EMEA Weekly Base Oil Report
Quite a bit of news emerged from an industry conference in London last week, from ExxonMobil’s announcement that commercial operation began at its API Group II plant in Rotterdam to Saudi Aramco’s appointment of a Far Eastern producer to handle its sales and marketing of all base oils in Europe and Asia.
In one sense, base oil markets were very quiet last week because many of the “great and the good’ of the industry attended the ICIS World Base Oils & Lubricants Conference in London. There was, however, quite a bit of news and information disseminated at the event, from ExxonMobil announcing the start of commercial operations at its API Group II unit in Rotterdam to Saudi Aramco disclosing the appointment of a Far Eastern API Group III producer to handle sales and marketing of all types of base oil throughout Europe and Asia.
There were other pieces of news and many private discussions about the outlook for base oil prices. The consensus was that the market is over-supplied and will probably remain so until some form of rationalization reduces output.
Crude and feedstock prices steadied last week but weakened yesterday to leave dated deliveries of Brent crude at $64.75 per barrel, for April front month delivery. West Texas Intermediate crude fell to $55.30/bbl, likewise for April settlement. ICE LS gas oil traded at $605/t yesterday, still for March front month settlement. These prices were established from ICE London trading late Monday.
The scene for European Group I exports remains long, and many predict now that a series of looming maintenance shutdowns will not cure that condition. Others hold out hope that those production cutbacks and heavy discounts to clear inventories could bring more balance. There is little sign, though, of an upswing in demand either from local or export markets.
Prices are maintained this week, awaiting the outcome of any new directions which may evolve from last week’s exchanges. Light solvent neutrals remain readily available between $565/t-$585/t with SN500 perhaps not showing quite so long and ranging between $580/t-$620/t. The bright stock spread remains between $785/t-$810/t, but with only a few sellers showing offers above $800/t.
The above price levels refer to large cargo-sized parcels of Group I base oils sold on an FOB basis ex mainland European supply points, always subject to availability.
European domestic Group I prices are under discussion for the month of March with buyers maintaining that there should be a degree of adjustment to lower current levels. Sellers, having no room to increase numbers, are resisting any further downward moves by citing gas oil prices which are only marginally lower than domestic base oil selling prices. The outcome of discussions and negotiations may not be known fully until next week, after March prices have been announced. The differential between domestic and export prices remains unchanged this week, with domestic levels between €65/t-€100/t higher than export numbers.
Numerous sources predicted that the opening of the Rotterdam plant will encourage more European blenders to shift to Group II oils. There still remains a reticence with some players to make the move over to Group II, and with the current price differential between these grades and Group l, this may continue for some time, where formulations allow.
The topical debate is whether the new production, with a nameplate capacity of 1mtpy, will affect the market for Group II by causing an oversupply. There are varying views on this subject, but if it is assumed that the supplier does not import Group II, and the new production is used as replacement for these incoming barrels, then the market should remain in equilibrium, or at least as it stands today. With forecast future growth for Group II within Europe the flexibility of the new supplies can adapt to market uptake and the expansion of the Group II arena can be successfully controlled.
Prices are steady and stable with FCA and truck/barge delivered levels in respect of the light vis grades 100N, 150N and 220N, between $840/t-$870/t (€740/t-€775) and 500N and 600N between $930/t-$965/t (€815/t-€850). These prices are in respect of the full range of Group II grades, those being non-approved, partly-approved, and fully-approved.
European Group III continues in a two-tier scenario with both fully approved and partly-approved base oils both claiming a share of the market. One interesting development is that at least one of the partly-approved suppliers is moving rapidly towards full approval status which will happen in around six months from now. When this occurs it will be fascinating to see if that supplier hikes prices to existing customers, or continues to compete in the lower price tier of the supply scene.
Prices relating to the partly-approved Group III grades remain unchanged this week between €710/t-€730/t in respect of 4 centiStoke grades, 6 cSt grades come in between €740/t-€765/t, and 8 cSt base oils are being sold between €730/t-€750/t. Prices are based on FCA sales in various locations in Northwestern Europe.
Fully-approved material is also maintained in the same ranges between €845/t-€880/t for 4 cSt, €870/t-€890/t for 6 cSt and €850/t-€885/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, which may cost less.
Baltic and Black Seas
Baltic base oil sales remain in the doldrums and sellers are finding it tough to place supplies into the mainstream European markets which up until recently were reliant on Russian export barrels to cover the lower end of the Group I market. These grades could previously be provided at a discount to mainstream production, but this situation has altered with Group I suppliers in Europe having to discount to move stocks, thus competing with, and in most cases outselling Baltic avails. Only a couple of smaller cargoes are reported for delivery out of the Baltic going into Antwerp-Rotterdam-Amsterdam this week, with no the United Kingdom parcels announced as yet for March.
That said, a large 10,000 tons cargo has been sold and loaded last week from the Baltic for receivers in West Africa, and with sellers having to concentrate on deep-sea export markets, more cargoes may be marked for sale into West Africa and other Group I export markets.
FOB levels remain under pressure with the large cargo deals having to be completed at exceptionally attractive levels, thus affecting the lower ends of the pricing spreads which are currently indicated at $510/t-$550/t in respect of SN150 with SN500 now between $525/t-$560/t. Bright stock ex southern Baltic remains unchanged this week, between $785/t-$820/t FOB depending on quantity, spec and destination.
