EMEA Base Oil Price Report
BY RAY MASSON
Base oil prices around the European, Middle Eastern and African markets are muted due to a mounting oversupply situation that is growing by the day. Supplies of all groups are ample to cover immediate and forward requirements into the first quarter of next year.
Group I prices are approaching a critical point where raw material costs overtake selling prices, causing some sellers to comment that they would rather not produce base oils. Some have declared that they will stop production in December rather than dump material at a loss into a market which is saturated with availabilities. Fuels production is much more appealing, so feedstock streams may be diverted away from Group I output, which could lead to shortages of this category during 2020.
The seasonal downturn in demand is also contributing to the situation, as some buyers are content to wait for any year-end bargains that sellers may offer to alleviate large inventories towards the end of December.
Group II markets were thrown into turmoil by the announcement that the European Union will impose a tariff of 3.7 percent on all Group II base oils over a quota limit of 400,000 tons per year. The tariff was waived some years ago because refiners in the region could not produce enough Group II base oils to cover local requirements, but a new plant in Rotterdam has capacity to make 1 million metric t/y. Group II demand in Western Europe is 1.2 million t/y.
Details about administration of the quota have yet to be announced, but importers of material above the quota will have to subsidize their products to a tune of around €25/t-€40 per ton, and this could be a significant impact on those suppliers, as well as lubricant blenders with finished product approvals based on use those base oils.
Group III prices are under downward pressure because of large quantities of material being offered into European markets. There appears to be no end to the number of new participants venturing into this market, with some reasoning that blends of Group I and Group III will provide an alternative to Group II.
Crude oil costs were stable again the past week, with dated deliveries of Brent crude posting yesterday at $62.25 per barrel for January front month settlement. West Texas Intermediate crude was at $56.80/bbl, now also for January front month. ICE LS gas oil remains around $574.00/t, now for December front month.
These prices were obtained from London ICE trading late Monday.
Europe
Prices for Group I exports from Europe are unchanged, with little room to move further downwards. Some sources from other regions are prepared to offer Group I material at lower prices than most European refiners, and large quantities of material from these sources are finding their way into export markets such as West Africa, India and the United Arab Emirates.
Some desperate suppliers are targeting markets in the Caribbean to move large quantities of Group I grades out of Europe.
Prices remain between $545/t and $580/t for solvent neutral 150, $555/t-$580/t for SN500 and $625/t-$660/t for bright stock. These values apply to cargo-sized parcels of at least 2,000 tons sold on an FOB basis ex mainland European supply points, always subject to availability.
In markets for sales within the region, contract negotiations for next year are not even happening yet as blenders who continue to use Group I are waiting until December to finalize quantities for the first quarter of next year. The tactic is putting more pressure on Group I refiners to find outlets.
Prices for intra-regional sales dropped by some €10/t-€20/t, depending on grade, with bright stock being the weakest. These prices are now €55/t-€75/t higher than exports.
As mentioned the Group II scene has just become exceptionally complicated with the EU quota playing a huge part in the forward pricing for these grades going into next year. Importers are trying to work out prices which can be offered to long term buyers who do not want to change suppliers.
Simultaneously, a great deal of Group II base oils is becoming available on the market, with some buyers being swayed by European production which will not be subject to any import tariffs. It is too early to figure out just what the effect of the EU decision will be, and how the market will adapt to the changes.
In some cases Group III base oils prices have deteriorated, but some sellers have been actually trying to move prices higher on the back of limited availabilities of some 6 centiStoke grades. This apparent temporary shortage is not anticipated to last, with other suppliers offering alternative material at lower prices, which will possibly negate any chance to move numbers higher.
Group II prices are maintained for the fully-approved grades this week, but partly-approved oils FCA levels are lower at around $685/t-$790pmt (€640/t-€730) for 100 neutral, 150N and 220N, while 500N and 600N are at $765/t-$815/t (€705/t-€750).
Prices for fully-approved Group III base oils have remained between €755/t-€820/t in respect of 4 cStbase oils, €785/t-€855/t for 6 cSt and €770/t-€835/t for 8 cSt, basis FCA Antwerp-Rotterdam-Amsterdam.
The prices above pertain to the wide range of Group II base oils, including European and U.S. fully approved grades and also unapproved or partly-approved grades from Middle East, Far East and the U.S.
Baltic and Black Seas
Baltic prices may not show their usual year-end volatility, with limited quantities of Russian exports coming on to the market in second half November and early December. This may have the effect of supporting the market at current levels, with some producers complaining that prices cannot move lower than current levels, due to feedstock costs.
There are cargoes being planned for Antwerp-Rotterdam-Amsterdam and the United Kingdom, and also for Nigeria with a 6,000 tons parcel being currently negotiated for this destination.
Prices are maintained with FOB numbers in respect of SN150 remaining between $465/t-$490/t, with SN500 between $470/t-$498/t. Prices for Russian bright stock are indicated around $585/t-$610/t FOB, mainly for quantities in flexi-bags. Bright stock in bulk ex Gdansk is maintained between $630/t-$655/t FOB.
