EMEA Weekly Base Oil Report
For its year-end finale the European, Middle Eastern and African base oil markets are throwing up some very unusual events that have made the market a mixed bag at this time.
The European API Group I market is showing considerable length of availability with for all grades, especially heavy neutrals though supply of bright stock appears balanced. Many of the cargoes identified have been intra-company movements with a large quantity of Group I grades moving from Northwestern Europe and the Mediterranean to Far East, for example.
The Group II scene is stable with some sellers trying to move prices slightly higher to offset exchange rate variances between a weaker euro and the dollar. Others appear satisfied to leave prices intact for December, perhaps concentrating on holding market position.
Variation pervades the Group III segment as fully-approved grades show signs of tightness whilst those with partial or no approvals are easily available.
Crude oil costs remain low, dated deliveries of Brent having dipped below $60 per barrel last week before recovering slightly. Analysts forecast prices staying basically steady into the first quarter of next year in spite of pledges by Russia and Saudi Arabia to trim production. Brent posted Monday at $60.90 per barrel for February front month, while West Texas Intermediate crude was at $52.85/bbl still for January settlement. ICE gas oil has fallen to $576 per metric ton for December front month. All of these prices are taken from late ICE trading in London Monday.
Europe
European Group I export prices are maintained this week with few signs of panic selling to clear inventories, although there are rumors afoot that a few sellers are prepared to offer ‘special deals’ for one-off, prompt loading sales. The fact is that there are very few enquiries for larger quantities of API Group I material to move out of the region.
Prices in respect of the light solvent neutrals remain between $615/t-$645/t, with SN500 and SN600 offered at $645/t-$665/t. Bright stock has rallied as little this week, or at least has not shown the same degree of weakness as the solvent neutrals with offered prices heard and seen still between $810/t-$840/t. A couple of Group I producers have indicated that they may be considering offering large parcels to traders for second half December at extremely ‘competitive’ prices, but these numbers have yet to be confirmed. The above price levels apply to large cargo-sized parcels of Group I base oils sold on an FOB ex mainland European supply points. Group I domestic prices throughout Europe are showing signs of becoming weaker for December, with the solvent neutrals being the most affected by these lower moves. Prices are expected to fall by some $15/t-$20/t for December sales, with sellers claiming that prices have already been discounted during November, and that they should now stabilize through the year-end. There are not many buyers around in the market at the moment anyway, with many blending operations relying on current stocks to see them through until January. The decline in local prices has not been so severe as some were forecasting during the latter few days of November, with sellers not reacting to any form of frenzied selling to achieve lower inventory status at year-end. One major supplier has commented that accounting procedures have changed over time, and there is no longer the need to reduce inventories to lower levels at year-end, hence eliminating the need to heavily discount prices to clear stocks. The differential between local prices and export numbers remains almost as previously advised, but with a small reduction at the top end of the spread. Domestic prices are therefore assessed at between €65/t-€95/t higher than export levels.
Group II supplies, as mentioned above are showing variations from one supplier to another with some distributors pushing for slight increases whilst other remain content to maintain levels as they have been for the last few weeks. Increasing prices in the current market and at this time of year may prove difficult, with buyers’ refusals to accept these increments.
However there appears to be a certain brand loyalty in the Group II sector of the base oil market, which is perhaps closely aligned to product approvals which have become extremely important for some, from Dec. 1, with ACEA 2018 coming into force after that date. At the same time the market is anticipating and eagerly awaiting the intitial production coming from the new Rotterdam expansion, which should be introduced into the market sometime during the first quarter of 2019.
Prices are maintained this week until any and all effects from moves can be assessed, with FCA and truck/barge delivered prices for the light vis grades, 100N, 150N and 220N, between $885/t-$930/t (€775/t-€815) and the heavier vis 500N and 600N grades between $960/t-$1000/t (€840/t-€875).
The Group III base oil market is becoming increasingly divided between those products having full European approvals and those which are only partly-approved. The price differential between the two sets of products is widening further due to a perceived tightening on avails for the range of fully-approved base stocks, whilst supplies of the partly-approved grades are widely available, and if anything are leaning towards oversupply. Some sources in respect of fully-approved grades are looking at major turnarounds in the early part of next year, and whilst all contract volumes can be covered from stocks or alternative sourcing, the combination of these turnarounds may limit any expansion in this part of the Group III market.
Partly-approved grades, FCA euro prices remain between €740/t-€760/t in respect of 4 centiStoke grades, €760/t-€780/t for 6 cSt material, and €780/t-€800/t for 8 cSt base oils.
Fully approved Group III base stocks having ACEA and European OEM approvals are nudged higher with prices between €860/t-€880/t in respect of 4 and 6 cSt at €885/t-€910/t, and 8 cSt at €855/t-€885/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 large or major buyers. Prices in respect of these trades may be lower than FCA levels above.
Baltic and Black Seas
Baltic trades are dull with few spots of activity to enliven the market. Many of the distributors and resellers have elected not to purchase December allocations from Russian refineries, due to potentially having high stock levels in tank at year-end, but also demand for base stocks has increased within the Russian Federation, therefore the main players have less capacity to offer for export. Those with stocks which will be used to cover contractual commitments in mainland Europe, Scandinavia and the United Kingdom will continue to supply material on a continuous basis, but large spot trades to export destinations appear to be off the agenda, at least until post New Year.
