EMEA Base OiL Report Week: 30/10/18
Base oil prices softened over the past week in response to an oversupply that is growing for some grades, particularly API Group I grades within Europe. The situation is being exacerbated by plentiful supplies of Group II being offered as replacement for Group I. Some refiners talked of cutting Group I production, but this hasn’t happened to any significant extent, and with inventories growing, producers and resellers are offering large discounts for Group I solvent neutrals. Traders recounted calls from Group I suppliers offering availabilities for prompt November lifting with exceptionally attractive prices, some well below market levels. This is a reversal of normal trading practice, where traders contact sellers to check availabilities, prices and dates. Crude oil and feedstock prices steadied this week at levels lower than recent highs. Dated deliveries of Brent traded at $77.20 per barrel for December front month, around $2.50 below last week’s post. West Texas Intermediate dropped around $2.00 to $67.15/bbl, now also for December front month. ICE LS gas oil was little changed from last week, recording a price of $709 per metric ton for November front month. These prices were established from London ICE trading late Monday.
Group II prices have succumbed to pressure associated with the Group I grades, but not to the same extent. Prices are beginning to dip a little, with some sellers insisting that they have not moved prices and that they are selling at the same levels as during September and October. The picture is still muddied however, with some buyers indicating that they are receiving lower prices, whilst others claim that they are paying the same tariffs as before.
Perhaps with more availabilities coming to the market there may be a danger of overcooking the supply scene, leading to a glut of material which would not be ideal prior to the opening of the large new facility in Rotterdam early next year. Suppliers on the other hand do not see a surplus of material hitting the European markets, and are claiming that the Group II supply /demand ratio will be in balance.
Prices are tweaked slightly lower due to reported lower numbers for November. FCA and truck/barge delivered prices are assessed for the light vis grades, 100N, 150N and 220N, between $875/t-$920/t (€750/t-€790) with the heavier vis 500N and 600N grades between $955/t-$975/t (€820/t-€835).
The Group III situation appears to have gone into reverse with a market where there were stable prices which may have been about to rise, giving way to lower levels this week. Any suggestions of increments to Group III prices have been refuted by buyers who sensing an overall weakening for base oil prices, have started suggesting that there may again be an oversupply for Group III grades particularly where partly-approved material is competing with fully accredited products.
Prices appear to have been adjusted downwards by around €5/t-€10/t for all the grades, with some buyers calling for still lower levels.
For the partly-approved grades, FCA euro prices are now between €760/t-€770/t ($880/t-$890) for 4 centiStoke grades, with 6 cSt material at €770/t-€780/t ($895/t-$905), and 8 cSt material between €780/t-€785/t ($900/t-$910).
Fully approved Group III base stocks holding ACEA and European OEM approvals are maintained this week between €820/t-€840/t in respect of 4 centiStoke grades, with 6 cSt material between €840/t-€885/t, and 8 cSt at around €825/t-€840/t, these prices being on the basis of levels FCA 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
With growing quantities of Russian export material to sell Baltic traders in looking for options and new markets have placed a shipping enquiry for a cargo to move to either U.A.E. or the west coast of India. With the emphasis being on moving Group I material, and the effects of U.S. sanctions about to be unleashed on Iran, Baltic supplies of SN150 and SN500 may be just the answer for receivers in those regions which latterly depended on Iranian support.
Traditional supplies from this region to export destinations such as West Africa are totally missing from the table at the moment, with receivers and traders indicating that prices will have to drop further for these supplies to become a possibility. Refinery gate levels in respect of Russian export base oils are being held up due to high raw material cost claims, although these may be amended with crude and feedstock prices now falling back to more conservative levels.
Routine movements for contracted and spot supplies are noted for Antwerp-Rotterdam-Amsterdam and U.K. where a large number of blenders depend on these grades which have taken the place of production which has been lost from Rotterdam and other northwestern European refineries.
FOB prices are deemed lower and are placed at around $625/t-$650/t in respect of SN150, along with of SN500 between $645/t-$675/t. SN900 FOB prices worked on a netback basis from CIF offers are indicated at around $710/t, with bright stock ex southern Baltic now between $845/t-$865/t FOB.
Turkey still has not emerged from the doldrums as yet with commentators stating that it may be six months or more before any real change in the economy and the exchange rate situation starts to improve. Some Turkish blenders are reliant on local supplies of base oil which can be purchased in lira, but with imported crude and feedstock prices rising in real terms for producers at Izmir refinery, prices have been pushed higher to such an extent that blending operations cannot produce competitively priced finished lubricants for local and export markets. Some have reported that other Black Sea and East Mediterranean operators in other countries have picked up the baton and are supplying customers once served by blenders in Turkey.
