Nigeria Faces Lubricant Squeeze Amid Global Supply Tightening

Nigeria is bracing for a potential squeeze in lubricant supply in the coming months, as global base oil markets tighten and import prices escalate. A report by commodity intelligence firm Argus highlights that reduced availability and increased costs of base oils are curbing offers into the West African market, despite recent peace deal announcements.

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Lower availability of base oils and rising global prices due to the continued disruption associated with the US-Iran war are curbing offers into the West African market despite a peace deal announcement.

The region's significant dependence on imported base oils, averaging approximately 135,752 tonnes annually over the past five years, leaves it vulnerable to global supply fluctuations. While the Dangote refinery's expansion includes a base oil production unit, it has not yet commenced operations, maintaining the reliance on imports. The ongoing disruptions linked to the US-Iran conflict are a primary driver of these price increases and supply constraints.

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West Africa is a net importer of base oils, with average imports of around 135,752 tonnes annually over the past five years.

Further exacerbating the situation, bulk European Group I volumes, crucial for engine, marine, and industrial lubricants, are scarce due to a five-week maintenance shutdown at PK Orlen. Similarly, supplies from the United States are limited as refiners prioritize domestic demand and stockpile for the hurricane season, with some Group I US refineries also experiencing output reductions due to crude changeovers.

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The last large shipments arrived in March, and replenishment cargoes look unavailable from exporting nations over the summer.

Nigerian buyers might explore alternative Group II heavy grades where formulations permit, as these are more readily available outside Asia. However, Asian sellers are currently prioritizing higher prices from South American blenders. Additionally, volumes from Russia have decreased due to refinery repair works. The report warns that rising spot prices, which reached record highs in June, coupled with complicated payment processes, make any available cargo unattractive to West African buyers, signaling a challenging period ahead for the Nigerian lubricant market.

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Bulk European Group I volumes, usually used for engine, marine and industrial oil lubricants and greases, are unavailable following PK Orlen’s five-week maintenance shutdown and restart at the end of May.