Base oil markets in Europe, the Middle East and Africa diverged this week, depending on grade and type. API Group I grades are largely stable except for bright stock, which has come under downward pricing pressure because demand fell while availability stayed healthy.
Meanwhile, Group II and Group III markets are seeing aggressive selling from suppliers bent on gaining or protecting market share. Prices are weakening in response to the quantities of product circulating in the markets, and with no signs of any let up on this score, the scene is set for further price erosion.
Margins overall are being squeezed, with some refiners stating they are prepared to limit production to avoid adding further to inventories that can only be moved at discounted prices. Base oil returns are relatively poor from the base oil slate at this time.
Crude oil and feedstock prices rose this week. Dated deliveries of Brent hit $68.50 per barrel for June front month settlement, while West Texas Intermediate climbed to $60.80, still for May front month. ICE LS gas oil increased to $610 per metric ton for April front month. The above prices were gathered from ICE London trading late Monday.
hese crude and feedstock moves only exacerbate the pressure on base oil prices, with producers actively considering whether to continue selling lower priced base stocks.
Europe
Prices for European exports of Group I solvent neutrals are stable with only a few sellers in the Mediterranean willing to discount prices for these grades. A couple sources actually tried to raise prices but had little success. Availability for heavier neutrals is tighter than one month ago, but with export demand starting to build there is still enough product to satisfy the market.
Prices are unchanged at $560/t-$580/t for lighter grades and $575/t-$610/t for SN500. Bright stock values have started to dip, with reports of one FOB offer at $758/t yielding a range between $758/t-$800/t.
These prices refer to large cargo-sized parcels of Group I sold on an FOB basis ex mainland European supply points, always subject to availability.
Domestic prices across mainland Europe are maintained, but there are rumblings from a number of blenders that the differential between export and domestic prices is too great, and that local prices should be reviewed downwards. Some buyers also point out that there are some exceptionally competitive Group II offers around the market, with these also contributing to an unease regarding ex tank prices in Northwestern Europe.
Some buyers have intimated that prices should be reviewed April 1 and have advised suppliers that they are to revert with updated offers for the month of April. Some are also scouring the export scene to establish whether as larger buyers they may be able to purchase cargo sized parcels which could be placed into storage. This action is on the basis that prices are probably not going to fall much further, and low priced stocks would be an advantage for the next busy quarter.
In the meantime the differential between domestic and export prices is expanded due to export prices weakening, and domestic levels yet to change. Domestic levels are now assessed to be between €85/t-€120/t higher than export selling prices, although it must be stressed that this could change during the course of this week, with discounts to domestic levels being applied.
Group II prices are described as ‘confusing’ this week with some sellers actively trying to hike levels due to source increases being initiated by producers in the U.S. These sales had originally been effected at particularly low prices previously and relate to smaller supplies in flexies rather than the mainstream market. However even in the latter there are startling differentials on prices which are stirring the Group II supply scene into a maelstrom. In some instances major suppliers are offering prices more than $100/t lower than their competitors causing not a small amount of friction in the Group II market.
The overall effect has been to move European Group II prices lower this week with levels in respect of FCA and truck/barge delivered levels for light vis grades 100N, 150N and 220N, now assessed in ever widening ranges between $755/t-$865/t (€665/t-€765), with heavier grades 500N and 600N also in an extensive spread between $775/t-$910/t (€685/t-€805).
Prices are in respect of the full range and availability of Group II grades, those supplied in flexitanks in addition to supplies by vessel and barge and covering non-approved, partly-approved, and fully-approved material.
Group III base oil prices are stable although the market is being exposed to a measure of strong competition from incumbent and returning suppliers. The two-tiered market is being shortened by the lack of supplies from a Russian refinery, which is currently in turnaround, this having the effect of maintaining a supply demand balance at this time which is crucial to steadying prices throughout this sector.
Levels in respect of the partly-approved Group III grades are realigned for April between €710/t-€775/t in respect of 4 centiStoke grades. Six and 8 cSt base oils are offered between €720/t-€785/t. Prices relate to FCA sales ex various hub locations in northwestern Europe.
Fully-approved material is reduced and is assessed between €825/t-€880/t in respect of 4 centiStoke product, 6 cSt material is between €835/t-€895/t, with 8 cSt material between €830/t-€875/t, 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
It is difficult to imagine that Russian export prices could fall further, since bid prices for CPT sales of material for Baltic traders must reflect numbers which are well below cost, and make it unlikely that volumes of these base oils will ever make it into storage in the Baltic. Availability of Russian Group I base oil is not extensive at the moment, with reduced quantities of material being offered from refineries.
Some Baltic sellers have intimated that they are pinning hopes on European mainstream prices starting to climb during this quarter, but there are currently few signs or indications that this action will take place. If European Group I prices start to rise then Baltic traders will be able to offer higher prices in buying Russian barrels, encouraging refineries to export larger quantities than present.
FOB prices are traded down again this week with levels in respect of SN150 between $480/t-$510/t with SN500 between $485/t-$520/t. Bright stock ex southern Baltic has been tainted by the European mainstream trend of lower prices with levels now expected to lie between $760/t-$785/t FOB. SN900 blend is offered in large quantities for a West Africa cargo at $535/t FOB Baltic ports.
