EMEA Base Oil Price Report
Despite a retreat by crude oil costs, base oil prices have started to rise across Europe, the Middle East and Africa thanks to lack of availabilities, particularly for API Group I base stocks.
It’s possible that demand has improved, but the hikes in base oil values stem from buyers not being able to locate supplies, not a large increase in offtake rates.
Group II prices also firmed, thanks in part to increased and higher prices in the United States, from whence a fair portion of European supplies are sourced. Group III values are static but face some upward pressure because of the markups for Group I and II oils. In addition, Group III availability may tighten due to maintenance shutdowns at multiple plants.
Crude and feedstock prices were driven down growing concerns about the coronavirus that is continuing to spread in China and has now reached other countries. Dated deliveries of Brent crude dropped below $60 to $58.75 per barrel for March front month settlement, around $7 per barrel lower than last week. West Texas Intermediate slid to $52.40/bbl, also for March front month.
ICE LS gas oil fell to $512 per metric ton in February front month trades, more than $125/t lower than a year-end peak. Prices were obtained from London ICE trading late Monday.
Europe
European Group I export prices reacted to a decrease in availabilities that stems from refiners cutting production in response to low demand and poor operating margins. With most spot supplies sold through the end of March, suppliers felt they had cover to lift values.
Offers for contracted and spot barrels, where available, jumped by between $30 per ton and $50/t, depending on grade and supply source. Buyers are looking especially hard for spot availabilities of solvent neutral 500 but also for SN150 and, to a lesser extent, quantities of bright stock.
Prices are now at $585/t-$625/t for SN150, $595/t-$650/t for SN500 and $665/t-$700/t for bright stock. These levels refer to 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.
Group I trade within Europe has been impacted less than export sales, which tend to be more sport based. The regional markets rely more on contracts and take longer to adjust. Nevertheless, buyers intimated that February prices are being offered at much higher levels, many reflecting increases of €50/t-€75/t. Suddenly there are fewer supply options around, and buyers – some of whom decided to do more spot buying this year – are now expressing concerns that they may be challenged to access sufficient quantities of Group I grades.
In addition to producer response to low margins, Group I availability has eroded because of a refinery fire in Northwestern Europe and crude supply problems in Belarus, and some analysts predict that the recently enacted IMO 2020 marine fuels regulation could cause another hit by forcing closings of refineries with Group I plants.
The price differential between Group I exports and sales within the region fell to €35/t-€65/t, with the former being cheaper.
Prices for Group II grades rose the past week to $765/t-$810/t (€695/t-€760) for 150 neutral and 220N and $800/t-$845/t (€730/t-€770) for 500N and 600N. These values apply to a wide range of Group II oils, including those from Europe and the U.S. with full slates of finished lubricant approvals and those with partial slates or no approvals from the Middle East, the Far East and the U.S., some of which may be imported in flexitanks.
Group III oils remain freely available throughout Europe, the Middle East and Africa, though a previous glut may have shrunk. Any such change is likely to be temporary since large additional quantities of Group III are still in the pipeline.
Prices for partly approved grades are unchanged this week at €650/t-€725/t for 4 centiStoke grades and €665/t-€740/t for 6 and 8 cSt, all on an FCA basis ex Northwestern European hubs. Fully approved grades are at €740/t-€810/t for 4 cst, €770/t-€840/t for 6 cSt and €755/t-€820/t for 8 cSt.
Baltic and Black Seas
Russian exports through the Baltic have undergone possibly the most dramatic prices hikes, jumping suddenly as demand in Russia and the Ukraine approaches its seasonal peak. Traders and distributors working out of Baltic ports are having to pay higher rates at refinery gates, but rising demand – some of which is being used to cover shortfalls Northwestern Europe and Belarus – is allowing them to pass through those increases.
Cargoes are loading out of the usual Baltic ports for Antwerp-Rotterdam-Amsterdam, Scandinavia and the United Kingdom in addition to a large inquiry for export into Nigeria. Most sellers are out of availability for spot supplies until the end of March. SN500 is particularly short at this time.
Baltic values are now at $530/t-$540/t for SN150 and $535/t-$545/t for SN500, while bright stock ex Gdansk is at $645/t-$675/t, all on an FOB basis.
Although no direct confirmation has been received, prices for Russian Group I barrels export through the Black Sea are thought to have risen, as are values for base oils produced in Germany. This could affect the attractiveness of these supplies for Indian, Middle East Gulf, Greek and Singapore markets.
