EMEA Base Oil Price Report
Buyers and sellers are thin on the ground this week throughout European, Middle Eastern and African base oil markets, but those still in attendance are working diligently to get deals done during August.
A number of significant sales were completed for shipments into West Africa, Antwerp-Rotterdam-Amsterdam and the United Kingdom from the Baltic. As many blenders in the U.K. prepare for Brexit, some are cautiously stocking up in case of changes in import duties that affect base oils.
The API Group I market is probably balanced right now, as availabilities are good enough to allow sizeable export cargoes to be booked for destinations such as West Africa, South Africa and the Caribbean Islands. There appears to be little pressure on prices, but raw material costs have come so that margins have improved. Some negative vibes continue to pervade concerning bright stock.
A strike at a refinery in Northwestern Europe could cause supply problems, and labor actions are also planned at a couple refineries along the Mediterranean, but August is normally a quiet time, so impacts could be muted.
Group II prices remain flat with plenty of availability. There still remains a threat that Far East suppliers and traders will start to look at the European Group II market, but that does not appear to have happened yet. This could create an oversupply situation which would obviously affect price stability.
Demand for Group III is reportedly buoyant and forecasted to continue rising to accommodate new lubricant standards from European automakers. The market is balanced, but it is a fine balance that could be tipped in either direction very quickly.
Crude oil and feedstock values weakened again this week as the trade war between United States and China appears to be destabilizing markets. Dated deliveries of Brent crude dipped to $58.25 per barrel for October settlement. West Texas Intermediate was steady at $54.20/bb, still for September front month settlement. ICE LS gas oil also remained around the same at $552 per metric ton for August front month. These prices were all obtained from ICE trading in London late Monday.
European prices for API Group I exports are again reported as stable, with only slight downward pressure on bright stock prices due to the universal availability of this grade from a number of sources. With the news of a number of high profile cargoes being booked for export destinations and a number of inquiries still in circulation, this sector of the base oil market remains balanced.
Prices for SN150 remain unchanged between $575 per ton and $598/t, while SN500 is at $580/t-$605/t. Bright stock levels may have softened a little and are reported to lie between $675/t-$700/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.
Trading within the European arena remains subdued, with only a couple of Baltic cargoes coming into Antwerp-Rotterdam-Amsterdam and the east coast of the U.K. to replenish stocks for sales expected at the beginning of September. There may not be a significant spike in activity at the end of the holiday period since many blenders topped up inventories in June and July, thus avoiding the need to buy large slugs during September.
The differential between pricing for intra-regional sales and exports is unchanged, with exports around €55/t-€85/t lower.
Group II base oil prices are stable, with little activity being reported this week. There have been some large movements of Group II base stocks from Rotterdam going into Valencia in Spain, where a major producer has hub storage serving the Mediterranean markets. Availability is fine, and demand is forecast to increase for the remainder of the third and fourth quarters.
Far East sellers are reported to have made some tentative offers to European receivers, but few if any of these has been confirmed yet as completed deals. Most of the offers have been for smaller parcels, sometimes delivered in flexitanks, but no large cargoes have been imported for redistribution within the European mainland. However, there are a number of shipping inquiries for cargoes of 3,000 to 5,000 tons loading in the Far East and moving into various ports in the European area.
European Group II base oil prices are unchanged at $720/t-$815/t (€640/t-€730) for 100 neutral, 150N and 220N and $750/t-$825/t (€665/t-€740) for 500N and 600N, all on an FCA basis. These values pertain to all Group II base oils, including those with full slates of finished lubricant approvals and smaller imports in flexies from the Far East and the U.S.
Group III prices have recovered this month insofar that the incidence of heavy discounts being strewn around some parts of the markets appear to have declined, and prices are now firmer and back where they were some six months ago. There are signs that demand could pick up during the fourth quarter with the launch of ACEA 2018, which is said to require more Group III and Group III+ base oils.
Prices for Group III oils with partial slates of finished lubricant approvals are unchanged at €665/t-€710/t for 4 centiStoke grades and €675/t-€720/t for 6 and 8 cSt, basis FCA ex hubs located in Northwestern Europe. Values for fully-approved Group III oils are higher this week due to the end of heavy discounts and are now at €775/t-€845/t for 4 cSt, €865/t-€900/t for 6 cSt and €785/t-€855/t for 8 cSt, FCA Antwerp-Rotterdam-Amsterdam.
Baltic and Black Seas
Sources report that Baltic trade has picked up slightly with supplies being made from Liepaja, Latvia, and Kaliningrad, Russia, to Antwerp-Rotterdam-Amsterdam and the east coast of the U.K. A large parcel of around 13,000 tons of Russian export grades for Nigerian receivers has finally been fixed clean and is due for prompt loading out of two Baltic ports and also Antwerp-Rotterdam-Amsterdam. With this swing back to the Baltic, there may be more Russian train movements for cpt (carrier paid to) sales to Baltic traders and resellers.
Prices are unchanged at $475/t-$500/t for SN150 and $485/t-$520/t for SN500, basis FOB. Bright stock ex Gdansk refinery dipped this week to $675/t-$695/t, also FOB.