Black Sea news suggests that another large parcel of Russian export barrels will be assembled to load ex STS from Kavkaz, Russia. Quantities have not been disclosed as yet, although one source suggested that around 12,000 tons of base oils would be loaded during the first part of December. It is not clear if there will be further quantities loading prior to the end of the year, but it is considered that prices for any subsequent barrels will not be lower than current numbers.
STS prices are considered to be around $455/t in respect of large quantities of SN500, with lesser quantities of SN150 indicated at $435/t.
Mediterranean Group I offers are being made into Turkish ports, competing with Russian barrels coming out of Azov, and most certainly being more attractive than the local prices from the refinery at Izmir. Local product is priced very high compared to imported material, although the local material can be bought in Turkish lira and in small truck loads.
Mediterranean Group I prices are put at around $557/t in respect of SN150 with SN500 at $564/t. SN600 is offered at around $575/t, with quantities of bright stock at around $690/t CIF.
Group II and Group III base oils are being sold on an ex-tank basis from Turkish ports, with prices indicated around $780/t-$820/t in respect of Group II grades, and with partly-approved Group III grades between $775/t-$810/t. A re-refiner in Turkey will start to produce around 40,000 tons of Group II grades next year. This will be a first for the Turkish market and may open a few doors for other operators to follow on.
Middle East Gulf
Red Sea reports are that the supplier operating out of Yanbu and Jeddah has a lot of base oil to move prior to the end of the year, and that prices for supplies of both Group I and Group II base oils will be pitched very keenly to attract buyers in India, United Arab Emirates and Far East to purchase quantities of these grades. The shipping enquiry for base oils to move from Jeddah to West Africa remains prominent in the market, although realistically it may be very difficult to arrange shipping for this 12,000 tons parcel to move competitively to Nigeria.
In Middle East Gulf regions there is news that Iranian Group I SN500 and SN150 is being exported through Iraq with further suggestions that much of this product is finding its way into Syria. Large quantities are being moved by truck on a continuous basis, diverting base oils away from the traditional exporting ports of Bandar-e Emam Khomeyni (BIK) and BB, although sources still claim that some smaller quantities of base oils are moving out of the region by sea, these supplies finding their way into U.A.E. and sometimes the west coast of India. Price levels in respect of Iranian SN500+ are around $510/t-$520/t FCA.
A cargo of around 12,000 tons of Group I base oils has been offered out of USEC into U.A.E., with options for this cargo also to go into the west coast of India. Indications for SN500 are around $571/t CIF U.A.E.. This cargo will possibly comprise of a large quantity of SN500, a smaller quantity of SN150, and the balance made up of bright stock. SN150 is indicated at around $568/t with bright stock offered at around $677/t CIF.
Middle East Gulf Group III base oils sourced from Al Ruwais in Abu Dhabi, Sitra in Bahrain, have notional FOB prices which are lower this week, with reported lower prices in markets such as Europe, India and the U.S. Levels are assessed between $650/t-$690/t in respect of the three Group III grades of partly-approved base oils being sold into Europe and U.S. 8 cSt grades going eastwards will produce lesser contributions, due to lower local selling prices.
Neste ‘Nexbase’ Group III base oils may achieve higher notional netbacks due to having the full range of European OEM approvals. Notional netback levels in respect of the premium grades are higher, but have also trended lower to between $760/t-$855/t in respect of 4 centiStoke, 6 cSt, and 8 cSt grades which are delivered into western 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 regions are maintained this week although there are some reports of very low offers from suppliers in the Middle East who may be long in supply terms and may need to move large quantities of both Group I and Group II base stocks.
Levels FCA ex U.A.E. hub storage are lower and are assessed between $745/t-$900/t in respect of the light vis grades 100N/150N/ 220N, with 500N/600N between $755/t-$910/t.
Africa
Mediterranean traffic reports contain news that 4,000 tons-6,000 tons of Group I grades ex Livorno will load for receivers in Mohammedia. There appears to be a problem for the re-start of the Egyptian refinery in Alexandria, with local news suggesting that the operation may be put back until next year, with some rumors stating that the refinery will never re-open to produce base oils.
A vessel will be chartered to load a large quantity of Group I and Group II base oils from a hub in the med before discharging part-cargo into Tema, Ghana, whist the balance of the parcel will be delivered into Durban sometime in the New Year.
Traders are looking at the possibility to load a cargo out of the Baltic for receivers in Nigeria. The total quantity has not been finalised but is reckoned to be around 10,000 tons-12,000 tons, although a smaller parcel of 6,000 tons is also being negotiated. There may be two cargoes worked for Nigeria from this source.
Prices remain unchanged in respect of Group I grades moving into Apapa in Nigeria and are indicated between $630/t-$645/t in respect of SN150, with SN500 between $640/t-$655/t, and bright stock, where part of the cargo delivered, between $720/t-$745/t. SN900 is indicated at $650/t-$675/t.
Prices are in respect of cargoes of minimum 8,000 tons being delivered into Apapa port, Lagos, Nigeria.
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.