Weak Ruble Benefits Russian Lube Exports

The devaluation of the Russian ruble has helped boost base oil and finished lubricant exports from the country and is also helping shield against imports of the same products, according to industry insiders.

As of last week, the Russian currency has lost 17 percent of its value against the dollar since the beginning of this year, helping to make export sales more lucrative, Artem Mazaev, an independent lubricant industry consultant, told Lube Report.

Photo: Valeri Potapova/Shutterstock

The Russian ruble has lost 17 percent of its value against the dollar since the beginning of this year, helping to make export sales more lucrative.

The devaluation of the ruble to its two-year low followed the new sanctions against Russia imposed by the United States Department of State in early August.

That devaluation makes exports of products such as base oils more lucrative to Russian refiners, who sell significant amounts of base oils into Turkey, Western and Central Europe, the Middle East and other markets. Demand from the Middle East slumbered in recent months because of the Ramadan and Eid holidays but should improve now that they have ended. Also, the base oil demand in the European market is improving after the traditional slowdown during the summer months, said Denis Varaksin, manager at Berlin-based trader DYM Resources.

The same dynamic should affect finished lubricants made in Russia, Mazaev said. These products will become more attractive for exports to the Middle East and Central Asia, he said.

At the same time, goods entering Russia become more expensive.

Thanks to the weak ruble, the price of imported [API] Group II and III base oils is expected to rise. This could trigger more production of these products in Russia and their use for local blending by local and international blenders, Mazaev said.

Russia has enough Group I capacity to meet the needs of domestic lube blenders for that grade of oil. The country also produces Group II and III base oil but not enough to meet the needs of the domestic market, which imports extensive amounts of these products.

That would explain why domestic prices for finished lubricants rise - even those produced in country - as the rubles value declines, Mazaev said. But prices for imported finished lubes rise even more since the currency devaluation affects more of their costs. This means imports tend to become less affordable relative to domestically produced products.

As a result, the target audience for the imported products will continue to shrink. Russians will continue to switch from imported to locally produced lubricants, choosing between the lube brands of Lukoil and Gazpromneft and the international brands produced locally, like Shell or Fuchs, Mazaev observed.

With the weakening ruble, prices for finished lubricants manufactured in Russia should become more competitive in the international markets. These products will become more attractive for exports in the Middle East and Central Asia, Mazaev said.