Mediterranean sources are trying to compete with local Turkish prices to maintain a presence in that East Mediterranean marketplace, and are having to revise prices further to enable cargoes of more than 3,000 tons to be delivered into Gebze and Derince, Turkey. Cargoes of less than 3,000 tons carry higher freight rates which rule out competitive landed prices which need to be pitched at levels which allow resellers to move material out of shore tank.
Prices in respect of cargoes ex Mediterranean into Derince or Gebze have been heard last week at around $580/t and $595/t CFR/CIF for SN150 and SN600 respectively.
Russian barrels from Azov have been out of the market and even as some suppliers have discounted these avails, local selling prices still hold sway with Turkish buyers. Prices for Group I base oils FOB Azov are assessed between $510/t-$545/t in respect of SN150 with SN500 between $510/t-$555/t.
An STS supply ex Kavkaz, Russia, is being offered into United Arab Emirates, with prices around $505/t FOB being suggested, yielding a CFR/CIF delivered level of around $570/t-$590/t.
There are offers for supplies of Group II and Group III base oils to be imported into the Turkish market, with offers from U.S. sources on Group II 150N and 500N at levels below some of the Group I supplies. Numbers heard during talks last week implied prices around $575/t in respect of both grades. Group III offers are being made from suppliers in the Middle East Gulf, although prices are not declared at this time.
Middle East Gulf
Red Sea reports that there may be a maintenance issue for the base oil unit at Yanbu, although no confirmation has been offered for this news. There are suggestions that this will not affect the output and supply of Group I and Group II base oils from this source, except that should the plant be down for a length of time provisions may have to be made to cover contracted supplies.
Group I supplies are being offered into U.A.E. from a number of sources such as Black Sea and USG with the latter also including options to load Group II material for import into the local markets. Iranian barrels are lacking visibility if they are around at all, with a source contacted last week confirming that the trade through U.A.E. for Iranian exports had all but ceased, with few shipping operators able to lift products from Iranian ports due to lack of P&I cover, and also the potential sanctions which could be imposed by U.S. authorities.
Some comments were received that the European stance is to continue trading and dealing with Iran under the existing arms limitation agreement, but sources also disclosed that European banks and shipping companies were extremely reticent to be drawn on any sort of dealing with Iran.
CIF prices in respect of Group I offers are heard between $565/t-$580/t for heavy neutrals, with offers for Group II grades at between$635/t-$675/t from U.S. sources. Some of these supplies were to be made in flexitanks.
Middle East Gulf Group III exports continue from Adnoc at Al Ruwais and both Neste and Bapco ex Sitra. Cargoes are nominated for Far East, India and Europe, with a cargo being prepared for the Turkish market from Sitra. Smaller cargoes can be loaded out of Sitra whilst Al Ruwais has imposed a minimum quantity to be lifted of 6,000 tons, whilst larger vessels can also be accommodated in this port.
Notional FOB prices in respect of Group III grades are maintained with levels remaining between $740/t-$790/t ex Al Ruwais and Sitra for 4, 6 and 8 cSt partly-approved base oils. Eight cSt grades moving to India and Far East will produce lower FOB values due to lower demand and local selling prices being less than those in place in Western markets. The differential may be as much as $140/t lower than Western exports.
Branded base oils from Neste ex Sitra refinery, which hold European OEM and ACEA approvals, are maintained at $895/t-$935/t for 4, 6 and 8 cSt material moving to European, U.S. and other Western markets.
Group II avails do not appear to be under any pressure with the rumored hardware issues at Yanbu refinery. Group II grades sourced from Far East and U.S. carrying full OEM approvals are also being sold either delivered in bulk or FCA ex U.A.E. hub. Prices in respect of the range of Group II base oils are assessed between $950/t-$985/t for light grades and $1,010/t-$1,025/t for 500N and 600N.
Prices are in respect of 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.
There have been comments received by this report that coverage of the East African base oil markets could be enhanced, although there are not so many identifiable trades which occur on a large scale moving into ports such as Dar-es-Salaam and Mombasa which yield pricing information. Any input would be welcomed to try to put these markets into view.
It was heard that a cargo to load for receivers in Cote d’Ivoire and Guinea in being worked at the moment, and this cargo may take the option of loading along with supply to be made into Tema during March. 5,000 tons made up of three grades will be loaded for Ghana, and the top-off may come to another 3,000 tons for the other two locations.
Nigerian trade continues unabated with the news that another Baltic cargo has been purchased for receivers in Apapa. This is the second movement out of that source reported in the last two weeks, whilst at the same time the USG has provided another parcel of around 12,000 tons which is believed to include quantities of Group II base oils. Prices are expected to be competitive compared to those applying to Group I grades, with sources confirming that further parcels of Group II oils are sure to be considered for the Nigerian market from this point forward.
Group I grades both ex Baltic and ex U.S. Gulf Coast are currently assessed at around $$645/t-$675/t in respect of the range of light neutrals, with heavier SN500/600 landing between $670/t-$695/t, with bright stock between $898/t-$925/t. SN900 is indicated at between $695/t-$725/t CIF/CFR.
Group II prices are higher, and are estimated to land into Apapa at around $730/t-$775/t in respect of both light and heavy-viscosity material in that range.
These prices refer to large cargoes in excess of 10,000 tons total delivered CFR/CIF 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 email@example.com.