EMEA Weekly Base Oil Report 28.05.19

Base oil markets throughout Europe, the Middle East and Africa are in flux at the moment, with API Group I oils stabilizing while Group II and III continue to face downward pricing pressure.

The API Group I market appears to be balancing after months of being oversupplied. Buyers are reacting by looking now for replacement and export stocks since they fear that prices may start to rise – a reaction that is creating additional demand though perhaps only temporarily. Producers, still suffering from poor margins, insist they are determined to limit further discounts – either by restricting production or refusing to sell at exceptionally low numbers. Group I offers are being accepted without counters.

The Group II situation is different, with offers from major players still rocking the market within Europe where values have fallen fast. Availability is more than adequate, and the uptake of these oils is advancing now that the delta between them and Group I is much narrowed.

Group III prices remain under pressure from suppliers defending market share – which were difficult enough to establish in the first place.

Crude oil costs dipped over the past few days, and dated deliveries of Brent were at $69.20 per barrel for July settlement yesterday, down some $2.50 for the week. West Texas Intermediate crude slid to $58.45/bbl, also for July front month. ICE LS gas oil retreated to $615 per metric ton for June front month, around $30 lower than a week ago. These prices were obtained from ICE London trading late Monday.

Europe

Prices for Group I exports from Europe are unchanged this week and show no evidence of further erosion. Prices are stable although some offers contain higher numbers that have not been accepted. Solvent neutral 150 is priced between $550/t and $575/t, SN500 at $575/t-$600/t, and bright stock has flattened at $700/t-$740/t.

These levels 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 within Europe are also stable, with sellers aiming to move substantial volumes of Group I grades over the next month or so prior to the summer vacation season kicking in. There are rumors of some sellers offering fixed monthly prices for June, but at higher levels than those pertaining to most current ex tank spot prices. These prices may also start to move slightly upwards for June sales.

Availability of all Group I grades is reported as good with few areas or regions experiencing any shortfalls of products. With the export demand starting to rise a little the pressure seems to be easing on suppliers to make concessions to regional buyers of smaller quantities in matching or getting closer to export levels.

The differential between domestic and export pricing is maintained with domestic levels €65/t-€90/t higher than exports.

As declared above, Group II prices are still coming under pressure and are reported as lower than one week ago. Some suppliers have suggested that prices may start to rise in June, but set against this scenario is the inherent weakness in the market with ample supplies of both light and heavy-viscosity grades around Europe. The decreases are not major but nevertheless are affecting selling levels around Europe.

Certainly more blenders within the European arena are showing a positive interest in Group II base stocks, and it must only be a question of time before substantial quantities of this grade become the mainstay of European blending. Many operators have commented that it is only a matter of logistics, including conversion of current storage and lines to make the move across to Group II, and that moves are afoot to make this happen, possibly within the next year.

Prices for Group II base oils are reported lower again with FCA levels in respect of the light vis grades 100N, 150N and 220N now assessed between $730/t-$840/t (€645/t-€745), along with heavier grades 500N and 600N between $760/t-$880/t (€670/t-€780). Unfortunately the ranges at the moment are set to remain relatively wide due to what may be termed as resurgence in imports at lower prices. These imports are not significant in terms of quantity, but are affecting market prices due to these levels becoming common knowledge among the buying fraternity.

Group III prices are reported lower this week with an abundance of offers and availability of both fully-approved and partly-approved material. Certain suppliers of fully approved Group III base oils continue to heavily discount in particular circumstances, perhaps looking to stave off any chance of losing ground and market share to other lower priced oils which may not carry the same approvals.

With the announcement this week that one major producer, Neste, is to increase production at a plant in Finland, the market be braced for a further ingress of supply at a time when Group III availabilities are over and above market requirements at this time. Longer term the outlook for Group III base stocks is brighter with the uptake of base oils which can meet the blending parameters of the new breed of lubricants being currently developed. The Neste branded base stocks carry full European OEM approvals, and it is being suggested by sources that this increase in production is partly to offset the loss of access to barrels produced at the Sitra refinery in Bahrain where up until 2017 Neste marketed the total output from that source.

Partly-approved Group III grades prices are moved downwards at the top ends of the ranges this week, being assessed between €665/t-€710/t in respect of the range of 4 centiStoke grades, with 6 cSt and 8 cSt base oils settling between €675/t-€720/t. Prices reflect FCA sales ex hubs located in northwestern Europe.

Fully-approved ranges reflect the inclusion of some exceptionally low prices, again with modifications to the top ends of the spreads with levels assessed between €710/t-€840/t in respect of 4 centiStoke product, 6 cSt material between €800/t-€865/t, and 8 cSt grades between €775/t-€835/t, basis FCA Antwerp-Rotterdam-Amsterdam.

The levels above do not include prices for material which can be delivered in larger bulk cargoes to major buyers or distributors. Prices in respect of those trades may be around the lower ends of the ranges referring to FCA levels above.

Baltic and Black Seas

Baltic activity remains subdued for a number of reasons, not least of which is that supplies are not so forthcoming ex Russian refineries as they were some months back due to maintenance and also the reality that the domestic Russian markets are buoyant and require fist priority to supplies of Group I grades. There are still the remnants of issues with crude supplies.

Prices ex Baltic are also depressed to the extent that purchasing CPT border can be too low for sellers to consider, leaving the Baltic market in limbo. However the Nigerian parcel recognised and identified over the past few weeks has now been confirmed and a vessel will load this week with around 11,000 tons of product from a nominated Baltic port.

