The conundrum facing base oil refiners may have been partly solved by the sudden slide in crude and feedstock prices, which alleviated the need to raise base oil prices in order to attain acceptable margins.
With ample supply of all types of base oils and demand being relatively low, pressure for markups was becoming critical, particularly for the API Group I segment, where margins had been squeezed to move surplus quantities.
Group I prices have now steadied after producers cut back on output and large quantities reportedly were earmarked for export destinations this week. Both buyers and sellers appear to be in a happier place.
Group II markets also stabilized with downward pricing pressure seemingly reduced and more buyers showing willingness to make purchasing commitments. However, there are still reports of imported Group II material coming into the European arena from Far East sources where markets appear to be reaching saturation point. These are being aggressively priced to attract buyers and are holding down Group II values.
Group III is perhaps still under downward pressure due to the amount of products coming into the supply chain from all sources. There appears to be potential oversupply both for oils with full and partial slates of finished lubricant approvals. The latter are keeping margins tight and prices too close to Group II numbers, in the view of suppliers.
After dropping last week, crude oil rebounded a bit yesterday as dated deliveries of Brent crude traded at $62.35 per barrel for August settlement. West Texas Intermediate crude dipped to $53.30 per barrel, still for July front month. ICE LS gas oil prices dove to nearly $100 lower than its mid-May peak before gravitating to $556 per metric ton, still for June front month settlement. These prices were obtained from London ICE trading late Monday.
Europe
Offered prices for Group I exports from Europe were unchanged this week, although some buyers were heard to be pushing for lower numbers in light of crude and feedstock movements. With margins improved, there may be a temptation for sellers to discount to move material, although this report is hearing that the length has gone out of the Group I market and that availabilities are perhaps more in balance than at any time during the past nine months.
Solvent neutral 150 prices are between $550/t and $575/t, while SN500 is at $575/t-$600/t. Bright stock had been the subject of heavy discounting but has steadied at $700/t-$740/t due to a slight increase in export demand.
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.
After flattening out during the first part of this month, there was some expectation that sellers would try to pitch prices higher for Group I sales within Europe, but this did not come to pass, perhaps because of the drop in crude. Supply and demand were seen to be approaching a balance.
Most refineries in Europe have completed maintenance work and re-established inventories, suggesting a level of stability. At least some blenders do not mind since it allows them to plan more effectively for the summer vacation season.
The differential between intra-regional and export pricing is unchanged, with the former €65/t-€90/t higher than the latter.
Reports from the Group II segment indicate that demand is increasing, and sources believe this may continue for the next few years. Blenders noted that smaller quantities of Group II are being imported from the Far East, and this is counter-acting some higher offered prices for spot sales.
Prices for 100 neutral, 150N and 220N Group II are maintained at $730/t-$840/t (€645/t-€745), while 500N and 600N are at $760/t-$860/t (€670/t-€760).
After downwards over the past few weeks, Group III values appear to have flattened out but remain vulnerable to fast-growing availabilities of these grades. There is still an overriding sentiment that Group III base stocks are longer than the market currently requires, thus creating a form of inherent weakness in prices for these products.
Prices for 4 centiStoke oils remain at €665/t-€710/t, and 6 and 8 cSt are at €675/t-€720/t, all on an FCA basis for sales ex hubs in Northwestern Europe hubs. Sellers appeared to back off talk of markups for June, claiming they now have acceptable margins.
Group III oils with full slates of approvals are at €710/t-€840/t for 4 cSt, €800/t-€865/t for 6 cSt and €775/t-€835/t for 8 cSt, basis FCA Antwerp-Rotterdam-Amsterdam. These wide ranges reflect discounts for fully-approved base stocks by some suppliers, resulting in values that are almost competing with partly-approved grades.
Baltic and Black Seas
Baltic trading is once again described as light, although one large cargo has been nominated to load for receivers in Singapore. This unusual logistical move defies all economic protocol, although loading 10,000 tons on the right vessel may have incurred a freight cost that could make this movement acceptable. This cargo would normally have loaded out of the Black Sea, but due to other loading commitments from that supply point, this may have been the only option available to suppliers to meet supply arrangements.
There are also a number of short-sea trades reported out of Baltic sources into Antwerp-Rotterdam-Amsterdam and the United Kingdom, perhaps suggesting that a little more product is becoming available from Russian refineries and also that Baltic traders and resellers have started re-stocking inventories. A slight tightening of Group I base oils within mainstream Europe could also open opportunities for more Russian exports to the mainland.
Another large cargo for Nigeria remains on the negotiation table, and news on a fixture may be forthcoming later this month.
Prices are unchanged at $475/t-$500/t for SN150, $485/t-$520/t for SN500 and $700/t-$725/t for bright stock ex lower Baltic, all on an FOB basis.
Black Sea news concentrates on a large swathe of Russian export grades throughputting the STS facility at Kavkaz, Russia. Between the end of May and mid-June, around 30,000 tons will have passed through this floating storage, and another 20,000 tons is being planned for the remainder of June. These large quantities are destined for a variety of receivers in Ukraine, India, the United Arab Emirates and Rotterdam, and these movements have maximized the facilities at Kavkaz, Russia, causing a cargo to be loaded out of the Baltic to cover contractual obligations in Singapore.
