EMEA Weekly Base Oil Report
What’s new this week in European, Middle Eastern and African base oil markets? The answer depends on which base oils one speaks of.
API Group I base oils have ample availabilities against weak demand – a combination that has producers assessing ways to trim production. At the same time, Group II availability is snug enough to be exerting upward pressure on prices. Delivery prices for Group III oils are moving slightly higher, though this does not seem to have affected values for sales within Europe.
The backdrop for all of this was declining crude oil and feedstock costs. Dated deliveries of Brent crude fell $4 the past week to trade yesterday at $73.25 per barrel for January front month. West Texas Intermediate slid to $63.40/bbl, still for December front month, while ICE LS gas oil fell approximately $30 to $680 per metric ton for November front month. These prices were from ICE trading in London late yesterday.
Europe
Spot prices for Group I exports from Europe are steady as sellers try their level best to stave off markdowns. Buyers have a different perspective, though, and are calling for prices to be lowered for the few inquiries which are around the markets for this type of trade. With many of the export destinations already either well supplied or being covered from other sources at lower numbers, the European market is quiet for exports.
Prices are maintained at last week’s levels with light solvent neutrals between $685/t-$710/t, SN500 and SN600 remain between $710/t-$735/t, and bright stock between $885/t-$910/t. Just how long these current levels will hold is an unknown at this time, but with feedstock levels coming off this week, there may be some scope for discounting current levels to move stocks out of tank, a practice which may come earlier than normal this year, and for very different reasons. The year-end sell-off may start sooner rather than later.
Above price levels refer to large cargo sized parcels of Group I base oils FOB ex mainland European supply points, always subject to availability.
A similar picture is developing for domestic or local prices within the European arena for Group I base oils, which remain unchanged in pricing terms. Levels appear to be holding up with sellers making comments which suggest that they are selling material which was purchased some time back, and has been stored in tank at prices which were in effect at that time. Sellers are therefore not willing to sell at loss making margins, and only when stocks are replenished at lower prices will there be any scope to move levels lower. With a wide choice of supply sources available to buyers, there is an auction process developing where one price is being played against a lower levels and competition between sellers is starting to become a feature of this market.
One interesting move is that with Group II prices firming a little this week, buyers are becoming more guarded about making the move across to using Group II base stocks in blends which they can still use Group I material. The price differential is a factor which may slow the general move across to Group II, although it is not foreseen that it will prevent such a move taking place over time due to the new ACEA standards for certain finished lubes coming into the market from December.
The differential between local prices and export numbers is again maintained this week with domestic prices being around €45/t-€100/t higher than export levels. The lower end of this spread pertains to bright stock where the difference between export and domestic prices is smaller than the other grades
Group II prices have been re-assessed by sellers from November 1 and have moved slightly higher due to increasing demand for these products. Buyers are looking for longer term supplies of Group II (and Group III) base oils for the coming months and years, and to achieve security of supply blenders throughout Europe are prepared to enter into supply agreements to lift, or have delivered, quantities of Group II grades on a regular basis.
Looking forward to the start-up of local production of Group II base oils, sellers have reassured the market that there will not be wholesale ramping up of availabilities, and that the new production will substitute for a percentage of the current imported barrels. Sellers having local supplies will continue to use import quantities as a balancing tool to meet further demand over and above that which can be produced within Europe, and to extend coverage in times of turnarounds.
Some of the new production may also be exported to new markets such as African destinations where use of Group II base oils is envisaged to eventually grow exponentially.
Prices are adjusted upwards this week with FCA and truck/barge delivered prices assessed in respect of the light vis grades, 100N, 150N and 220N, at between $895/t-$945/t (€785/t-€825) with the heavier vis 500N and 600N grades between $965/t-$1,010/t (€845/t-€880).