Eastern Mediterranean and Black Sea reports show a number of cargoes of various base oils moving into the region from Mediterranean sources. Group I and Group III parcels are inbound for Turkish receivers, whilst Group II offers from a Red Sea refinery at Yanbu are being evaluated for delivery into Gebze, Turkey, and a Cypriot port. Another smaller cargo of Group II base stock is also sold into Turkish distributors from a U.S. source. This material will be sold ex-tank by traders using storage at Gebze, Turkey, port where distributors continue to sell Group II and Group III base oils on an ex-tank basis..
Turkish Group I trade is dull with few Mediterranean cargoes being accepted after offers have been repeatedly revised with lower prices from sources in the Mediterranean. The Turkish economy is teetering on the brink of recession with all the negatives that this scenario could bring. Currency fluctuations, banking problems and restrictions to trade are all possible unless Turkey avoids falling into this abyss. As a result it would appear that Turkish buyers will continue to rely on local supplies from Izmir refinery for Group I base oils, purchasing in local currency in small lots by truck, rather than risk importing material from Mediterranean suppliers and holding stock in tank.
Offers from Mediterranean sources on basis CIF Gebze, Turkey, are heard at around $545/t for SN150 and $555/t in respect of SN600.There are no takers for these cargoes, but sources locally inform that this is not a function of price, but has more to do with logistics and financing.
Russian prices have moved even lower for cargoes moving out of Azov ex Kavkaz, Russia, and also for offers of material going into Gebze and Izmit. Levels in respect of FOB avails ex Azov are assessed at around $470/t-$495/t in respect of SN150 with SN500 between $485/t-$500/t. These levels are below current regional prices for HSVGO, how long these numbers can be supported is a matter for discussion.
Further Kavkaz, Russia, STS cargoes are being assessed for receivers in Singapore and United Arab Emirates, and additionally a parcel is also being examined for a bridging supply to Rotterdam for onward transportation to South America.
Middle East Gulf
In spite of continuing issues at Yanbu refinery exports from this site continue in large quantities to the west coast of India, the east coast of India and U.A.E., thus suggesting that base oil supplies have not been interrupted quite as was imagined. Other Mediterranean supplies of Group II base oils are also being offered from this source
There are no reported Iranian Group I cargoes moving out of Middle East Gulf and sources in Hamriyah have suggested that producers who normally exported to the west coast of India and U.A.E. have declined to offer parcels of SN500 in view of shipping difficulties. U.A.E. buyers are investigating large quantities of Russian Group I exports from Kavkaz, Russia, in the Black Sea, substituting these barrels for Iranian supplies. CIF offers into U.A.E. for Group I base oils are confirmed at $558/t for SN500 ex European Mediterranean sources.
Group III trade reports cargoes from Al Ruwais in U.A.E. moving to northwestern Europe, the west coast of India and Turkey, whilst parcels from Sitra in Bahrain are arranged for discharge into Mumbai. These are in addition to the cargoes noted last week as moving to Far East.
FOB prices in respect of partly-approved Group III grades from Al Ruwais and Sitra remain unchanged this week at levels between $725/t-$765/t in respect of 4 centiStoke, 6 cSt and 8 cSt base oils. Eight cSt grades sold into India or Far East will command lower FOB prices due to lower local selling prices in these locations.
Nexbase branded base oils supplied out of Sitra refinery and marketed by Neste has FOB estimated levels between $885/t-$935/t in respect of 4, 6 and 8 cSt grades which are delivered to European, U.S. and other Western markets.
Group II prices in Middle East Gulf markets have been addressed again this week to take account of revised selling levels, these base oils are sourced from producers in Far East and U.S. Carrying full global approvals these base oils and are sold FCA ex U.A.E. hub storage.
Group II prices in Middle East Gulf are revised and are assessed between $900/t-$945/t in respect of the range of light grades 100N/150N/ 220N, with 500N/600N selling between $865/t-$925/t. 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.
Africa
Mediterranean and North African news confirmed that the Egyptian bright stock tender was awarded to a European based trader, and whilst details of the tender pricing are not yet disclosed, it is rumored that the bid was exceptionally keen, amid competition from a number of supplying sources keen to win the tender. The tender was awarded for three 3,000 tons cargoes for delivery during April, May and June, with a buyer’s option for a further parcel to be delivered during May.
Traders are looking to send another cargo of Group I and Group II base oils from sources in USG into Nigeria during May. Another possibility is to look at sourcing a cargo from the Baltic although quantities are not confirmed as being available for such a parcel. The ideal cargo would be to load around 10-15,000 tons of mixed grades, predominantly heavier material such as SN500, SN900 and bright stock.
Group I grades landed into Apapa in Nigeria are maintained as per last with the market in that region perhaps having reached its nadir. Levels remain at $670/t-$680/t in respect of SN150 with SN500 between $680/t-$690/t. Bright stock which has been sourced and loaded southern Baltic in Gdansk is estimated to be sold CFR/CIF between $900/t-$945/t along with SN900 indicated between $700/t-$720/t CIF/CFR.
There are reports that buyers in Nigeria had been bidding to purchase SN900 at very low numbers below $700/t CFR, these levels have been spurned by sellers who have informed buyers that levels will be indicated at minimum $700/t, and that prices may start to rise due to restricted quantities of avails for this particular grade.
Group II prices ex U.S. Gulf Coast are indicated landed into Apapa at between $695/t-$765/t in respect of quantities of both light and heavy vis material.
These prices refer to large cargoes with a minimum loaded quantity of 10,000 tons 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 pumacrown@email.com.