EMEA Weekly Base Oil Report
Base oil prices are coming under extensive downward pricing pressure throughout Europe, the Middle East and Africa as stored stock levels rise in the face of weaker-than-expected demand.
The situation has been in the cards for some time, set up by capacity expansions in the global market and exacerbated by economic slowdowns in key markets.
There are moves afoot to curb base oil production, particularly for Group I stocks supplies within Europe, where supply grows longer by the week. The Group II segment in Europe is following a similar trend as the arrival of a number of cargoes has diluted a previously balanced situation.
Group III base oils are also showing some length, with sellers claiming that demand is positive but buyers saying that they have options for where and when to purchase.
Crude and feedstock prices weakened the past few days, as dated deliveries of Brent crude slid to $59.60 per barrel for March front month settlement, around $3.50 lower than last week. West Texas Intermediate retreated to $51.45/bbl, also for March settlement. ICE LS gas oil fell some $25 per metric ton to $544.00/t for February front month, although that price is forecast to firm because of cold weather. These prices were established from ICE London trading at the close of business Monday.
Europe
Group I export prices in Europe remain weak, with refiners and distributors offering discounts to entice buyers in export markets. Values for light solvent neutrals are now between $580/t and $600/t, although there was at least one offer containing prices some $20/t higher. SN500 is being offered at $580/t-$620/t, although pricing for this grade is hazier. Bright stock prices are unchanged at $810/t-$845/t thanks to healthy demand.
These prices refer to large cargo-sized parcels of Group I offered on an FOB basis ex mainland European supply points, always subject to availability.
Prices for Group I sales within Europe are being eroded by plentiful availabilities and slack demand. The forecast from December regarding a mid-January upturn in offtake has not materialized, with buyers relaxed about restocking inventories after the New Year. Sellers are keen to move material out of tank in a timely manner.
Buyers have are also refuting any suggestions that supply could tighten when a number of plants close temporarily for scheduled maintenance, advising that Group I availabilities are plentiful and that Group II pricing is favorable, with at least one case of a Group II product being priced lower than equivalent Group I grades.
The differential between domestic and export prices remains unaltered this week as both sets decreased. Prices for sales within the region are €75/t-€95/t higher than export numbers.
Group II prices are being diluted to a certain extent by offers, not necessarily actual sales being made for the supply of imported grades predominantly from U.S. sources. The effect on existing Group II prices to date, has been one where buyers are talking to incumbent suppliers regarding lower numbers, where in defense, those suppliers are commenting that they would have been making price changes in any case, and that they are not responding to inferior, non-approved material being offered on a spot basis.
There appears to be a form of hiatus in the Group II markets, with a number of blenders around Europe debating as to when they will make the quantum leap to move over to Group II use. This delay is in no small part due to the differentials in pricing between Group II and Group l, although the spread is narrowing and may encourage players to consider the transition.
Prices are slightly weaker this week with FCA and truck/barge delivered levels in respect of the light vis grades 100N, 150N and 220N, in dollar terms between $850/t-$880/t (€750/t-€785), and with 500N and 600N between $940/t-$975/t (€825/t-€860). These prices are in respect of all Group II grades, non-approved, partly-approved, and fully-approved.
Group III markets are also coming under pressure on prices, due in the main to the available large quantities of material coming on the market. Non-approved and partly-approved grades are taking the market by storm and are providing options for buyers to take fully-approved material for some end-uses, whilst at the same time taking quantities of partly-approved products for certain applications. The latter grades can be priced much lower, sometimes by as much as $100/t.
Price levels are amended lower this week, to €725/t-€745/t for 4 centiStoke oils, €755/t-€775/t for 6 cSt and€745/t-€765/t for 8 cSt oils, all on an FCA basis Antwerp-Rotterdam-Amsterdam.
Fully approved base stocks holding ACEA and European OEM approvals remain unchanged this week, although contract prices appear to face downward pressure for February. For now values remain at €860/t-€895/t for 4 cSt, €885/t-€910/t for 6 cSt and €865/t-€900/t for 8 cSt, basis 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
Trade in the Baltic regions appears brisk with a number of cargoes of varying sizes and composition leaving for mainland European delivery in addition to material moving to the east coast of the United Kingdom. Also of note is that further large parcel, in addition to the cargo loaded in mid January, is being discussed for Nigerian receivers. This cargo, if successfully negotiated, may load during first half of January on a two port basis.
Prices in respect of the Russian export grades have not moved significantly downwards, with some parties offering the reason that ‘prices were already competitive’ and that there was no rationale to cutting FOB offers accordingly. Some bids have been received by sellers from potential buyers in West Africa, but with the levels being more than $100 below market this bid has not evoked any measure of excitement from suppliers.
There are a couple of offers on the table for a cargo of around 6,000 tons to load ex from Baltic for discharge into United Arab Emirates, although it is hard to establish why this supply would attempt to compete with Black Sea avails provided on an STS basis. Perhaps a different grade mix is anticipated.
FOB levels are tinkered a little lower to around $570/t-$595/t in respect of SN150, with SN500 around between $555/t-$590/t. Bright stock ex southern Baltic remains unchanged and is assessed between $810/t-$845/t FOB.
