EMEA Base Oil Price Report

Ray Masson - May 23, 2023

Base oil markets throughout Europe, the Middle East and Africa remain subdued, with much less trading
than normal for this me of year and an absence of demand from several key regions.

A number of pundits predicted demand would start to increase during the second quarter, but that has
not happened. Demand for API Group II oils is described as healthy, and there are pockets of ac vity, but
overall the scene is nega ve, and with economic ac vity s ll depressed in many regions, hope for this
year is running out.

Some players s ll hope for an upturn during the second half of this year, but when the war in Ukraine is
built into the equa on, and high infla on con nues to haunt almost every major global economy, the
possibili es for a reversal in fortunes seems remote.

Group I markets are s ll re-engaging a er the European Union’s ban on Russian imports. Some traders
and blenders are scratching around for alterna ve supplies, but many producers are short of suitable
material to fill the void, promp ng some lube producers to replace Group I barrels with Group II. Group II
producers are more than happy to accommodate since prices remain at acceptable levels.

Group III supply is beginning to turn long in the European arena thanks to the arrival of more Asia-Pacific
suppliers eager to breach this high-margin market. The result is more and more Group III oils being seen
around the market, and so price erosion is star ng to set into what was previously a pla num-plated
market.

Crude oil prices have steadied the past few weeks. It now appears that major producers such as Saudi
Arabia and Russia have not followed through on pledges to reduce output, con nuing to place barrels
into a challenging market s ll trying to recover from the coronavirus pandemic even as infla on curbs
demand for crude. Major economies such as China and India are s ll not firing on all cylinders, although
significant quan es of discounted Russian crude are suppor ng both na ons.

Dated deliveries of Brent crude and West Texas Intermediate crude are hovering around the same levels
as last reported. Brent is at $75.80 per barrel, s ll for July front month se lement, whilst WTI is
$71.90/bbl, now for July front month.

Low-sulfur gas oil rose around $5 per metric ton since last week to $684 per metric ton, now for June
front month. All of these prices were gathered from London ICE trading at the close of May 22.

Europe

European Group I exports are non-existent now for two main reasons. First, few suppliers have quan es
available to meet demand going into areas such as West Africa and the Middle East Gulf. Second, any
parcels that do become available are priced too high as sellers can find enough business in the European
market, where prices are higher.

Many export des na ons have become targets for oil majors, a shi that became no ceable the past
couple years. Previously they would have le West African markets such as Nigeria, Ghana, Cote d’Ivoire
and Guinea to traders, but now supplies into those regions are commonplace.

1|Page
The Turkish market remains dull ahead of an elec on run-off scheduled for May 28. Whether its result
will s mulate the local base oil market is a ma er for conjecture. Rampant infla on and weakness of the
Turkish lira could con nue if Recep Tayyip Erdogan is re-elected president.

In the interest of repor ng some numbers, prices for European Group I exports are unchanged at
between $1,020/t and $1,055/t for solvent neutral 150 and $1,085/t-$1,140/t for SN500 and SN600, all
on an FOB basis. No offers have been heard for export-sized parcels of bright stock, so prices for that
grade are no onally le at $1,295/t-$1,345/t.

Group I trade within Europe appears steady without signs of upward or downward pressure on values.
Even with a few Group I refineries closed temporarily for maintenance, supply of these grades remain
ample, and the lack of compe ng demand from export markets means that buyers know they can access
Group I with rela ve ease.

Group I imports are coming into Europe from a number of areas, including the United S. and Red Sea.
Cargoes are being discharged into storage and then sold on an FCA basis in Antwerp-Ro erdam-
Amsterdam and Northwestern Europe.

Prices for Group I sales within the region are assessed as stable at €1,050/t-€1,080/t for SN150, at
€1,155/t-€1,185/t for SN500 and around €1390/t for bright stock.

The euro’s exchange rate with the U.S. dollar barely changed the past week and is at $1.08076. The price
differen al between Group I exports and sales within the region is maintained at €125/t-€185/t, exports
being lower.

The European Group II market is described as balanced, with reasonable demand coming from a rather
depleted market. It is not clear whether this demand stems owes to the unpredictability of Group I
supply or mostly from lube blenders switch from Group I for technical reasons. Some blenders have said
they planned to switch when scaling up opera ons post pandemic, while others are saying they need
more Group II because of upgrades to lube specifica ons.

Given the large price gap between Group II and Group III, there has been a resistance to move hear ly
toward the la er category, and lube addi ve package suppliers are helping some blenders to meet new
specs while s cking with Group II.

