EMEA Base Oil Price Report
BY RAY MASSON
Base oil prices throughout Europe, the Middle East and Africa have remained relatively unaffected by recent run-ups in crude and petroleum product prices.
Base oils appear unusually insulated from such swings at the moment, because although it is common for them to lag before following crude values up or down, enough time as passed for them to react to the crude movements that followed the drone attack in Saudi Arabia 11 days ago.
Refiners have said that the output of the damaged facilities is not great enough for the attack to have impacted global crude supplies.
There are mounting concerns that base oil margins could get squeezed enough for producers to further shift feedstock toward output of alternative products.
For the moment, API Group I availabilities are covering both domestic and export demand adequately enough for prices to remain intact.
Group II values remain stable. The supply-demand situation appears to have settled down after the opening of ExxonMobil’s large plant in Rotterdam during the first quarter.
Group III prices may be starting to come under pressure from a developing oversupply scenario hitting European markets from new Far East sources.
Crude and feedstock prices have eased a little. Dated deliveries of Brent crude fell to $64.20 per barrel for November front month settlement, around $1 lower than last week. West Texas Intermediate crude is quoted at $57.95 per barrel, now also for November front month. ICE LS gas oil dipped from last week’s peak to $613.25 per metric ton for October front month.
These prices were obtained from London ICE trading late Sept. 23.
Europe
European Group I export prices are unchanged again this week, ignoring the pressure weaker crude and feedstock prices. As base oil margins tighten, some refiners may shift production away from base oils to distillates, where margins are higher. Turnarounds for a couple of major refineries in the Mediterranean may also curb excess availabilities.
Prices remain unchanged, with solvent neutral 150 between $575 per ton and $598/t, and SN500 at $580/t-$605/t. Bright stock is widely available from producers – perhaps enough to cause downward pricing pressure. Counters from buyers are coming in around $5/t-$10/t lower than sellers’ offered numbers with final levels at $660/t-$685/t, basis FOB.
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 and local European markets for Group I supplies are still relatively appealing to sellers since prices continue to show a healthy premium over export sales. There are also more continuous opportunities to maintain sales into this part of the market, with many of the export arbitrages closed or limited. With the seasonal lull in finished lubricants, activity in this market sector may start to diminish over the next couple of months.
Prices are maintained with the differential between domestic Group I levels and export pricing remaining with domestic levels €85/t-€100/t above export levels.
Group II prices around Europe remain stable, but with an increasing number of instances of offers from Far East sources this sector may be heading in a similar direction as Group III. As with Group I domestic sales, demand may start to weaken over the next couple of months for blenders to purchase large quantities of Group II, although steady demand is still being forecast by major suppliers.
Many more exports for Group II base oils are being created by major suppliers using European production and imported material which is stored in hub terminals, to supply affiliates in distant markets like South Africa and South America.
Group II prices are maintained with FCA levels remaining at $700/t-$815/t (€625/t-€730/t) for the light viscosity grades, with 500N and 600N at $720/t-$825/t (€640/t-€740/t).
These prices pertain to the full range of Group II oils, including those with full slates of approvals as well as those with partial or no approvals.
Group III values are starting to weaken this week, although many say these are just a reaction to expanding availability. Most prices are under a bit of pressure, and prices are being discounted on spot and non-contracted purchases to encourage buyers to repeat purchases on an ongoing basis.
There’s a wide range of prices for partly approved Group III base oils. Levels are assessed at €650/t-€700/t for 4 centiStoke grades with the 6 cSt and 8 cSt base oils at €655/t-€710/t. These prices are for FCA sales ex hubs in northwestern Europe.
Fully approved Group III prices are higher in most cases, but in some instances almost in line with partly-approved oils. Levels are maintained this week at €795/t-€855/t for 4 cSt base oils, with 6 cSt material at €825/t-€915/t and 8 cSt grades at €795/t-€870/t, FCA Antwerp-Rotterdam-Amsterdam.
Baltic and Black Seas
Baltic prices for Russian export grades are stable but there are slow sales through sellers and distributors. With low demand for these oils coming into mainland Europe due to good availability of mainstream production, finding markets for these base stocks is becoming increasingly difficult. Domestic demand within Russian and other markets such as Ukraine is starting to wane, hence there may be more opportunities for traders to buy Russian export base oils at lower prices, albeit recent rises in raw material costs.
