EMEA Base Oil Price Report
Many base oil suppliers find themselves between a rock and a hard place this week as efforts to hike selling prices have been thwarted by falling demand and plentiful avails.
Markets have started to move longer, making it difficult for sellers to cover increases in raw material costs. The delta between API Group I solvent neutral 500 and diesel prices in Europe is the smallest for years and has prompted some refiners to shift production from base oil to diesel.
Some refiners who are able to produce bright stock have tweaked the system to increase quantities of this grade, but traditional export markets for large quantities of this grade are weak at this time since receivers can turn to alternative sources.
Pressure on producers eased when crude costs fell back the past week, with dated deliveries of Brent slipping below the $80 per barrel line. This crude now posts at $79.60 per barrel for December front month, while West Texas Intermediate stands at $69.05/bbl, still for November settlement. Oddly ICE LS gas oil moved in the opposite direction, climbing to $715 per metric ton for November front month. These prices were established late Monday from London ICE trading.
Europe
Group I base oil prices for export sales throughout Europe seem stable at best this week. Sentiment is weakening, but prices were mostly held steady by sellers who basically cannot afford to let them dip further. Light solvent neutrals remained between $685/t and $710/t, while SN500 and SN600 fell around $10/t to $710/t-$735/t. Bright stock is unaltered at $885/t-$910/t, although there were rumors of prices $25 to $30 lower being discussed for a couple potential sales. It is not yet clear as whether these are offered prices or counter-offers from buyers. The prices above refer to large cargo-sized parcels of Group I sold on an FOB basis ex mainland European supply points, always subject to availability.
Domestic prices for European Group I base oils also remain at last reported levels. There might even exist a situation which could be termed a glut of Group I grades, with blenders having many options as who to buy from and also when these purchases are made. The same problems are affecting sellers of Group I base oils in local markets as those being experienced in the spot export markets. Comments received during the past week however, seem to dispel the myth that Group I base oils are done and finished with, with a number of blenders openly stating that they will continue using Group I base stocks for the foreseeable future for a number of grades and applications, and are in no rush to embrace Group II technology where it is not required. These comments included suggestions that the price differences between Group I and Group II was such that it would be deemed uneconomic to move completely over to Group II.
The differential between local prices and export numbers is more or less maintained this week with domestic prices being around €45/t-€100/t higher than export levels.
Any suggestion of source increases appear to have disappeared from the radar for Group II producers, with some Group II prices coming under similar pressure as Group I base oils. Prices are being maintained at the moment however, since the reports around the market were somewhat confusing, with one set of buyer saying that they had achieved small reductions for November, whilst others suggested that sellers had proposed a status quo on prices until the end of the year. Avails appear to be excellent with no buyers complaining regarding laying hands on quantities of these grades.
Sellers have commented this week that they see no large changes to availability next year, since some of the imported material arriving into Europe from Far East and U.S. will be replaced and substituted by new local production, thus not creating a large surplus for Group II availabilities.
Prices are maintained this week, but with suggestions that levels for November may show slightly lower. FCA and truck/barge delivered prices for 100N, 150N and 220N remain at $885/t-$930/t (€755/t-€795), while 500N and 600N are at $965/t-$985/t (€825/t-€830).
Group III prices are stable but with added reports of a few sellers pushing for higher levels from November 1. It is considered that should Group III prices move upwards it will not be by any significant increases, with some players offering advice that price levels will stay unaltered through until next Spring. Sources confirm the small increases to fully approved Group III grades, although increases appear to be random and have not been applied across the board.
FCA euro prices for oils with partial slates of approvals are unchanged at €765/t-€770/t ($885/t-$895) for 4 centiStoke grades, €775/t-€780/t ($900/t-$910/t) for 6 cSt and €785/t-€790/t ($910/t-$920/t) for 8 cSt.
Fully approved Group III base stocks holding ACEA and European OEM approvals are tweaked slightly higher this week and are now between €820/t-€840/t for 4 cSt grades, €840/t-€885/t for 6 cSt and €825/t-€840/t for 8 cSt, on an FCA basis Antwerp-Rotterdam-Amsterdam.
The prices above do not reflect prices for material which is delivered in bulk cargoes to larger users. Prices in respect of these trades may be considerably lower than levels above.
Baltic and Black Seas
Baltic sellers are looking at various new markets to place their quotas of Russian export base oils and have succeeded in moving quantities directly and through traders to South America, North Africa and Far East. Also up for trial are cargoes into the west coast of India and the United Arab Emirates, however these discharge locations are still under review with tentative offers being made to receivers and traders.
A couple of notable 5,000 tons cargoes have moved from the Baltic linking up with other supplies by either two-port loading or STS transfer. Other more routine movements are again noted for Antwerp-Rotterdam-Amsterdam and the east coast of the United Kingdom, all maintaining the presence of Baltic supplies in the mainstream European Group I market.
FOB prices remain unchanged at around $640/t-$670/t in respect of SN150, with quantities of SN500 between $665/t-$695/t. SN900 is indicated at around $725/t, with min 90 VI bright stock ex southern Baltic remaining between $865/t-$880/t FOB.
