EMEA Base Oil Price Report
BY RAY MASSON
The seasonal downturn in base oil trading has started, with many buyers backing off on large orders, inclined to take smaller parcels so as to minimize inventory in the run-up to the year’s end.
Availabilities of all types of base oil appear ample, allowing buyers to procure on an ad hoc basis rather than having to commit to large quantities in one hit. API Group I prices are coming under downward pricing pressure due to lackluster buying front, and some producers are trying to clear stocks out of inventory earlier than normal. Raw material costs are relatively high, so margins are already squeezed.
Group II prices are stable, but cracks are appearing in the form of discounts. Bulk shipments and smaller parcels transported in flexitanks are arriving in Europe and competing against established suppliers of oils with full slates of finished lubricant approvals. Prices in Europe are high compared to other regions, so producers and traders are taking the opportunity to offer oils from the United States and East Asia.
Group III sellers are fighting to maintain market share against a flood of product. Material is arriving into Europe from East Asia and the Middle East, in addition to locally produced material from Finland, Spain, Russia and the United Kingdom. Buyers are enjoying the opportunity to pick and choose, while sellers find it hard to maintain acceptable margins. For example Russian suppliers have declined sending material into Northwestern Europe because prices do not support the arbitrage.
Crude prices remained above $60 per barrel during the past week, with dated deliveries of Brent crude posting at $62.45/bbl, now for January settlement. West Texas Intermediate crude has also remained stable at $56.90/bbl, still for December front month. ICE LS gas oil was flat at $593.00 per metric ton for November front month. These prices were obtained from London ICE trading late Monday.
Europe
There ae ample availabilities of Group I for November and December loading for export from Europe as sellers try to move inventory out of tank prior to end of the year. It appears that not much material which will be hanging around during December, hence the frantic discounting that sometimes takes place in December may not occur this year.
The string of refinery maintenance turnarounds during the second half of the year does not appear to have shortened supply, instead just keeping a lid on oversupply and maintaining low prices.
Export prices dipped this week as offers for SN150 were heard between $550 per ton and $580/t, while SN500 was at $560/t-$580/t, all on an FOB basis. Bright stock prices remain intact at $625/t-$660/t for prompt loading as suppliers resisted the pressure to discount.
These levels refer to large cargo-sized parcels of at least 2,000 tons of Group I base oils sold on an FOB basis ex mainland European supply points, always subject to availability.
Many blenders are in discussions with suppliers regarding contract volumes for 2020. It appears that buyers are looking at lower contract quantities for next year because they expect availabilities to be plentiful and want the option to take advantage of spot prices.
Prices for Group I sales within Europe dipped €10/t-€25/t this week reducing the premium above export numbers to €65/t-€85/t.
Group II prices are coming under pressure, but appear to be holding firm so far, suggesting a resilience that could owe to brand loyalty or buyer sentiment that current levels are acceptable. The pressure stems from low prices for Group I base oils and the amounts of Group II being moved into Europe from the Far East and the U.S. The main players do not view these smaller quantities as serious competition, but the lower prices attached to them are proving to be a thorn in the flesh and are holding values at current levels.
Group II remain at $695/t-$800pmt (€645/t-€735) for 100 neutral, 150N and 220N) and at $775/t-$825/t (€710/t-€755) for 500N and 600N, all on an FCA basis. These prices pertain to products with and without full slates of approvals.
Prices for Group III base oils weakened as new offers were made with levels that appear exceptionally low. These are being touted by new entrants in the region trying to take market share from the existing players that are defending as best they can.
Group III oils with partial slates of approvals are priced at €675/t-€800/t for 4 centiStoke grades and €690/t-€800/t for 6 and 8 cSt, basis FCA ex sales hubs in Northwestern Europe. Fully-approved Group III grades are at €760/t-€820/t for 4 cSt, €790/t-€855/t for 6 cSt and €775/t-€835/t for 8 cSt, FCA Antwerp-Rotterdam-Amsterdam.
Baltic and Black Seas
The Baltic region remains quiet with sporadic activity away from the normal trading routes associated with this region. Russian export barrels have been moving to Far East receivers in Singapore, but only a few cargoes are scheduled to move to Antwerp-Rotterdam-Amsterdam, Scandinavia and the United Kingdom, so trading has been thin overall. Talks continue regarding one or perhaps two cargoes for Nigeria, but price indications for freight have increased and FOB prices remain static, making the potential for sales into West Africa marginal at best. Russian exports are not competitive with oils from alternative sources such as the U.S. Gulf Coast and the Mediterranean.
Prices are unchanged at $470/t-$500/t for SN150 and $475/t-$510/t for SN500, both on an FOB basis. Lower quality bright stock offered in flexi-bags is at $595/t-$620/t, in respect of flexi-bag sales while bright stock in bulk ex Gdansk remains at $630/t-$655/t.