There are enquiries for at least one other large cargo to move to Nigeria, but negotiations are still ongoing and this cargo, reputed to be aimed to finally load around 15,000 tons of product, may not happen until well into October. Baltic inventory for this supply may not be in place until that time.
There are reports of only one cargo from Kaliningrad, Russia, moving into Antwerp-Rotterdam-Amsterdam, perhaps a few parcels fewer than on the same route six months ago. There are a couple of United Kingdom enquiries for material to load around the end of September which may make up some of the supply slack.
Prices are maintained with FOB numbers for SN150 at $475/t-$500/t and SN500 at $485/t-$520/t. Bright stock ex Gdansk, Poland, is assessed at $665/t-$685/t FOB.
Black Sea activity has been quiet with no reported Kavkaz, Russia, STS supplies hitting the market. However there have been Russian barrels loading out of the Black Sea for supply into Israel and Egypt. Prices for Kavkaz supplies remain at attractive low levels for the range of Russian export grades around $455/t for SN500 with SN150 at $435/t. With European barge prices for HSVGO at around $480/t, the selling prices for the Russian export barrels are far below European feedstock levels which could only mean that Russian refineries use a different cost allocation system to other European refineries.
Mediterranean-produced Group I base oil offers are still arriving into Turkish buyers, but with a dull market locally there is little need to take larger than normal parcels of Group I. Preference remains to take smaller quantities from the local refinery at Izmir, even where prices are higher due to the Turkish lira’s exchange rate against the dollar. The problem occurs when the refiner has to purchase crude in U.S. dollars and can only sell in local currency.
Mediterranean offers include prices at $574/t for SN150 with SN500 at $584/t. SN600 is seen offered at $595/t, with small integral parcels of bright stock at $740/t CIF.
Small quantities of Group II and Group III base oils remain available on an ex-tank basis in Turkey, and reports are that sources in the Far East and Middle East Gulf have been supplying parcels of both in bulk and in flexies to traders who resell. Some of the main distributors also represent major producers and suppliers who are active in establishing Turkey as a future potential market for Group II and Group III base stocks. There are also direct representations from suppliers in Europe and the Red Sea who are looking to open up markets for new production of Group II and also for the resale of Group III base oils from Far East-based affiliated companies.
Middle East Gulf
Red Sea information suggests that the Jordanian requirement for around 3,000 tons of Group I grades to be delivered into Aqaba, has been covered by a Saudi Arabian supplier out of Jeddah and Yanbu ports. Another large parcel of around 15,000 tons + has been assembled from these supply sources for discharge into the west coast of India. There is also a shipping enquiry for a prompt cargo to load a small quantity out of Yanbu for Egypt, which may be the final supply of bright stock under the current third quarter contract to Egyptian General Petroleum Corp.
In Middle East Gulf Iranian Group I trade is missing from reports as Iranian/Saudi Arabia/U.S. relations have deteriorated further over the course of the last few days following the drone attack on Aramco installations. The announcement that the U.S. will be sending defense systems and troops to Saudi Arabia can only escalate an already tenuous relationship between the three countries. U.S. sanctions have also been increased to curtail further trade activity out of Iran.
Sources in United Arab Emirates still maintain that base oils are still moving out of Iranian ports although these may only be small vessels carrying 100s rather than 1000s of tons, and delivering these quantities into local receivers who will be remitting in cash in local currencies. Prices in respect of these ‘ghost’ supplies of Iranian SN500+ are suggested at and equivalent level around $545/t FOB.
Group I supply continues from Saudi Arabia, with one rather interesting statistic. That is that almost 80% of all finished lubricant production in the Middle East Gulf is based on Group I formulations, with the balance reliant on Group II and Group III base stocks. This will not continue for much longer since with new Group II facilities in Yanbu aimed at Middle East Gulf markets and with Group III playing a major part in Middle East Gulf base oil production commentators offer that it will only be a question of time before there occurs a seismic shift to Group II in particular, followed by increasing use of Group III base stocks.