Group III prices are relatively stable although some fully approved prices appear to have moved upwards but only by a few dollars, and only in some instances, with some buyers commenting that they have seen the same prices as were being paid during October. There appears to still be an uncertainty around this market where partly-approved supplies may start to move longer, leading to another oversupply scenario. However this is merely rumor and talk at the moment with most parties agreed that the Group III markets are showing positive signs of continuing growth, with healthy supply and demand forecasts for the future.
For the partly-approved grades, FCA euro prices remain unchanged this week and are between €760/t-€770/t ($880/t-$890/t) for 4 centiStoke grades, with 6 cSt material at €770/t-€780/t ($895/t-$905/t). 8 cSt material is assessed between €780/t-€785/t ($900/t-$910).
Fully approved Group III base stocks holding ACEA and European OEM approvals are tweaked ever so slightly higher, to levels between €820/t-€860/t in respect of 4 centiStoke grades, with 6 cSt material between €845/t-€895/t, and 8 cSt at around €825/t-€855/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 FCA levels above.
Baltic and Black Seas
Baltic traders are reluctant to start stocking up with excess material coming out of Russian refineries due to European markets perhaps approaching saturation point in the uptake of Group I base oils. As mentioned previously a number of alternative options are being examined by sellers to place Baltic exports into deep-sea markets, which may be more accommodating to large parcels of Group I material. Middle East Gulf receivers have been approached, as have buyers in India, both of whom may be about to experience a lack of supplies of competitive Group I base oils in the wake of the new sanctions being imposed on Iranian exports
Baltic sourced material is still on the table for exports to West Africa, with a number of enquiries being resurrected to try to cover these markets which were traditionally served by traders and quantities of Baltic supplies. Sellers are reported to be looking at very low offer numbers to start the ball rolling again on Nigerian supplies, and reports are that levels of some $30/t-$50/t below have been heard for supplies of SN500.
The regular trade into Antwerp-Rotterdam-Amsterdam and other parts of Northwestern E has been curbed somewhat by the growing avails of mainstream supplies of Group I which are currently available, although some contract barrels continue to make their way into Antwerp-Rotterdam-Amsterdam-Germany.
FOB prices are held at previous levels at around $625/t-$650/t in respect of SN150, along with of SN500 between $645/t-$675/t. SN900 FOB prices based on CIF offers are indicated at around $695/t, with bright stock ex southern Baltic between $845/t-$865/t FOB.
Black Sea trade remains subdued with the Turkey factor still playing a major part in the lack of trading movements. The economy has started to make a comeback but still has long way to go to return to where it was during Spring of this year. The Turkish lira has made some in roads to moving to acceptable levels against the U.S. dollar, but still has some way to go. With this malaise in the markets, there is a reluctance to take chances in purchasing large quantities of base oil, when the situation could turn sour again at any time, and blenders could be left with unusable and unsellable stocks of base oil.
There are no reports of Mediterranean sourced base oil cargoes going into the traditional ports of Gebze, and Derince, Turkey. The inquiry for a large quantity of Group III base oils for Turkey from Middle East Gulf sources appears to have been dropped with only a small quantity arriving into Gebze from Spanish sources.
The STS operation in Kavkaz, Russia, is heard to be looking at putting together another large cargo of SN500 and SN150 for receivers in United Arab Emirates, The timing is not confirmed, but second half November has been mooted at this stage. Prices are once again indicated on basis of STS at around $575/t in respect of SN500, with SN150 around $560/t.
Middle East Gulf
Red Sea activity is confined to the usual loading of parcels of Group I and Group II out of Yanbu for receivers in the west coast of India. The small cargo of Group II grades ex Saudi Arabia bound for Naples does not appear to be on the radar after being the subject of an enquiry last week.
With the U.S. sanctions on Iran coming into effect on Monday 5 November, the markets are awaiting the outcome of these actions to gauge what overall effect these limitations will have on the trading of all oil products coming out of Iran. Whilst the emphasis is believed to mainly target crude oil movements, other petroleum products will be affected. Not least from the shipping side, where no Western ship owners who trade in and out of the U.S. will risk being blackballed by U.S. authorities should they operate on behalf of Iranian charterers.