Prices are maintained with FOB levels in respect of SN150 between $475/t-$500/t and SN500 between $485/t-$520/t. Polish bright stock remains assessed between $700/t-$725/t FOB.

Black Sea trade into Turkey from Russian suppliers has bounced back possibly due to the extraordinary low levels of pricing emanating from these sources, and this trade includes a couple of cargoes of 3,000 tons each moving into Marmara ports. The uncertainty and economic downturn continues to bear a heavy weight on base oil markets within Turkey, with local prices from Izmir refinery stabilised this week, and are maintained at previous levels.

Mediterranean offers for Group I base oils CIF Marmara ports are heard at $565/t in respect of SN150 and $580/t for quantities of SN500. Bright stock is also under offer and is indicated at $775/t CIF. One cargo has moved from Greek sources to Derince with prices close to those indicated, with a further parcel of some 5,000 tons from the Mediterranean also programmed to be imported into Gebze, Turkey.

Kavkaz, Russia, STS reports another probable large cargo of around 10,000 tons to load in early June for the same receivers in the west coast of India. Prices in respect of these supplies are not confirmed, but offered prices CIF the west coast of India for SN500 were heard at around $545/t-$555/t. Indication prices in respect of SN900 were also heard at around $625/t.

Group III supplies are also being contemplated from Russian sources in addition to United Arab Emirates and Mediterranean suppliers.

Middle East Gulf

Red Sea trade reports the usual raft of cargoes moving out of Yanbu and Jeddah, but additionally supplies to Dar-es-Salaam and Turkey are also being considered for Group I and possibly Group II base oils. Group III continues to be reported as moving from South Korea into Yanbu’al Bahr.

Ramadan still has around another week to run although many players in Middle East markets have commented that trading is largely unaffected by the daily routine which is observed during the Holy Month.

Iranian sources maintain that exports of base oils are continuing although evidence of this occurrence is scant, with no reported base oil cargoes coming out of Iranian ports.

An escalation of rhetoric between the U.S. and Iran continues with an increasing naval and possibly military presence from the U.S. coming into the region.

Receivers in U.A.E. maintain that they are continuing to assess a large parcel of Russian grades loading ex Kavkaz, Russia, in the Black Sea, this following the large 15,000 tons cargo already delivered. Sources have maintained that that prices CIF U.A.E. are to be around $555/t in respect of SN150 and $565/t for SN500. SN900 is indicated at $625/t.

Group III base oils ex Al Ruwais in U.A.E. and from Sitra in Bahrain have notional FOB prices lowered this week due to these prices being reviewed in light of the prices attached to cargoes moving into Europe and the U.S.

FOB numbers are now assessed between $685/t-$725/t for 4, 6 and 8 cSt oils. Eight cSt grades going into India and the Far East will be lower with FOB levels around $100/t less due to local selling prices.

Nexbase Group III base oils marketed by Neste holding full European OEM approvals ex Sitra refinery have FOB levels higher due to premium selling prices in destination markets, with levels also assessed lower and now between $845/t-$875/t in respect of 4 centiStoke, 6 cSt, and 8 cSt grades delivered into the European and U.S. markets.

With the announcement that Neste are to increase production ( although by how much is not yet disclosed ) at Porvoo in Finland there remains some doubts as to whether the commitment to take extra additional barrels from Sitra refinery, other than the 45% allocation of production already established, will continue after the increase with Europe.

Producers have indicated that they would want to increase selling prices in respect of their Group III output for various end-markets, but this appears highly unlikely on the back of reports of increased competition and aggressive selling in many of the destination markets.

Nominal FOB netbacks are based on prices extracted from regional selling levels, less marketing, handling and freight costs.

Group II prices for Middle East Gulf regional markets have dipped this week with selling levels in respect of base oils sourced from Far East and U.S. and holding full global approvals, sold FCA ex U.A.E. hub storage, now placed in ranges between $855/t-$895/t in respect of the light vis grades 100N/150N/ 220N, with 500N/600N between $865/t-$910/t.

Africa

Mediterranean markets supplying North African receivers report more cargoes going into Egypt and Morocco. Sources have confirmed that EGPC will not action the option to have an additional cargo of 3,000 tons of bright stock delivered under the current contract. The market awaits the issuance of a new tender which may come out after the end of Ramadan.

West African reports contain news of the cargo loading out of the Baltic for receivers in Apapa, Nigeria. The parcel of 11,000 tons is loading this week and will sail to arrive in Nigeria around early July. There have been no announcements made of further cargoes to be loaded out of USG, which tends to be the source for rival traders. The cargo noted last week which was loaded out of Singapore is rumored to comprise of Group I and Group II grades of base oil. Some 10,000 tons in total was loaded and more information is being sought, although it is surmised that the same party loading the current Baltic parcel may be involved in this unusual movement of base oils.

Group I prices into Nigeria pertaining to all cargoes which have been loaded, or are loading from Baltic and Livorno are maintained between $670/t-$680/t in respect of SN150. SN500 is established between $680/t-$690/t, with bright stock between $885/t-$925/t. SN900 as an indication only is reckoned between $695/t-$720/t. All prices are on the basis of CIF/CFR Lagos.

The prices above refer to large cargoes of minimum quantity of 10,000 tons in total, landed into Nigerian ports such as Apapa, Lagos.

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.