Group II prices are unchanged at €1,090/t-€1,175/t ($1,196/t-$1,289/t) for 100 neutral, 150N and 220N
and at €1,295/t-€1,360/t ($1,421/t-$1,492/t) for 600N. These values apply to a broad range of Group II
oils from Europe, the U.S., Asia-Pacific and Red Sea sources, imported in bulk or flexi-tanks. Note that the
light grades do not all occupy the same part of the range listed for them; 100N and 150N are priced
above 220N.

The Group III scene changed significantly. A market that was featuring alloca ons and limited supplies is
now encouraging buyers to li more than their monthly contracted quan es. The a rac on of a high-
price, high-margin market to sellers has lured more Asia-Pacific suppliers and spurred Middle East Gulf
suppliers to increase their exports to the region. More cargoes from Sitra, Bahrain, and Al Ruwais, United
Arab Emirates, are scheduled to load for Europe during June and July. A large cargo of gas-to-liquids
Group III+ will load out of Qatar for Shell and will come into Europe, probably during July.

2|Page
Interes ngly, traders appear able to purchase quan es of the same oil from the same source from Far
East sources, a prac ce banned un l now under the Shell umbrella.

Group III prices are beginning to erode as a number of distributors and suppliers offer steep discounts for
purchases of extra volumes. Values for Group III with par al slates of finished lubricant approvals or with
no approvals are at €1,675/t-€1,795/t for 4 and 6 cen Stoke and at €1,700/t-€1,725/t for 8 cSt, where
available, all on an FCA basis ex Antwerp-Ro erdam-Amsterdam or Northwestern Europe.

Prices for Group III oils with full slates of approvals, currently supplied from the refinery in Cartagena,
Spain, are unchanged at €2,020/t-€2,060/t for 4 and 6 cSt, on an FCA basis ex hubs in Antwerp-
Ro erdam-Amsterdam, Northwestern Europe and Spain. Volumes of fully approved 8 cSt supplied in
Europe are too low for reliable price repor ng, but small volumes are being sold into des na ons such
as India and Turkey for around €1920/t, on an FOB basis.

Bal c and Black Seas

Outgoing Bal c cargoes almost disappeared from the radar, with only a number of shipping inquiries
listed that show poten al cargoes to be moved out of Svetly terminal in Kaliningrad for Lukoil. There are
repeated cargo quan es each week to come out of that loca on, but whether receivers have not
commi ed to the quan es, or whether there are problems finding suitable vessels to carry these
cargoes is an unknown factor.

There are other small inquiries for material to be moved out of Riga, but mostly these inquiries never
convert into actual cargoes. A Singapore parcel is to be loaded as soon as shipping is found to take this
cargo, but there could be difficulty in finding suitable vessels that will be acceptable to receivers.
European Union and other allied countries owners are not permi ed to offer vessels to Russian
charterers, par cularly to load from a Russian port. Therefore, there are a limited number of owners
who can offer to load from the Bal c to take deep-sea cargoes of base oil to ports such as Singapore and
Hamriyah in the U.A.E.

Offers are con nually made to receivers in the U.A.E., but the long voyage me and also the uncertainty
of possible load dates makes firming these cargoes a forlorn hope.

Base oil parcels are seen moving into the Bal c from northwest European sources, and addi onally
another re-refined parcel will move into a Lithuanian port during the next couple of weeks.

Sellers from Gdansk have indicated that they may have avails in July, with a number of receivers looking
to take material from this source. The United Kingdom buyer looking to take Gdansk material opted to
take a parcel of Group I base oils from Algeciras, but when this will load is not known as yet. The cargo
quan ty will be up to 4,500 tons.

FOB prices from Svetly are established by taking CIF prices delivered into Gebze discounted by es mated
freight rates. As an indica on only, SN 150 levels are put at $825/t-$875/t, with SN 500 at $845/t-$890/t.

FOB prices for Group I material from Gdansk refinery will eventually be in line with European
mainstream pricing. Without any material available un l July, prices are currently indica ons only, with
SN 150 assessed at $1,025/t-$1,070/t and SN 500 at $1,095/t-$1,140/t, depending on des na on. Bright
stock may come in at $1,300/t-$1,355/t.

3|Page
Turkish base oil markets appear to have shut up shop un l the elec on is decided, following the run-off
between the two leading contenders on May 28. Indica ons and polls suggest that the present
incumbent president will be returned to power, leaving the same policies in place as previously decreed.
The soaring infla on rate is set to remain along with the ever-weakening currency valua on of the
Turkish lira versus the US dollar.