Black Sea and East Mediterranean markets have seen a number of enquiries for material to load ex Mediterranean sources for delivery into Turkish ports, although confirmation of firm arrangements are not yet on the horizon. According to local Turkish sources prices being offered by suppliers and traders looking to move material into Gebze, Turkey, are still too high and are being countered by receivers who say that they can buy either internally from Izmir refinery, or from Russian traders ex Azov. CFR/CIF prices for the two main grades SN150 and SN500 are estimated at $585/t for both grades.
Prices for supplies of Group I base oils ex Mediterranean are now around $580/t-$600/t for quantities of SN150 with SN500/600 between $575/t-$595/t, the heavier neutrals remaining lower than the lighter vis grade. Bright stock from Mediterranean sources remains uncompetitive against local supplies.
There is another large cargo being appraised by receivers in Singapore which would load STS at Kavkaz, Russia, around the end of January. This parcel is between 15-16,000 tons, and will predominantly comprise of Russian export SN500. Prices are undetermined at this time, but to land competitively into the Far East the FOB levels will require to be around $550/t.
Middle East Gulf
Red Sea enquiries comprise mainly of material in cargoes moving from Yanbu’al Bahr, Saudi Arabia, to points East, although one parcel forms a new enquiry for receivers in Port Sudan. This business has been circulated to a number of traders based in Europe, but traditionally the incumbent supplier retains the business. There has been no further news on the smaller cargo which was proposed for Turkey which was to load out of Yanbu.
Middle East Gulf trade still reports small cargoes of Iranian exports moving to U.A.E. although there would not appear to be any parcels moving to the west coast of India. Local sources based in U.A.E. have confirmed that small quantities of SN500 and perhaps SN150 are moving out of storage in Bandar-e Emam Khomeyni or Bandar Bushehr, but these are so far under the radar (literally) that no landing can be confirmed.
Iranian sources have said that they have no problems without the ability to export base oils, since the Iranian markets are taking up most of the available material, with small quantities being exported to Syria and Afghanistan. Sources have suggested revised prices of around $625/t CFR U.A.E. in respect of small quantities of premium SN500.
Group III exports Middle East Gulf sources are maintained with large quantities being promoted for sale into China, with around 25,000 tons already planned for early February. There is also another parcel being arranged ex Ruwais for distributors in Turkey, this being on a stand-alone basis, where normally a part-cargo would be delivered by a vessel en-route to northwestern Europe.
Netbacks in respect of notional FOB prices of Group III grades are calculated lower this week since erosion is taking place in many of the final markets thus depleting the returns on Group III grades which carry part-approvals. Local selling prices will have an effect on the contribution levels for the Group III grades produced out of Sitra and Al Ruwais.
Levels are assessed between $755/t-$810/t ex Al Ruwais and Sitra for 4, 6 and 8 cSt partly-approved base oils. Sales of Neste branded material holding full European ACEA approvals ex Sitra refinery are also realigned to between $910/t-$950/t for all grades moving to European, U.S. and other western markets. Eight cSt grades moving to India and Far East will produce lower netback values due to lower selling prices.
Prices refer to notional FOB levels established on a netback basis using published freight rates, local selling prices, and additional notifications of bulk CIF/CFR cargo prices from various representative and reliable sources.
Group II imports from Far East and Res Sea figure in some of the material coming into the Middle East Gulf regions. Material from South Korea and U.S. also contributes to the base oils being sold ex hub storage in U.A.E. These grades carrying full approvals are re-delivered into satellite regions of the Middle East Gulf either on a basis of FCA or delivered by truck or flexi-tanks.
Prices in respect of these grades are maintained since they are not exposed to the same global pressures as the mainstream markets in US, Far East and Europe. Prices remain between $985/t-$1025/t in respect of the light grades 100N/150N/ 220N, with 500N/600N between $1040/t-$1075/t.
These prices refer to small quantities of less than 25,000 tons per load, delivered around Middle East Gulf. Prices may vary with destination and distance from hub supplies.
Africa
South African local sources have confirmed another Group I cargo loading out of U.K. and discharging into Durban storage around end February. Group II and Group III imports are also recorded into South Africa, with hub distribution following break-bulk operations in Durban.
In addition to the Baltic possibility, another cargo is being worked out of European sources in the Mediterranean for Nigerian receivers. This parcel will load during first half February with arrival into Apapa around mid-March. The Ghana tender will also be addressed over the next couple of weeks, and with the incumbent physical supplier going into Spring turnaround, sources have confirmed that coverage for this contracted supply will be attained with material allocated out of storage.
There are new rumors of traders looking at taking Group II grades loading out of U.S. Gulf Coast, and offering these grades into buyers in Lagos. Reasons for this move are that prices for at least some of the grades may be more attractive than Group I numbers at the moment.
Also Nigerian Government authorities want to improve the quality and standards of the finished lubricants produced within the country, and the use of Group II base oils may go some way to enhancing this endeavor. There are also a few blenders who wish to adopt the ACEA 2016 standards, where up until present finished lubricants are imported in Nigeria to meet these standards, rather than being produced under local blending facilities.
CIF/CFR prices in respect of Group I base oils arriving into Nigerian ports are re-assessed with the Baltic cargo confirmed. Levels are estimated to range between $725/t-$745/t in respect of the smaller quantities of light solvent neutral SN150, heavier material SN500 is assessed between $765/t-$785/t with bright stock between $925/t-$945/t. SN900 as an indication only is put at $799/t-$820/t CIF/CFR.
These prices refer to large cargoes in excess of 6,000 tons total delivered into Nigerian ports such as Apapa or Port Harcourt.
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.