There are no reported European sourced Group I base oil cargoes going into the traditional ports of Gebze and Derince, and few Russian cargoes loading out of Azov for the same receivers. One enquiry is placed for a large quantity of Group III base oils to move into Turkey from Middle East Gulf sources. It is not apparent how, given the Turkish scene at the moment, this would be financed and how this would be distributed within the Turkish market.
Russian export prices for the STS operation in Kavkaz, Russia,, which has confirmed the loading of 15,000 tons for United Arab Emirates and Singapore, are indicated in respect of the SN500 grade at around $575/t, with SN150 around $560/t.
Middle East Gulf
One interesting Red Sea report has a small cargo moving from Saudi Arabia once again to Naples. With the small quantity it may be uneconomic to deliver this cargo, since the last supply was for around 4,000 tons of material, this time only some 1,500 tons is being quoted. It is believed that the large quantities of Group I and Group II base oils loading out of Yanbu and Jeddah for the west coast of India and U.A.E. will be underway with arrival into discharge ports during first half of November.
No Iranian base oil cargoes have been identified moving out of the southern Middle East Gulf ports and with the U.S. sanctions about to hit Iranian exports next week, alternative supplies for Group I base oils are being considered as reported earlier. Sources in the Baltic and Mediterranean are being reviewed along with other sourced supplies from U.S. and Black Sea. With some of these cargoes already fixed into U.A.E. obviously provision is being made for Group I supplies. More local supplies are also being assessed from Pakistan.
Sources in U.A.E. have also indicated that prices being offered are much lower than Iranian prices levels, which even if the material was to be made available would be around $50/t higher than landed prices which are currently being offered to U.A.E. receivers. Still Iranian sources are adamant that the new sanctions will not curb exports of base oils from Iranian ports.
Price indications i respect of the various international imports into U.A.E. are estimated to be in the region of $750/t, but this price may be variable by some $25/t-$30/t depending on source specifications and quality of the Group I base oils being supplied
Attempts to gauge Group III exports ex Al Ruwais in Abu Dhabi and Sitra in Bahrain in terms of notional FOB price levels are maintained this week. There may be slight downward adjustments to be made to these prices due to lower selling prices in various markets, but until further cargoes are delivered into Europe, the U.S. and India the notional FOB levels will be unaffected. Al Ruwais sellers Adnoc appear to be lining up another round of supplies to Far East and the west coast of India, with large parcels of between 6-10,000 tons being considered in each case.
Notional FOB levels therefore remain between $810/t-$845/t FOB Al Ruwais and Sitra in respect of 4 centiStoke and 6 cSt partly-approved base oils. Fully approved material sold by Neste which hold U.S. and European approvals from Sitra refinery are estimated to netback between $865/t-$895/t in respect of 4 centiStoke, 6 cSt, 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.
Group II base oils offered to Middle East Gulf receivers from Far East and Red Sea suppliers are once again competing against the ‘domestic’ supplies of Group II available ex Yanbu. Cargoes for break-bulk operations where smaller parcels are sold locally on basis FCA or delivered by truck or flexi are also being fixed and with prices remaining unaltered the Middle East Gulf market may be a stable Group II outlet at this time.
Levels in respect of fully approved light grades 100N/150N/ 220N are estimated to be priced generally 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, further prices may vary as to destination and distance from hub supplies.
Africa
North Africa and East Africa have seen a number of Group I cargoes moving from European Mediterranean sources into ports such as Mohammedia, Alexandria and Mombasa. The latter usually sees imports of smaller quantities of base oils in flexies and drums, but this larger 5,000 tons supply may be an intra-company trade between a major trader and an affiliate.
West African reports are that traders are looking at a Mediterranean sourced Group I cargo for November. The quantity is reputed to be around 10,000 tons of all grades and this cargo may not be destined for Nigeria. This could be the Ghana supply of around 5,000 tons plus other material to be delivered into Guinea and Cote d’Ivoire. The 13,000 tons cargo ex northwestern Europe and Baltic is on the water and moving into Apapa around mid November. No new news has been received on the progress of a Baltic cargo for a large quantity of some 20,000 tons of combined base oils.
Price levels in respect of offers for material into Nigeria are maintained this week for cargoes of Group I base oils in the absence of any new reported deals, and will remain between $695/t-$745/t in respect of the light solvent neutrals SN150-SN180, with 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 lower due to FOB discounting and is put at around $795/t-$825/t CIF/CFR.
These prices are in respect of large parcels in excess of 10,000 tonstotal 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. Contact him directly at pumacrown@email.com.