However offers for a Group I cargo to load ex Kavkaz, Russia, for receivers in Sharjah are heard in the market with prices indicated at around $550/t in respect of SN500 and $530/t for smaller quantities of SN150.
Group III FOB numbers ex Al Ruwais and Sitra ports are maintained at the moment, although prices may start to trade down a little as a result of the erosion taking place in destination markets due to the amount of material becoming available and also reduced demand levels in key markets such as China.
In the report a couple of weeks ago it was intimated that a turnaround was taking place in Abu Dhabi, this was fake news since it can be confirmed that there is no turnaround taking place at Al Ruwais at this time. This was information wrongly interpreted by this report. There will be such maintenance occurring at this installation but not until next year, 2020.
Assessed FOB price levels are maintained between $685/t-$725/t in respect of the three Group III viscosity grades of partly-approved base oils. Eight cSt grades going into India and Far East locations will produce lower contribution levels due to lower local selling prices in these regions. Partly-approved Group III base oils are being sold respectively through the auspices of Adnoc and Bapco.
‘Nexbase’ Group III base oil also loading ex Sitra refinery in Bahrain, marketed by Neste, will produce higher netbacks due to these oils achieving higher selling prices in Neste markets because Nexbase holds the full range of European OEM approvals. Notional FOB or netback levels remain unchanged and are assessed between $785/t-$895/t in respect of 4 centiStoke, 6 cSt, and 8 cSt grades which may be delivered into the European or U.S. markets. The incidence of Bahrain material ending up in the European markets are few, since most of the European supplies of these base oils are made from the Neste refinery at Porvoo in Finland.
Nominal FOB prices on a netback basis are based on prices derived from regional selling levels, less marketing, handling and freight costs.
Group II prices in Middle East Gulf are being set to compete with higher specification Group I base stocks, since there is a growing requirement for blenders in Middle East Gulf to make the transition to semi-synthetic and synthetic finished lubricants due to PCMO and HDMO market changes.
Prices in respect of Group II base oils are maintained in respect of the imported material sourced from U.S. Far East, Saudi Arabia and now Europe. Resale price levels FCA ex U.A.E. hub storage lie in ranges between $775/t-$880/t in respect of the light vis grades 100N/150N/ 220N with 500N/600N between $785/t-$900/t.
Africa
News from North African markets is that the new EGPC tender for Q4 has closed towards the end of last week and will be announced in due course, before the end of September. The quantities and the number of cargoes is down from previous tenders, perhaps indicating that the refinery in Alexandria which has been closed for more than two years, may be about the restart thus providing a local supply source, albeit for limited quantities of bright stock. Other reports are that this is not the case, and the lower requirement levels are merely a case of forecast market demand for finished lubricants during Q4.
South African shipping sources have reported that another large cargo of mixed Group I and Group II base oils will arrive in Durban during November to discharge around 12,000 tons of product. This cargo will load out of the Mediterranean this time from two ports and will also include the supply to Ghana of 5,000 tons of Group I grades under the Tema contract.
There being no further instances or reports of USG cargoes loading for Nigeria, the only additional cargo is a smaller parcel of some 4,000 tons of Group I base oils has loaded out of the Baltic and has sailed for Apapa. The quantity of the cargo is questionable, since the freight costs for 4,000 tons will be considerably higher than for the more usual larger quantities of between 7-15,000 tons. The three large cargoes of base oils loaded from Baltic, USG and Antwerp-Rotterdam-Amsterdam are on the high seas en route to Apapa arriving next week or early October. The total quantity of base oils arriving into Nigeria will be in excess of 25,000 tons.
Price assessment for delivered material could be altered slightly to take account of higher freight costs attached to the smaller 4,000 tons cargo, although the Nigerian market is such that it can be assumed that the selling prices in respect of this smaller parcel will have to compete with larger quantities and lower freight rates. Thus, prices remain at current levels for material going into Nigeria. Group I prices are calculated between $695/t-$720/t in respect of SN150, SN500 between $695/t-$720/t, with bright stock between $875/t-$910/t. SN900 is indicated at $715/t-$725/t.
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.