Russian base oil imports are s ll arriving into the main ports, flooding the Turkish base oil market with
substandard base stocks for local blending. The current Bal c cargo should be arriving into Gebze in the
next few days. A cargo from Aghio will also discharge in Derince with 4,400 tons of Group I neutrals,
probably SN 150 and SN 600. These imports are necessary to manufacture some of the toll-blended
finished lubricants that are produced in Turkey. Because these lubricants are formulated under license
and must use approved blend stocks, receivers pay a much higher price than the Russian imports.

Exis ng offers from Greek sellers in Aghio had been very low, but the latest prices were hiked to higher
levels. Latest offers are reckoned to be around $1,085/t for SN 150, with SN 600 at around $1,095/t.

Tupras availabili es from Izmir refinery have not changed during this week and in Turkish lira are as
follows: spindle oil Tl 20,725/t ($1,057/t), SN 150 Tl 17,269/t ($881/t), SN 500 Tl 19,999/t ($1,020/t),
with bright stock at Tl 24,767/t ($1,263/t). Prices are for ex-rack truck sales.

Limas terminal in Turkey may see further Lukoil cargoes des ned for receivers in the U.A.E. The two
cargoes to Singapore may have been a subs tute quan ty for the planned movement out of the Bal c,
which may have been impossible due to shipping and other logis cal problems. One parcel of 4,000
tons, with another cargo of 6,500 tons of Russian export barrels will load next week. The base oils will
have been sourced out of Volgograd refinery.

Group II ex-tank prices are maintained, with levels assessed at €1,210/t-€1,245/t for the three lower vis
products – 100N, 150N and 220N – with 600N at €1,390/t-€1,485/t. Supplies of Group II grades may be
sourced from Red Sea, the U.S., South Korea and Ro erdam or hub storage in Valencia.

Partly-approved Group III base oils resold by distributors on an FCA basis or on a truck-delivered basis are
again adjusted lower and are assessed at €1,825/t-€1,855/t. Fully-approved Group III grades delivered
into Gemlik from Cartagena remain priced at €2,250/t-€2,300/t FCA.

Middle East

There appear to be supply interrup ons from Yanbu refinery at the moment with a number of cargoes to
the west coast of India and the United Arab Emirates being postponed and delayed. The nature of the
problem is not known at this me, but there may be a feedstock issue that has interrupted the opera on
of the base oil train curtailing produc on. How long this supply issue will last is not released, and it is not
known if it is feasible for some of the solvent neutrals to be supplied from Jeddah refinery to
compensate for the loss of material coming out of Yanbu. Luberef should have loaded a number of large
cargoes for the U.A.E., India and Pakistan, with a further parcel going into both Ras Al Khaimah in the
U.A.E. and Mumbai anchorage.

An update on the present situa on is being sought, and more informa on may be available later this
week.

4|Page
There are reported cargoes of coming into the U.A.E. ports Hamriyah, Ras al Khaimah and Jebel Ali.
Addi onally, cargoes were to load for Fujairah and Jebel Ali, but these cargoes may have been delayed
due to the problems at Yanbu, comprised of Group I and Group II base oils. The parcel en route from
Augusta and Valencia to the U.A.E. should arrive within the next couple of weeks, perhaps allevia ng the
shortages caused by delays from Yanbu.

Middle East Gulf regional demand is higher for premium base oils, with Group II going into blending
opera ons that are now producing higher spec passenger car motor oil and heavy-duty motor oil
lubricants. More state of the art European and United States vehicles are being purchased by owners in
the U.A.E. and other Middle East Gulf states. Oddly, there have been few moves to introduce electric
vehicles into the Middle East Gulf states, possibly due to the low prices of motor gasoline and diesel in
those areas. Group II base oils are taking the place of exis ng Group I that was formerly used in blending.
Group II cargoes are arriving in the U.A.E. from Red Sea, South Korea, the U.S. and Europe.

However, Group I base oils are s ll u lized in many local blending opera ons in the Middle East Gulf,
with a stream of material supplied from Rayong in Thailand. Other supplies of Group I base oils are
coming out of Indian refineries in Haldia and Chennai. That’s because, with imported cheap Russian
crude apparently being purchased by Indian oil companies at around $40 per barrel, Indian base oil
producers are able to provide larger quan es of Group I base oils that have excellent margins when
sold into receivers in the U.A.E., Singapore and Southeast Asia.

