EMEA Weekly Base Oil Report
Base oil markets are bracing for what could be a stormy December, with prices already under downward pressure and inventories higher than most suppliers would want.
API Group I leads the way in the availability stakes as weakening demand is pushing stocks to unacceptable levels, perhaps setting the stage for a dramatic year-end sell-off. Group II base oils are feeling the effects of perception that supply may be going long and prices starting to dip. Group III availabilities are also increasing, although sellers of this grade maintain that the take-up is good enough to avoid a glut.
Falling crude oil and feedstock costs are causing downward pricing pressure on base stocks. Dated deliveries of Brent crude fell below $60 per barrel Friday, the lowest level in six months, before rallying yesterday to $60.75/bbl. West Texas Intermediate also fell as posted yesterday at $52/bbl. Both of these prices were for January front month. ICE gas oil slid to $585 per metric ton for December front month – around $50/t lower than last week. All of these prices were from late Monday trading on the London ICE.
Europe
European Group I export prices are again weaker, with sellers pitching prompt December loadings, in some cases without inquiries being placed and with heavily discounted prices. Sellers are looking to clear inventories before the end of the year, and prices heard the past few days have been more than competitive against sources in places such as the United States. Light solvent neutrals are priced between $615/t and $645/t, while SN500 and SN600 grades are now being offered at $645/t-$665/t. Large bright stock parcels have been pitched to traditional outlets in West Africa at $810/t-$840/t. Refinery maintenance turnarounds are out of the way, and some buyers shied from entering deals based on expectations that supply will lengthen further – which often happens this time of year. The above values are for large cargo-sized parcels sole on an FOB basis from mainland European supply points, always subject to availability. European Group I domestic prices are being readjusted, altered, discounted and lowered all to promote whatever sales can be made through December. Buyers are being cajoled and tempted to take as much stock as possible before year-end. Buyers are staying away from the market as much as possible, although some prices have been slashed to attempt to lure them back to the table to make purchases through the month of December.
Prices for December in some cases have been seen as low as export numbers, with almost a desperation element creeping into the market from the selling standpoint. There are however some sellers who are standing their ground, taking the view that they will retain whatever material they have in storage, in the hope that the markets will revert after the New Year to higher prices than those achievable currently. This position is debatable, with some sources stating that the only way forward for the base oil market is downwards.
The differential between local prices and export numbers remains the same as last week, with downward moves in both camps. Domestic prices are maintained at around €65/t-€120/t higher than export levels.
There are conflicting views as to what is happening across Group II markets, with some players indicating that they have seen prices moving upwards slightly, whilst others are firmly convinced that prices are coming under a degree of pressure to narrow the gap between these grades and the falling Group I numbers.
There are also some reports of spot trades for Group II base oils which are being priced very attractively by traders, but some of these grades do not carry the full raft of European approvals and hence cannot be used across the board for required formulations in regard to some finished lubricants. The market reports that next year will be the time when Group II comes into its own within Europe with many forecasting that they will make the quantum leap from Group I to Group II some time during the next twelve months, after seeing what the effects of indigeneous production of Group II base oils from Rotterdam will actually be.
With the debate as to which way prices have moved this week, if at all, levels are maintained with FCA and truck/barge delivered prices for 100N, 150N and 220N are $885/t-$930/t (€775/t-€815) while 500N and 600N are $960/t-$1,000/t (€840/t-€875).
Group III prices are reported as stable with distributors and producers trying to maintain their selling prices during December for contract and spot trades, citing that there are no reasons why current levels cannot be carried forward due to relatively keen demand, even towards the end of the year. Some sellers have intimated that they would like to raise prices, but the timing for this action is deemed inappropriate.
Lower prices around $720/t in respect of 4 centiStoke product are being offered from some Eastern sources and are still below other partly-approved levels, but buyers state that gradually these offers are gradually being brought into line with other offered material from Middle East Gulf sources. Partly-approved grades, FCA euro prices remain between €740/t-€760/t for 4 cSt,, €760/t-€780/t for 6 cSt and €780/t-€800/t for 8 cSt.
Fully approved Group III base stocks holding ACEA and European OEM approvals are unchanged at €840/t-€860/t for 4 cSt, €865/t-€885/t for 6 cSt and €825/t-€855/t for 8 cSt, all on an FCA basis at 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 selling remains slow with this market only relying on sales of Group I material either into the local northwestern European markets or into deep-sea markets such as West Africa, where in both locations the market is slow, with an oversupply in European circles and alternative supply options in West Africa. Sellers have bitten the bullet during the past few days and have pulled prices lower to try to move stocks out of tank. The heavier grades are more available both from Russian refineries and also from storage in the Baltic, prompting distributors to discount SN500 and other heavier grades by some $25/t-$40/t depending on quantities being offered.
One seller is hanging a hat on making a December sale for a large cargo into Nigeria, but this cargo has been in the melting pot for some time and it becomes questionable whether the deal can be completed and the parcel moved prior to the end of the year. Failing to make this cargo work could see an inventory increased by almost 15,000 tons which could pose problems for the trader at year-end.
There have been a couple of cargoes for Antwerp-Rotterdam-Amsterdam and one for the east coast ofthe United Kingdom which will keep things ticking over, but large cargoes need to be reestablished from this region to bring back the trade of old. With arbs closed to Middle East Gulf, India and Far East it is difficult to imagine how this is going to happen.
Prices are expressed lower this week, with FOB levels around $590/t-$610/t in respect of SN150, with SN500 drifting down to between $600/t-$625/t. Quality and highly specified bright stock ex southern Baltic ranges between $795/t-$820/t FOB.
