EMEA Weekly Base Oil Report
Base oil trading across Europe, the Middle East and Africa was subdued the past week. All grades appeared flush and in some areas downright over-supplied, and demand was generally slow, though there continues to be strong draw for API Group II and oils carrying full slates of finished lubricant approvals.
Scheduled maintenance shutdowns loom for several plants, but even so there is little to suggest that availabilities will tighten. Forecasts of lackluster economic activity will suppress any signs of buoyancy, holding back industrial and commercial expansion until key geo-political factors can be sorted out.
Crude oil prices dipped as dated deliveries of Brent posted yesterday at $61.50 per barrel, $1 lower than last week, for April front month settlement. West Texas Intermediate crude slid around $2 to $52.10 per barrel for March settlement. ICE LS gas oil stayed almost flat at $583.00 per metric ton, still for February front month. All prices were established from ICE London trading late yesterday.
Europe
European Group I exports continue to reel from aggressive bidding from those few buyers who are in a position to lift larger quantities of base stocks for deep-sea markets outside European boundaries. A number of alternative sources offer better deals either because of lower FOB values or better freight rates. Prices are softer this week, although it is difficult to say precisely how much since negotiations continue.
There are signs of a number of inter-affiliate cargo movements are in the works, and it appears that major oil companies are balancing global inventories.
Prices for light solvent neutrals fell around $10 per ton to between $570/t and $590/t, while heavier grades such as SN500 were unchanged at $580/t-$620/t. Bright stock has also come under a bit of pressure during the past few days and dropped to $795/t-$825/t.
One major reportedly declared that prices below $800 would not be considered because margins would be unacceptable, but a sale of around 3,000 tons was said to have been booked for at $795/t, on an FOB basis.
The above price levels refer to large cargo-sized parcels of Group I sold on an FOB basis ex mainland European supply points, always subject to availability.
Prices for Group I sales within Europe are unchanged after contract reviews at the turn of the month. There are some complaints from buyers around the market who are hearing or seeing much lower export prices which are being used as ammunition to counter suppliers for pricing adjustments on a week by week basis. On the whole however, prices have remained relatively firm at end January levels, with sellers forecasting the market to start gaining momentum during February in preparation for the seasonal upswing in demand for finished products.
The differential between domestic and export prices has widened this week, due to the firmer stance being taken by sellers in the local and domestic markets, and the assessment is now that domestic levels are between €85/t-€120/t higher than export numbers.
Although not so pronounced as the Group III scene, European Group II markets are developing a secondary tier where non-approved base stocks are being imported from various sources and sold around the market. These grades may carry approvals from their source markets, but do not have the ultimate approvals granted by European OEMs, hence are not capable of full integration in the European arena.
There is still the merest hint of oversupply around the marketplace, with Group II prices remaining under the spotlight, although since these grades run an almost parallel course to domestic Group I sales, a similar pattern is developing where Group II prices have remained steady over the last ten days.
Prices are maintained this week with FCA and truck/barge delivered levels in respect of the light vis grades 100N, 150N and 220N, remaining between $845/t-$875/t (€745/t-€780), and with 500N and 600N also steady between $935/t-$970/t (€820/t-€855). These prices are in respect of the whole range of non-approved, partly-approved, and fully-approved Group II grades, although there are some reports of non-approved material in small quantities being priced around $45/t below the lower end of the above ranges.
In Europe the Group III market maintains a two-tier approach with fully approved and partly-approved base oils competing for market share. The market is certainly not short of available material for in both camps whilst demand is reported to be brisk, there are also suggestions of a growing oversupply situation where prices, particularly at the lower end of the spectrum, are being eroded on an almost constant basis.
There are a number of turnarounds planned for major suppliers of Group III base oils, and whilst this may not have the effect of totally stemming the oversupply situation, it may take a little of the steam out of what could rapidly become an overheated market.
Prices in respect of partly-approved Group III grades are maintained between €720/t-€740/t for 4 centiStoke grades, with 6 cSt grades between €750/t-€770/t, and €740/t-€760/t for 8 cSt base oils, all FCA Northwestern Europe.
Fully-approved material holding ACEA and European OEM accreditation also remain unchanged with price ranges between €855/t-€890/t for 4 cSt, €880/t-€900/t for 6 cSt and €860/t-€895/t for 8 cSt, all on an FCA basis 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 trade is thin with fewer cargoes moving out of this region. Prices have been knocked further back, due in the main by attempts by sellers and distributors to clear inventories which had been building up over the past month. There have been offers to try to regain impetus into export markets like West Africa, but competing against lower priced avails from alternative sources such as United States Gulf Coast could become economically damaging for Baltic suppliers.
A cargo continues to be considered for United Arab Emirates loading out of the Baltic, and whilst this parcel does not utilize Russian export barrels, this movement is still seen as an important regional development, paving the way for further movements of heavier Group I grades which are required in the Middle East Gulf marketplace. Other cargoes using Russian export material are also being assessed for sale into U.A.E. receivers.
The smaller number of cargo movements has limited the quantities of base oil moving into Antwerp-Rotterdam-Amsterdam and the United Kingdom ports, although there are a couple of reasonably large sized parcels moving into Antwerp-Rotterdam-Amsterdam during the middle part of February. Also there is no further news regarding the large cargo for Nigerian receivers which was mooted some two weeks ago.
FOB levels are tempered lower to $555/t-$580/t in respect of quantities of SN150, with SN500 only slightly higher between $555/t-$585/t. Bright stock ex southern Baltic is amended lower this week and is assessed between $795/t-$830/t FOB depending on quantity, spec and destination.