In the Black Sea there are reports of more Russian exports to load through the STS facility at Kavkaz, Russia, during the second half of November. The final quantity is not yet disclosed but is reckoned to be around 10,000 tons in total. The slight delay may be due to replenishment quantities being delayed, or suitable shipping may not be available as yet. Prices remain at $455/t for SN500 and $435/t for SN150, basis STS.
Group I shipments from Mediterranean sources continue to be offered into Turkish ports such as Gebze and Derince, and a lack of Russian barrels coming out of Azov, Russia, is generating interest on the part of buyers. Some Russian offers have been seen this week, but these deliveries, if they take place, will not happen until end November or early December.
Mediterranean Group I price indications are around $562/t for SN150 and $567/t for SN500. SN600 is heard around $595/t and bright stock at around $695/t, basis CIF. Local prices for supplies by truck ex Izmir refinery are higher than Mediterranean availabilities, thus reversing the trend of a couple of months ago when local numbers were more competitive.
Group II and Group III base oils are available on an ex-tank basis out of storage located in Gebze, and prices are indicated at around $795/t-$840/t for Group II grades and $785/t-$845/t for Group III oils with partial approvals.
Middle East Gulf
Red Sea sources confirmed that one cargo of bright stock to cover the Egyptian General Petroleum Corp. contract is loaded and another is planned for the second half of December. These 2,500-ton parcels will service fourth quarter requirements, and a new tender is expected to be issued during December for the first quarter 2020. The size of the latter may be affected by the reopening of the Alexandra refinery, which has been closed for more than two years but may operate again in December despite reported setbacks.
Other large exports of 15,000 to 18,000 tons are expected from Yanbu’al Bahr, Saudi Arabia, to the United Arab Emirates and the West Coast of India, in addition to a requirement reported for a cargo to Mohammedia, Morocco.
In addition to the supplies of Group I base oils coming out of Yanbu and Jeddah, Saudi Arabia, the only other local suppliers of Group I base stocks are the three refineries in Iran. One had been a prominent exporter of Iranian Group I base oils up until U.S. trade sanctions were imposed.
Iranian Group I SN500 and SN150 are still reported out of Bandar-e Emam Khomeyni and Bandar Bushehr, with small parcels going into U.A.E. and India. There are no official reporting channels for these cargoes, but sources report prices for Iranian premium SN500 at $510/t-$520/t, FOB. This level is based on reported landed prices into the U.A.E. of around $555/t, and into the West Coast of India at around $575/t.
Group I oils from the U.S. Gulf Coast and U.S. Atlantic coast are being offered on a CIF basis from U.A.E. hubs at $588/t for large quantities of SN500 and around $577/t for smaller quantities of SN150. Bright stock is also indicated at around $690/t. These will have to compete against Russian export barrels out of the Black Sea and Group I base oils from Yanbu and Jeddah.
Notional prices for partly approved Group III oils are unchanged this week at $665/t-$700/t for 4, 6 and 8 cSt grades moving into Europe or U.S. markets, basis FOB. Eight cSt oils going into India or the Far East will produce smaller contributions, due to lower local selling prices.
Group III oils marketed by Neste out of Sitra, Bahrain, will contribute higher notional netbacks because they carry full approvals. They are priced at $775/t-$875/t for all three viscosity grades when delivered into Western markets.
Nominal FOB prices on a netback basis are calculated based on prices derived from regional selling levels, less marketing, handling and freight costs.
Group II base oil prices in the Middle East Gulf are unchanged this week at $795/t-$910/t for light viscosity grades and $810/t-$925/t for 500N and 600N, all FCA ex U.A.E. hub storage.
Africa
Reports of Mediterranean and North African traffic are few this week, limited to the cargo from Yanbu into Alexandria.
West African reports confirm that the 8,000-ton Group I cargo identified last week will load ex U.S. Gulf Coast for Apapa, Lagos. Traders have commented that there are no more parcels in the pipeline at the moment, but year-end refinery stock clearing may encourage purchases from U.S. or Europe.
The Baltic cargoes are still being considered, although freight rates are rising ahead of the introduction of IMO 2020 marine fuel regulations and may not allow base oil shipments to West Africa. FOB levels may be adjusted to enable Russian exports to Nigeria.
On the basis of information gleaned from the market, prices for Group I grades landing into Apapa port in Lagos, Nigeria, are at $630/t-$645/t for SN150, $640/t-$655/t for SN500 and $720/t-$745/t for bright stock, where included. SN900 is at $650/t-$675/t. These prices are for cargoes of at least 7,000 tons being delivered into Apapa.
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.