STS prices for Kavkaz are assessed at around $485/t for SN500, the primary grade loaded.
Reports from Turkey indicate that buyers are considering a number of offers for cargoes imported from Russia, Northwestern Europe and the Mediterranean. Turkish trade is still uncertain due to elections scheduled at the end of this month, and with the end of Ramadan and the Eid holidays, trade has been slower than anticipated. Prices being negotiated by Turkish importers are exceptionally competitive, with some bidders coming to the table with $30/t-$40/t counters to offered levels. These prices have mostly been deemed unacceptable by sellers, who are no longer desperate to move material, and their response has been to repeat initially offered prices, and in one case an offer for June delivery in Gebze, Turkey was increased by some $10/t.
Offers prices for sales on a CIF basis at Turkish ports are being heard at $580/t for SN150, $595/t for SN500 and $765/t for bright stock. There are offers from a major oil company loading ex Rotterdam on a vessel being used to replenish a supply hub in the Mediterranean and transiting to Gebze.
Middle East Gulf
Red Sea reports describe a number of fixtures and inquiries for cargoes to move from Yanbu’al Bahr and Jeddah, Saudi Arabia, for June delivery into a number of Indian ports and the U.A.E. Other shipping inquiries show possibilities of base oils, perhaps Group II, moving from the Red Sea to Turkey and Greece.
Eid holidays have a dampening effect on Middle East trade, but there are reports from Iranian sources that base oils are still being exported to receivers in the U.A.E. and India, although there is no positive evidence. There are no cargoes of base oils reported from Bandar-e Emam Khomeyni or Bandar Bushehr, but there is a suggestion that a shipment of SN500 from Hamriyah to the West Coast of India.
U.A.E. buyers have confirmed that they finally decided to accept a cargo of Russian base oils loading ex Kavkaz. This deal has been discussed for some weeks now, and perhaps was concluded due to the lack of Iranian material.
Prices CIF U.A.E. are indicated to be in the region of $544/t for SN150 and $549/t for SN500.
With Adnoc temporarily closing its plant in Al Ruwais, U.A.E., there are suggestions that Group III supplies out of that unit will ceases during that time. This apparently is not the case since sufficient buffer stocks will be accumulated to ensure continuous supplies of all grades. With a few large cargoes planned for China, India and the United States, it would appear to be business as usual during the month-long turnaround period.
Notional Group III prices ex Al Ruwais and Sitra, Bahrain, are unchanged at $685/t-$725/t for 4, 6 and 8 cSt grades. Eight cSt oils moving to India and China will have lower FOB levels due to local selling prices.
Fully approved Group III base oils from Sitra have been heavily discounted for sales with some European markets recently, perhaps to defend or increase market share. FOB levels are re-assessed in a wide range due to the variations of selling prices in regional markets and are now deemed to be $725/t-$875/t for 4, 6 cSt and 8 cSt grades delivered into the European and U.S. markets.
Nominal FOB prices on a netback basis are based on prices extracted from regional selling levels, less marketing, handling and freight costs.
Group II prices within Middle East Gulf regional markets are unchanged. Oils from the Far East and the U.S., selling on an FCA basis ex U.A.E. hub storage, are at $865/t-$900/t for 100N, 150N and 220N, while 500N and 600N are at $875/t-$920/t. A number of cargoes sourcing from South Korea and the Red Sea are heading into this Middle East Gulf region for supply to distributors and blenders.
Africa
Mediterranean and Northwestern European sources are to supply cargoes of Group l, Group II and Group III base stocks into receivers in North African locations. These range from Mohammedia, Morocco in the west to Alexandria, Egypt to the east. Two large cargoes consisting of around 8,000 tons of Group I base oils will load out of Livorno, Italy, for receivers in Mohammedia, whilst another loading ex a U.K. port will supply base oils into Algeria.
In East Africa confirmation has arrived that the Group I requirement for a large lubricant producer based in Dar-es-Salaam appears to have been covered from a source in South Korea. This may be an affiliated deal made under contract from a Red Sea supplier.
South African shipping agent sources have confirmed another large cargo of around 12,000 tons that will load from Rotterdam and the U.K. before discharging in Durban. It is anticipated that this parcel could include Group I, II and III oils.
Another Baltic cargo is being considered for Nigeria, but sources have not said when it will be arranged, if at all. At the same time, another inquiry is issued for a cargo to load ex Italy for discharge into Apapa.
Another Nigerian buyer is seeking two or three cargoes of SN500, totaling 10,000 tons. This will be difficult to supply unless co-loaded with other quantities of material for other West Africa receivers.
Group I prices for cargoes moving into Nigeria are not being discounted as once was the case, but levels are starting to firm due to higher FOB levels from all sources. The increases are not said to be significant but will possibly be in the order of $10/t-$20/t, indicating that Group I prices have bottomed out in this market.
Future levels are indicated at $685/t-$700/t for SN150, $700/t-$720/t for SN500, and $885/t-$925/t for bright stock. SN900 levels will move higher to around $725/t-$750/t. All prices are on the basis of CIF/CFR Apapa, Lagos.
The prices above refer to large cargoes of at least 10,000 tons landed into Nigerian ports.
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.