Black Sea reports still center around the Turkish market, which was previous to the current economic situation, the central hub for all Black Sea traffic. Turkish blenders are finding it tough to be able to afford imported base oils, which would necessarily increase prices for all finished lubricants for the local markets as well as for the significant export quantities of finished lubes which once emanated from Turkey to neighboring countries. With no obvious solution to the economic problems within Turkey, this region is extremely low key, with some blending operations winding down.
There are a few European sourced Group I base oil cargoes still managing to move into Turkey, and the indication prices into Derince and Gebze, Turkey, from Greece have been pared down as much as possible to be able to import this material. Levels for the one cargo seen during the last two weeks are assessed at around $725/t-$740/t in respect of light solvent neutrals and between $755/t-$780/t for the quantities of SN600 and SN500, basis CIF Turkish ports.
The latest news from Kavkaz, Russia, on the Russian STS exports is that some 15,000 tons will be loading around the last week of October destined for United Arab Emirates and also Far East. The relative quantities for each discharge port are not released, although it is considered that from historical sales the larger part of the cargo will go into a Far East location, perhaps Singapore. Indication prices for large quantities of SN500 are around $585/t basis loading STS Kavkaz.
Middle East Gulf
Red Sea reports have large cargoes of Group I and Group II grades loading out of Yanbu and Jeddah with almost 50,000 tons of base oils being booked to land into Mumbai, Mumbai anchorage and other the west coast of Indian ports, as well as smaller quantities in part cargoes being allocated to receivers in U.A.E.. Cargo sizes have grown from these locations and it is now not unusual to identify parcels of between 10-20,000 tons being moved to the west coast of India.
Iranian sellers continue to trade base oils out to Mumbai using Iranian flagged vessels which are now appearing regularly on this route. With the next tranche of U.S. sanctions about to commence next week, local receivers in U.A.E. have been making provisional plans for supplies of Group I grades coming from alternative sources such as Baltic, Black Sea, U.S. Gulf Coast and USEC. European options may also be open under arbitrage, with FOB plus freight levels now becoming competitive.
Still sources are commenting that even the new sanctions in November will not curb the exports of base oils from Iranian ports, although receivers are under pressure from U.S. authorities to cease all purchases of all petroleum products and crude oil from Iran. With Iran just having just sold around 40 million barrels of crude to China, this may be a snub to the U.S.
Prices in respect of Iranian SN500 grade are now assessed on a netback basis for delivered quantities into the west coast of India at around $775/t-$795/t basis FOB.
Group III base oil exports from Al Ruwais and Sitra have notional FOB price levels attached which are maintained this week. Shell prices ex Ras Laffan in Qatar are not disclosed for the GTL Group III and Group III+ base oils which are used in-house by the parent major. Large quantities of Group III grades are identified loading out of Al Ruwais, with potential quantities in excess of 50,000 tons being shipped during October. One parcel of around 20,000 tons is under offer to receivers just along the coast in Sharjah, where large quantities of either Group III or Group II base oils are used as T.O. feedstocks.
Notional FOB levels remain between $810/t-$845/t FOB Al Ruwais and Sitra in respect of 4 and 6 cSt partly-approved Group III base stocks. Fully approved base oils sold under the Nexbase brand by Neste and which hold U.S. and European approvals, whilst still from Sitra refinery, are estimated to netback between $865/t-$895/t in respect of 4, 6 and 8 cSt material which moves to European and U.S. markets. The same 8 cSt material being exported to India or Far East destinations will produce lower netbacks due to significantly lower local selling prices.
The numbers above refer to notional FOB levels established on a netback basis using published freight rates, taking into account advised local selling prices, plus notifications of bulk CIF/CFR cargo prices from various sources.
Cargoes of Group II base oils are under offer moving into Middle East Gulf markets from Far East and Red Sea suppliers, some of the large cargoes are for one-off receivers whilst other cargoes are being moved by major suppliers for break-bulk operations where smaller parcels are sold locally on basis FCA or delivered by truck or flexi. Prices remain unaltered with levels in respect of fully approved light grades 100N/150N/ 220N somewhere between $1055/t-$1095/t, with 500N/600N between $1125/t-$1165/t. These prices refer to Middle East Gulf delivered small quantities of less than 25,000 tons per load, but with a total quantity of up to 300mt per offtake.
Africa
West African receivers have covered a requirement loading bright stock out of a southern Baltic port and topping off with further quantities of heavier Group I grades out of northwestern Europe, making up a cargo of some 13,000 tons moving into Apapa around mid month November. The Baltic is also a potential source for a further large cargo of around 20,000 tons which is still under consideration.
Other material for alternative West Africa markets in Ghana, Cote d’Ivoire and Guinea is also being worked for loading during first half November, and as was done with this supply last time around, the three loactions may be combined, offering economies of scale on the freight angle for all concerned. However, the Ghana contracted supply is made against index linked pricing, thus combining with other requirements is only in the interest of the seller.
Price levels in respect of offers for material into Apapa port are maintained this week for cargoes of Group I base oils, and are between $695/t-$745/t in respect of the range of light solvent neutrals SN150-SN180, SN500/600/650 between $730/t-$775/t and bright stock at around $925/t-$965/t. SN900 ex Baltic, as an indication only is assessed at around $825/t-$865/t CIF/CFR.
These prices are in respect of large parcels in excess of 10,000 tons total of Group I base oils delivered CFR or CIF into Apapa port, Nigeria.
Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K.