t

Group I cargoes are purchased from traders based in the U.S. and Europe, some of whom have representation in the UAE.

Group II, FCA or on an RTW basis UAE and Oman
110N, 150N and 220N: $1,385/t-$1,425/t
600N: $1,475/t-$1,520/t

Group II base oils imported into U.A.E. from the Red Sea, the U.S., South Korea, Europe and Singapore are being resold ex tank the UAE, or on a truck delivered basis throughout the UAE and parts of Oman. Deliveries are made by distributors who purchase base oils directly from Luberef, but also from U.S. and European majors and traders. The highs of the ranges refer to RTW deliveries to buyers in the UAE and northern Oman.

Group III, FCA Hamriyah or delivery by RTW in UAE and Oman
4 centiStoke: $1,285/t
6 cSt: $1,295/t
8 cSt: $1,325/t

Group III prices include a reseller margin of around $75/t to cover storage, handling and operating margin. RTW deliveries incur a further charge of $20/t-$55/t.

Group III cargoes are loading from Al Ruwais, UAE, and Sitra, Bahrain, to supply distributors in the U.S., Europe, India and China. Receivers in Thailand have also taken a cargo from Al Ruwais. Cargoes are sold FOB to distributors who have the responsibility for shipping, storing and reselling on arrival in the designated market.

Group III netbacks from Al Ruwais and Sitra are reckoned to be similar and are maintained at the new levels established last week, reflecting FCA selling levels in known markets such as Europe and the U.S. Netbacks are assessed between $1,030/t-$1,055/t for 4, 6 and 8 cSt Group III grades. These netback levels may indicate FOB prices from producers to distributors.

Netbacks for gas-to-liquids Group III+ base oils loading ex Ras Laffan, Qatar, are re-assessed to be between $1,085/t-$1,100/t. Cargoes have been noted moving to Singapore and the U.S. of late with the last European supply arriving earlier in the summer. It is expected that another large parcel will be discharged in Europe during the fourth quarter.

Numbers are given as indications only since information regarding these cargoes is not available. Netbacks are calculated using selling prices in known markets, less estimated marketing costs, margins, handling, storage and freight.

Middle East Gulf Group III base oils sourced from Al Ruwais and Sitra are delivered by sea into Sharjah in the UAE. These base oils are then offered for resale through an appointed distributor rather than on a direct basis from Bapco or Adnoc.

Africa

Bright stock continues to be regularly delivered into Alexandria. Cargoes of around 3,000-3,500 tons of bright stock load out of Yanbu, supplying contracted volumes under the EGPC tender.

Cargoes of Group I base oils are being sold by Naftec in Algeria to receivers in Tunisia and Morocco. These base oils do not have REACH approvals but can be used in local North African markets to blend a range of finished lubricants

Agents in Durban, South Africa, have advised that another large base oil argo of a round 20,000 tons will load from Europe before the year end end. The current cargo for Durban is en route after loading from Rotterdam and Fawley, U.K. The parcel is thought to comprise of around 18,000-19,000 tons of base oils.

A move to introduce Group II base oils into Nigeria has been announced with the appointment of Gapuma Group by Chevron to distribute Group II from the latter in Nigeria. The timing of this project has not been announced as yet, with planning stages to be undertaken and storage allocated for cargoes of Group II base oils.

There is a market for premium base oils in the Nigerian market, but how extensive is open to interpretation. Some sources say that it is a matter of time before Group II becomes the all important base oil types in West Africa, but attitudes will have to change from a price driven market to a more sophisticated model. Some of the majors operating and blending in Nigeria have been experimenting with Group II blends, taking material into Lagos in flexi-bags loaded in containers.

The transition from Group I to Group II base oil will be fascinating to watch, with buyers and receivers in Lagos currently arguing and beating down offers from traders to get to prices that would be in line with Russian offers. Receivers are refusing to pay higher numbers for U.S. or European base oils.

With the end of the rainy season, Nigerian base oil buyers are looking to replenish stocks from traders who are up against extremely low prices being demanded by receivers: $880/t for SN150, $930/t for SN500 and $1,075/t for SN900. It does not appear that deals at such levels are close.

One trader has purchased a quantity thought to be around 9,000 tons of three grades of Group I base stocks from two sources in the Mediterranean. The vessel first loaded SN150 and SN500 in the first port, then proceeded to load a quantity of bright stock from the second. The bright stock was to be blended into SN900. The cargo arrived in Apapa on Sept. 4 and was discharged, according to local sources. The vessel then sailed to Mombasa, Kenya.

How the economics worked out on this cargo remains a little puzzling, with suggestions that the first part of the cargo was heavily discounted to be able to compete with material from Russia.

The Nigerian naira’s black market exchange rate is NGN 1,524 to the dollar as of Monday.

Nigeria Group I prices, CFR Apapa

U.S. quality base oils
SN150: $880/t-$910/t
SN500: $920/t-$940/t
SN900: $1,075/t

Russian origin base oils
SN150: $880/t
SN500: $930/t
SN900: $995/t

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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