Cargoes marked for Antwerp-Rotterdam-Amsterdam and the east coast ofU.K. are in place for December delivery, but with blenders in northwestern Europe running down stocks and with the holiday period approaching, trades will be slack until January.
Prices in respect of small quantities of SN500 are slightly lower this week, although the SN150 grades appear to be holding up in price, perhaps due to less of these grades being available ex mainstream supply sources in northwestern Europe.
FOB levels are pitched around $590/t-$610/t in respect of SN150, with SN500 lower between $600/t-$620/t. Quality and highly specified bright stock ex southern Baltic remains between $795/t-$820/t FOB.
Within the Black Sea and East Mediterranean regions trading is almost non-existent with few if any, Russian cargoes being exported from Azov. In Turkey one of the main markets within the region, there is confusion with local supplies of domestically produced Group I base oils being priced much lower in a sudden move at the end of November by the local refiner to push material on to the market. The result has been a temporary halt to any movement of spot cargoes from Mediterranean sources in Greece, Italy or Spain.
European Mediterranean Group I base oils continue to be offered into Turkey, although there are also reports that some of the traditional buyers are not in a financial position to issue letters of credit in respect of these cargoes. All these negatives have fueled a situation of impasse where few imports are being attempted into ports such as Gebze and Derince, Turkey.
Prices in offers from Mediterranean sources are heard at $645/t-$665/t in respect of quantities of SN150, with SN500/600 at around $670/t-$695/t. Bright stock may also be supplied from Spain or Italy which may be landed into Gebze, Turkey, at around $845/t-$870/t.
There are no reports regarding any further parcels being arranged ex Kavkaz, Russia,, and with the Russian/Ukraine spat still unfolding, there may be a hiatus in the supplies of base oil from this region.
Middle East Gulf
Middle East Gulf business is dominated by the export of Group I and Group II base oils ex Red Sea from Yanbu and Jeddah accompanied by the vast quantities of Group III base stocks coming out of United Arab Emirates, Qatar and Bahrain. Group I supplies from Iran have all but disappeared of the radar, with only reports of small parcels moving out of the southern Iranian ports across to U.A.E. receivers. Local sources reports that Iranian sellers are still looking to move material under the sanction waivers which have been granted to certain receiving nations, but the reason behind the lack of movement of material is the lack of suitable shipping which is proving hard to charter. Many owner who previously traded in the Middle East Gulf waters, lifting material ex Iran, have declined to operate out of Iranian ports under the rules of the sanctions, where they could be blackballed by U.S. authorities by operating in that region
Prices being quoted for the small parcels of material to move into U.A.E. ports are put between $685/t-$700/t CIF in respect of quantities of SN500.
Group III netbacks in respect of FOB levels are moved higher in relation to the fully approved grades which are being drawn from stocks in Bahrain (and of course the GTL material being exported from Qatar) on the basis that selling prices for these grades will start to move upwards due to regional turnarounds in Europe and Far East planned for early next year. Product sourced ex Bahrain may be substituted by one of the suppliers who also have a refinery in Europe.
Notional FOB levels remain between $815/t-$850/t ex Al Ruwais and Sitra for 4, 6 and 8 cSt partly-approved base oils moving into Western markets. Material marketed by Neste holding full U.S. and European approvals from Sitra refinery is now elevated to between $900/t-$930/t for 4, 6 cSt and 8 cSt moving to European, U.S. and other Western markets. Eight cSt grades moving eastwards are lower 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.
Group II supplies into Middle East Gulf blenders is forecast to rise next year to an all-time high, due to requirements for European and U.S. approved finished lubricants being necessary for imported vehicles in the region. Many players are saying that they are going to have to stock Group II and Group I base oils, but still not many of them can see the time when Group II will totally take over from Group l. Given current price differentials many Middle East Gulf blenders are reticent to move from Group I base stocks but can see the day when inevitability may force their hand. Some say that Group III may be the ultimate answer, with local production assured.
Prices for Group II from sources in Far East appear to be falling whilst Western sources are still firm with prices rising. Local Middle East Gulf suppliers may be caught between these two very different markets and may have to adapt and modify prices on the basis of destination rather than an ex refinery basis.
Prices for fully approved products ex hub storage U.A.E. on basis FCA or delivered by truck or flexies, 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
North African markets are now all importing base oils from external sources, although the refinery in Egypt which has been in turnaround for more than a year is reported to be coming back on-stream. The EGPC tender has only called for one cargo each month in the next quarter, and although this has been the case in the past, generally the quantities and number of cargoes has been increased over the same period. Receivers in Morocco are looking for further supplies of Group I grades during December from usual sources in Italy.
South African sources report an increase in the number of Group III parcels which have been arriving into the region from Malaysian sources as well as northwestern European supplies of both Group III and Group I material from a major.
West Africa reports are that the Ghana tender may be supplied on a stand-alone basis with around only 5,000 tons of three Group I grades being loaded for supply into one discharge port, Tema. The other regional markets often supplied in conjunction with this shipment appear unable to take delivery of further material at this time.
At the same time no further cargoes appear to have been fixed for Nigeria, with only one outstanding parcel to be delivered ex USEC. The rumored Baltic purchase appears to have come to nothing, and the Mediterranean cargo ex Italy assumed to be loading during December has yet to be nominated.
In the absence of any further transactions being established, Nigerian CIF/CFR price levels are maintained as per last and can be 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 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.