Prolific amounts of Russian exports continue to be channeled through the Black Sea at the STS facility at Kavkaz, Russia. Large cargoes are moving north to Antwerp-Rotterdam-Amsterdam and South to the West Coast of India and the United Arab Emirates. The inquiry for 5,000 tons of base oils to load for Antwerp-Rotterdam-Amsterdam has been confirmed, and more cargoes are being negotiated for the West Coast of India. STS prices at Kavkaz are ultra-competitive at $459/t STS for SN500 and $440/t for SN150. These levels are still similar to European prices for low-sulfur vacuum gas oil, which is used as feedstock for many Group I base oils.
In Turkey, the local refinery in Izmir raised base oil prices due to the decline of the value of the lira compared relative to the U.S. dollar. Some receivers are being tempted to reconsider Group I offers from Mediterranean suppliers. Sources in Greece and Italy continue to offer Group I material to Turkish receivers at $582/t for SN150, $584/t for SN500, $588/t, CIF Turkish ports. SN600 is seen offered at $588/t, and bright stock has fallen to $755/t.
Group II and Group III base oils continue to be offered from the Far East in flexies, these supplies being sold as an alternative to material available ex tank from appointed distributors.
Middle East Gulf
Red Sea sources report the region busy with a large number of cargoes loading out of Yanbu’al Bahr and Jeddah, Saudi Arabia, for receivers in India, the Middle East Gulf, Jordan and Sudan. There are also inquiries for vessels to take material into ports in the Mediterranean, for example Egypt and Greece, presumably with bright stock for the first location and Group II grades for the second. The Italian port option appears to have been relegated to the backburner at this time.
Iran continues to be seen as a major problem in Middle East Gulf, with some shipping companies now refusing to sail through the Straits of Hormuz for fear of piracy or worse. This has pushed up freight rates in the region with P&I clubs declaring parts of the Middle East Gulf as war risk for insurance purposes. Transportation of base oils produced in Bahrain, Qatar and the U.A.E. is becoming more problematic as fewer vessels are prepared to enter the area.
At the same time, two cargoes of Iranian base oils have been loaded out of Bandar-e Emam Khomeyni and will discharge into two Indian ports. The first cargo is 8,000 tons for receivers in Mumbai, and the second is a smaller parcel of 4,000 tons for buyers in Kandla, in Gujarat state. These are the first foreign-flagged vessels to officially load out of the southern Iranian ports and come under restrictions due to U.S. sanctions. Base oil exports are once again reported, with prices for premium SN500 indicated at around $565/t, FOB.
Offers for Russian export grades ex Kavkaz to receivers in the U.A.E. and the West Coast of India are reported at $542/t for SN150 and $557/t for SN500. These prices pertain to total cargoes of around 10,000 tons with added premiums for smaller quantities. Again, obtaining chartered vessels for deliveries into the U.A.E. has been a problem and favoured options are to discharge into Indian ports only.
Group III shipments continue from Al Ruwais, U.A.E., including a 6,000 ton cargo to be loaded promptly for distributors in China. Prices for Group III loading out of Al Ruwais and Sitra, Bahrain, remain at $685/t-$725/t for 4, 6 and 8 cSt. Eight cSt grades moving to India and China will achieve lower contribution levels due to lower local selling prices. These prices are for partly-approved base oils being sold by Adnoc and Bapco.
Sitra Group III marketed by Neste carry higher netback levels due to higher realizations. These oils hold the full range of European OEM approvals, and it would appear they are no longer subject to heavy discounting in European markets. Notional FOB or netback levels for fully-approved grades are reassessed at $785/t-$895/t for 4, 6 and 8 cSt grades delivered into European and U.S. markets.
Nominal FOB prices on a netback basis are based on prices derived from regional selling levels, less marketing, handling and freight costs.
Group II base oil prices in Middle East Gulf regional markets are unchanged at $775/t-$880/t for 100N, 150N and 220N and $785/t-$900/t for 500N and 600N, all on an FCA basis from hubs in the U.A.E.
Africa
In the South African market, a 10,000 ton cargo will load from U.K. and Mediterranean locations for discharge into Durban during September.
Mediterranean traffic into North Africa has increased, with Group I and Group III base oils moving from Italy and Spain into Morocco. Israel has a number of cargoes primed for import which are loading from Europe, the Mediterranean and the Far East. Egypt also shows on the radar, with cargoes to load from the Mediterranean coast of Spain and an inquiry to load from Yanbu.
In West Africa the inquiry for 3,000 tons being considered for import into Port Gentil, Gabon, is still very much alive and may be supplied as part of a cargo involving a vessel moving into Nigeria or other West Africa locations. The load port has now moved to Antwerp-Rotterdam-Amsterdam.
A large 13,000 ton cargo of Group I grades loading out of the Baltic and Antwerp-Rotterdam-Amsterdam has been fixed and will complete loading during next week. Another inquiry is for 7,000 tons to come out of the U.S. Gulf Coast for delivery into Lagos, Nigeria. Negotiations continue but should wrap up within a few days.
A cargo of around 12,000 tons that was to be taken ex Kavkaz, Russia, has now loaded out of the Baltic.
Some prices for Group I base oils moving into Apapa port in Lagos may have firmed slightly due to higher freight costs, although cargoes containing bright stock may have softened. Levels are now assessed at $695/t-$720/t for SN150, $695/t-$720/t for SN500, $875/t-$910/t for bright stock and $715/t-$725/t for SN900.
These spreads and prices ranges cover all specifications of base oils including SN150 and SN500 requiring a guaranteed viscosity index of at least 95. All prices are on a CIF/CFR basis Apapa, Lagos, and 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.