The offer for a cargo of Group I base oils to be imported into the U.A.E. from Lukoil will probably not go
ahead, due to logis cal and shipping problems. Prices are believed to be very low, but the voyage me
from the Bal c and the finance outlay are unacceptable. Receivers are reques ng if they can look at a
parcel coming out of Limas terminal in Turkey as a replacement.

Group III exports coming out of the Middle East Gulf have parcels loading out of Sitra in Bahrain and Al
Ruwais in the U.A.E. The addi onal Stasco cargo from Sitra has loaded with around 8,200 tons of Group
III grades. The cargo will discharge in Ro erdam.

A further Adnoc cargo will load from Al Ruwais for distributors in Nantong, China. The vessel will load
around 7,000 tons of three Group III grades. The European replenishment cargo should load this week or
next for European distributor Chemlube. The parcel will be made up of around 8,000 tons of three Group
III grades – 4 Cen Stoke, 6 cSt and a smaller quan ty of 8 cSt material.

Netbacks for partly-approved loading out of Al Ruwais and non-approved Group III base oils loading from
Sitra refinery are adjusted due to lower selling prices in Europe and India. Netback returns are now
assessed at $1,700/t-$1,750/t for the range of 4 cSt, 6 cSt and 8 cSt partly-approved and non-approved
Group III base oils.

Netback levels are based on local FCA prices in markets such as Europe, India, the U.S., and China.
Netback levels are then derived from regional selling prices, less marke ng, margins, handling and
es mated freight costs.

Group II base oils resold by distributors and traders on an FCA basis in the U.A.E. are sourced from
European, U.S., Asia-Pacific and Red Sea producers. Grades are sold ex-tank U.A.E., or some mes on a
truck-delivered basis within the U.A.E. and Oman. Prices remain unchanged this week, following upward

5|Page
moves in the last report, with levels at $1,520/t-$1,465/t for the light vis grades, with 600N at $1,570/t-
$1,565/t. The high ends of the ranges refer to road tank wagon deliveries.

Africa

South African agents confirmed a large cargo of around 24,000 tons of base oils will load out of
Ro erdam and Fawley, discharging first in Durban, then Mombasa, and finally Dar-es-Salaam. On board
will be quan es of Group I, Group II and Group III base stocks.

Traders have opted not to consider Indian Group I base oils for receivers in Nigeria, commen ng that the
freight element is unworkable and would take the prices too high for Nigeria. U.S. Gulf Coast and U.S.
Atlan c Coast are favorites at this me, with no availability from Europe at the current me. Livorno may
be an op on during the coming months, but reports are that there are problems not only with a refinery
fuels turnaround, but also with lube produc on. More informa on is being inves gated.

Jeddah and Yanbu have been included on the list on the basis that a cargo of two Group I grades sailed
from this source to northwest Europe. With current problems at Yanbu and only two solvent neutral
grades available out of Jeddah, this op on may have to go on hold un l later in the year.

Russian material from Lukoil is s ll offered out of Svetly terminal in Kaliningrad, but there appear to be
problems in making this cargo work. The problems may lie with payment terms with le ers of credit and
import licenses.

The stand-alone cargo out of Fawley with around 6,500 tons of two Group I grades is delivering Group I
base oils into Abidjan in Cote d’Ivoire and Tema in Ghana. The Ghana tender supply normally requires
three Group l grades – including a quan ty of bright stock – but this quan ty of bright stock may have
been supplied by an earlier vessel that was en route to Durban. Certainly, a Durban bound vessel called
at Tema port some weeks back.

A follow-up large U.S. Gulf Coast and U.S. Atlan c Coast cargo with possibly up to 20,000 tons of three
Group I grades – SN 150, SN 500 and SN 900 – is being nego ated for June loading, but the supply of this
size of cargo to mul ple receivers is a nightmare.

Confirmed prices for a recently arrived cargo had CFR levels at $1,020/t for SN 150, SN 500 at $1,070/t
and SN 900 at $1,150/t. Bright stock was blended with SN 500 at loading, to produce SN 900. Due to the
rela ve high prices for bright stock in the blend, this makes the SN 900 grade more expensive than
blending with another heavy neutral, such as SN 1200.

Offers for cargoes arriving in June or July will have to have higher prices due to increasing FOB levels. CFR
prices are an cipated to be SN 150 at around $1,045/t-$1,080/t, SN 500 at $1,125/t-$1,165/t and SN 900
at $1,200/t-$1,225/t.

6|Page