Mediterranean suppliers are once again in full flight trying to place cargoes of Group I grades into Black Sea and East Mediterranean Turkish ports. These sales have met with some degree of success, but local Turkish prices and avails are still an attractive alternative to purchasing imported material. The costs attached to handling and storing larger quantities in addition to the negative cash flow when buying cargo quantities stack against the importation of European Mediterranean sourced material.
Blenders have the option to buy truck loads which can be paid for in local currency. However, sellers are reported to be offering exceptionally attractive prices to complete deals for February. Cargoes are targeted into Derince and Gebze, Turkey, with CFR/CIF prices for the two main grades SN150 and SN600 estimated at around $580/t and $595/t, respectively.
Prices for supplies of Russian Group I base oils FOB ex Azov are assessed between $560/t-$575/t for quantities of SN150 with SN500 between $570/t-$590/t, with the large parcel of around 15,000 tons loaded STS ex Kavkaz, Russia, for Singapore, would have been priced at around $540/t-$555/t.
Middle East Gulf
Reports from Red Sea sources indicate a number of movements from Yanbu aand Jeddah for supplies of Group I and Group II grades are being loaded for receivers in the west coast of India, U.A.E. and Oman.
There are no reported Iranian exports moving out of the southern Iranian ports, suggesting that finally, or eventually, U.S. sanctions may have started to bite, curtailing the trade of base oils from Iran to traditional outlets in U.A.E. and India. Sources in U.A.E. have suggested that some material is moving into storage in Hamriyah and that this material is being used locally, either being sold in smaller lots, or used in small batch blends.
Group I imports are being considered sourcing from Baltic, Black Sea, and USG, although one source has intimated that the delivery lead time is a real negative when assessing these cargoes, but with ‘special’ pricing attached to these purchases, there is a certain attraction in evaluating at these offers. Target prices are below $600/t in respect of quantities of Group I heavy neutrals, whilst at the same time Group II grades have been offered from U.S. sources, which could compete with the Group I economics. Bright stock quantities also figure as part of the cargoes being offered into U.A.E., with estimated prices around $835/t-$860/t delivered CIF.
A European supply of Group I grades is offered ex northwestern Europe and Mediterranean into U.A.E., but U.S. material is lower in price, although lead time on delivery may go against this supply. A couple of Group I cargoes are planned for delivery into the west coast of India ex U.S. Gulf Coast, these movements having options for either full discharge U.A.E. or part-cargo into U.A.E. and the west coast of India.
Group III exports from Middle East Gulf are planned for cargoes moving into China and India. During February there would appear to be a lagrer than normal export from Al Ruwais and Sitra, perhaps reflecting brisk demand in markets such as India.
Notional FOB prices for Group III grades are maintained with levels assessed between $750/t-$800/t ex Al Ruwais and Sitra in respect of 4, 6 and 8 cSt grades with partial slates of approvals. Eight cSt grades moving to India and the Far East will produce lower netback values due to local selling prices being less than those achievable from Western destination markets.
‘Nexbase’ branded material from Neste ex Sitra refinery, carrying European OEM and ACEA approvals, also remains between $905/t-$945/t in respect of 4, 6 and 8 cSt material moving to European, U.S. and other Western markets.
These 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.
Reports are that Group II base oils are starting to make inroads to Middle East Gulf markets but perhaps for various reasons which are alternate to lifting the specification of blend material. These grades are often being made available at prices which can compete with Group I neutral numbers and whilst not carrying full European approvals, these oils can be satisfactorily used in primary blends throughout Middle East Gulf regions.
At the same time, Group II grades sourced from Far East and U.S. carrying full OEM approvals are being dispensed ex hub within Middle East Gulf either on a basis of FCA or delivered by truck or flexies. Prices in respect of the range of Group II base oils are now assessed between $960/t-$995/t in respect of the light grades 100N/150N/ 220N, with 500N/600N between $1025/t-$1045/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
North African imports of Group I base stocks ex a Spanish source are nominated for delivery into Morocco during February, this supply being in addition to other cargoes loading out of Livorno for the same receivers in Mohammedia.
South African sources have confirmed that a cargo of Group III grades will arrive during March into Durban. The supply is being made ex U.S. Gulf Coast and will comprise of around 4,000 tons of two or three grades. A Group I cargo is also being prepared for loading during late February or early March from northwestern Europe and/or U.K. for delivery into South Africa.
West Africa markets report the purchase of a large 15,000 tons parcel of Group I and Group II grades for receivers in Nigeria. The Group II supplies are not ACEA approved, but this becomes unnecessary and irrelevant when considering the Nigerian market, since these grades can be used to replace Group I supplies in certain instances.
Comments received from sources in Nigeria suggest that bright stock and heavier grades such as a SN900 blend, will remain integral parts of the Nigerian base oil slate, and whilst Group II base oils may make ingress to the Nigerian market, sources were also quick to point out that prices were paramount, and if Group II base stocks became less than competitive then buyers would revert back to using Group I material.
CIF/CFR numbers in respect of Group II grades landing into Apapa are being assessed currently and will be reported as soon as practical.
Group I grades remain competitive against the Group II levels and are currently assessed for light solvent neutrals at around $$720/t-$745/t, with heavier SN500/600 between $730/t-$750/t, with bright stock between $920/t-$940/t. SN900 is indicated at between $775/t-$795/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.