Black Sea reports one parcel moving to Rotterdam from the STS operation at Kavkaz, Russia, but this cargo is much smaller than seen previously at only around 5,000 tons. Russian cross-trade to Turkey remains non-existent, but the news from the Black Sea this week that Russia and Ukraine have been involved in hostilities in Kerch area, in the Sea of Azov, may have an effect on the cross border trade between these two countries where large quantities of base oils were going into Ukraine from Russian refineries.
European Mediterranean Group I base oils are being considered for import into Turkey during December when according to local sources, prices will be “at an all time low” ( at least in recent times ). A number of Group I cargoes with options for discharge into ports in western Turkey are being evaluated from Greece Italy and Spain, but surprisingly relatively large quantities of Group III cargoes are finding their way into this market, one hopes for the blending of lubricants, and not fuel dilution.
Offered prices from Mediterranean sources are heard at $645/t-$665/t for quantities of SN150, with SN500/600 at around $670/t-$695/t. Small quantities of bright stock may also be included in supplies from Spain and Italy which is reckoned to be landed into Gebze, Turkey, at around $845/t-$870/t.
Middle East Gulf
No further information has been gleaned regarding the enquiry for base oils to move from Red Sea to Syria, but this week heralds the news that a large 20,000 tons cargo may be moving from Yanbu to the west coast of India, this being one of the largest movements of base stocks out of the region for some time.
Reports from Middle East Gulf do not contain any further information on Iranian Group I cargoes being despatched from the southern Iranian ports of Bandar-e Emam Khomeyni (BIK), BB or BA. Still no clarity has been given on the sanctions and their effect on base oils moving out of Iran, although there are still prices being quoted on the market for material to move into United Arab Emirates ports. These prices are put at between $710/t-$725/t CIF in respect of quantities of SN500.
Other Group I trades are reported as imports from Saudi Arabia continuing into Oman and U.A.E., although no pricing information is available at this stage. Still sources maintain that a large parcel is marked down to load ex Kavkaz, Russia, for buyers in U.A.E., although sellers have denied that this cargo exists, therefore is assumed that alternative sourcing of Group I material may have taken place, with material coming out of U.S. Gulf Coast or USEC, or even European Mediterranean, where the arbitrage may now be open after the latest adjustments to FOB prices. Prices for SN500, SN600 and SN650 are assessed at $695/t-$720/t CIF/CFR U.A.E..
Netback FOB levels in respect of the Middle East Gulf produced Group III base oils are maintained this week, although rumors around the local Middle East Gulf markets suggest that producers would like to lift numbers to move closer to Group II prices. There are variations from one grade to another with some grades showing a degree of weakness, whilst others such as the 6 cSt products appear to be firm.
Producers have denied any suggestions that the markets could reach oversupply again, stating that demand is brisk for all grades and that markets are absorbing the current availability without an hitches. One exceptionally large cargo has been identified as moving from Al Ruwais to a couple of discharge ports in the west coast of India during second half of November. This cargo comprises of around 17,000 tons of Group III base oils.
Notional FOB levels remain between $815/t-$850/t ex Al Ruwais and Sitra in respect of 4 centiStoke, 6 cSt and 8 cSt partly-approved base oils moving into the western markets. Material marketed by Neste holding full U.S. and European approvals from Sitra refinery remains between $865/t-$895/t in respect of 4 centiStoke, 6 cSt, and 8 cSt material which moves to European, U.S. and other western markets. As mentioned in previous reports, 8 cSt grades moving eastwards do not generate the same contributions due to selling prices in those markets being around $100 less.
The FOB prices 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.
Korean production is topping up the Group II supplies in the Middle East Gulf for marketers with a cargo of some 3,000 tons of fully-approved base oils. This supply will support the sales of Group II base oils out of U.A.E. where smaller parcels are sold locally ex hub storage on basis FCA or delivered by truck or flexi.
Prices in respect of these fully approved products for the light grades 100N/150N/ 220N are estimated to be priced between $1085/t-$1030/t, with 500N/600N between $1155/t-$1195/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 300mt per offtake. Prices may vary with destination and distance from hub supplies.
Africa
Cross-Mediterranean and North African trades are prominent this week with Egypt coming out to the market with the next tender for first quarter of 2019, in respect of supplies of bright stock to EGPC. In addition to this supply are the cargoes moving out of Livorno, Cartagena, Algeciras and Leixoes for supplies of Group I grades going into Mohammedia in Morocco, and a smaller parcel is also noted going across Mediterranean from Livorno to Rades.
The West Africa markets remain rather dull, with Nigeria buying only a fraction of the imported base oils of the past. Group I base oils will still be arriving into Lagos during December, but only one USEC cargo is identified as confirmed at this stage. There are talks of the ‘evergreen’ Baltic cargo coming into the picture in the next week or so, but these rumors have been heard previously and only after confirmation from sellers and buyers will credence be attached to this cargo.
Another Ghana supply may be on the cards before, or around year-end, with the ancillary barrels which go into Guinea and Cote d’Ivoire using the same vessel.
There have been discussions as to reported price levels quoted in this report last week, referring to imported material going into Nigerian ports. Sources have reverted with additional information which would suggest that the prices are now more closely aligned with levels mentioned below, and that previous levels were perhaps not as accurate as suggested.
Nigerian CIF/CFR price levels are now indicated between $730/t-$745/t in respect of a range of light solvent neutrals SN150-SN180, with the heavier grades SN500/600/650 between $790/t-$805/t and bright stock remaining at around $885/t-$920/t. SN900 as an indication only may be priced around $815/t-$830/t CIF/CFR.
These prices are in respect of large parcels of minimum 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. Contact him directly at pumacrown@email.com