There was one 5,000 tons cargo to the west coast of India which slipped out of Bandar Bushehr a couple of weeks back which was not identified at the time, but other than Iranian flagged vessels no other movements have been noted or reported. There are very few Iranian flagged vessels which are sized and appropriate for the carrying of base oils, hence this trade may be very difficult to conduct, other than by importing and re-exporting through U.A.E.
The potential problems surrounding the sanctions and the effect on supplies of base oils into U.A.E. and India, have opened doors for alternative supplies for Group I base oils from sources such as U.S. Gulf Coast, Baltic and Black Sea. Mainland Europe may also playa part in this arbitrage with Group I FOB prices dropping further towards the year- end.
Price indications in respect of SN500 from the various international sources aimed at U.A.E. are estimated to be in the region of $750/t, but traders have said that this price may be variable and may be higher or lower depending on specifications of the Group I base oils being supplied
Notional FOB levels in respect of the Group III base oils coming out of the Middle East Gulf may have risen by a few dollars this week, although according to sources, with crude and feedstock values reducing the pressure is may be off to raise contribution levels from base oils, with attention being re-focused back to gaining or protecting market share in existing and new markets.
Some 40,000 tons + of enquiries have been placed for moving material out of Al Ruwais during November with one exceptionally large cargo of 20,000 to 25,000 tons of Group III grades being delivered into Hamriyah in Sharjah. At first glance it seems inappropriate to move such a large quantity of base oils such a short distance by sea, but realistically there is no other alternative. With no rail, barge or pipeline services available for base oils this is the only method of delivering such a quantity.
Notional FOB levels are moved upwards by some $5/t to between $815/t-$850/t FOB Al Ruwais and Sitra in respect of 4 centiStoke and 6 cSt partly-approved base oils. Fully approved Nexbase material holding full U.S. and European approvals from Sitra refinery, are assessed to netback between $865/t-$895/t for 4, 6 cSt, and 8 cSt material moving to European, U.S. and other western markets. Eight 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 for break-bulk operations in U.A.E. where smaller parcels are sold locally on basis FCA or delivered by truck or flexi are showing prices which are moving upwards, in a similar vein to the European scene.
Levels in respect of fully approved light grades 100N, 150N and 220N are estimated to be higher by some $20/t and will now be priced between $1,075/t-$1,020/t, with 500N/600N between $1,145/t-$1,185/t. These prices refer to Middle East Gulf delivered small quantities of less than 25,000 tons per load, but often with a total quantity of up to 300 tons per offtake. Prices may vary with destination and distance from hub supplies.
Africa
North African trade, at least at the enquiry stage is brisk with buyers and receivers looking for Group I cargoes to move into Morocco, Libya, Algeria and Egypt. The EGPC tender for supplies of cargoes of 3,000 to 4,000 tons of bright stock has been issued covering ongoing supplies of this grade from Jan. 1. The closing date for the submission is later in November.
West African sources have confirmed that the next cargo under the Ghana tender will be delivered into Tema during November, but in addition to the quantity required for the tender a further 4,000 tons of Group I grades has been loaded for discharge into Guinea and Cote d’Ivoire. Nigerian markets are quite with some reports of buyers waiting for year-end bargains with lower prices where sellers try to clear as much inventory prior to year-end.
These buyers may or may not be aware but these days could come earlier this year due to the supply situation building in Europe. The time to act may be now rather than wait, while refiners consider cutting production preventing a sell-off at least from Europe and the Baltic during December.
At the moment Nigerian price levels in respect of offered material are maintained in line with FOB numbers for cargoes of Group I base oils. These prices remain between $695/t-$745/t in respect of the light solvent neutrals SN150-SN180, SN500, SN600 and SN650 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 $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.