Prices for shipments through the STS facility at Kavkaz, Russia, are now $510/t-$525/t for SN500 and around $510/t for SN150, both subject to confirmation. Russian barrels being offered out of Azov, Russia, for Turkey are now at $545/t for SN500 and $540/t for SN150, basis CIF ex Gebze or Derince, Turkey. Prices for base oils produced at Izmir rose by similar amounts.
Group I offers from suppliers in the Mediterranean will be proportionally higher, although no new offers have been seen or heard this week. This may reflect the mainstream European scene becoming tighter. It may take a few weeks to see how things settle between sellers not wanting to accept margins that they deem unacceptable and buyers who have become used to the lower prices of the past year.
Prices for Mediterranean Group I material were heard this week at $645/t for SN150 and $655/t for SN500, basis CIF Gebze or Derince. SN600 is indicated at around $660/t and bright stock at $695/t.
Group II and Group III grades sold ex tank Turkish underwent markups to $775/t-$820/t for Group II grades and $800/t-$845/t for Group III oils with partial approvals.
Middle East Gulf
Cargoes of both Group I and Group II base stocks are loading out of Yanbu’al Bahr and Jeddah, Saudi Arabia, for supply into the Middle East Gulf, Pakistan and India’s West Coast and southeastern ports. The Egyptian General Petroleum Corp. bright stock contract is being covered out of Yanbu, with cargoes of around 2,500 tons each loading for discharge into Alexandria.
Some sources have claimed that base oils are not being shipped directly from Iran, but one vessel was confirmed as loading out of Bandar-e Emam Khomeyni earlier this month, since receivers in Mumbai anchorage took delivery of 5,000 tons of two Group I grades, believed to be SN500 and SN150 of Iranian origin. Some sources have suggested that smaller vessels are continually loading out of southern Iran and discharging into storage in the United Arab Emirates. This material is either sold and used locally in the Emirates or is re-exported to the West Coast of India labeled as being of U.A.E. origin.
Prices for premium Iranian SN500 have risen as a result of recent strife – some say to around $565/t, basis CIF.
Group I offers from the U.S. Gulf or East coasts or USAC have been reviewed and seen to include higher FOB prices that reflect recent markups in that market. Values are now at $670/t for SN500, $665/6 for SN150 and $735 for bright stock, basis CIF Hamriyah, U.A.E.
Notional prices for partly approved Group III base oils being exported from Al Ruwais, U.A.E., and Sitra, Bahrain, rose to $640/t-$685/t for all viscosity grades sold on an FOB basis into Europe, the U.S., India and the Far East. The exception is that 8 cSt grades sold into Indian and Far Eastern locations will produce lower FOB prices due to local selling prices being discounted in those regions.
Fully approved Group III ex Sitra refinery should provide higher notional netbacks and are estimated higher this week, since the heavy discounting occurring previously in Europe has lessened. Levels are now established at $765/t-$825/t for 4, 6 and 8 cSt.
Notional FOB prices on a netback basis are calculated informally from regional selling levels, less marketing, handling and freight costs.
Middle East Gulf Group II reselling prices rose this week in line with those charged by the region’s main suppliers. Oils offered on an FCA basis ex U.A.E. hub storage are at $795/t-$945/t for 100N, 150N and 220N, while 500N and 600N are at $825/t-$955/t.
Africa
Supplies of all types of base oil are being readily transported into North African receivers in Morocco, Algeria, Egypt and occasionally Libya, although there have been few reported movements into Tripoli during the past few months. Most of these supplies are sourced ex Mediterranean refiners, although there are examples of Group II being shipped from Antwerp-Rotterdam-Amsterdam to North African receivers. Group l, Group I and Group III grades are sometimes being combined to deliver into these locations.
A large cargo of almost 20,000 tons, reported here previously, is currently loading out of Antwerp-Rotterdam-Amsterdam and the U.K. for discharge into Durban, South Africa, and Mombasa, Kenya, and will sail before the end of the month for discharge first in South Africa. Another 6,000-ton cargo will ship directly to Dar-es-Salaam, Tanzania.
Following the large Group I cargo loading currently out of the Baltic, there is news of another inquiry for a similar quantity to follow up for shipment to Apapa port in Lagos, Nigeria. The prices for the latter cargo will differ since FOB levels have moved sharply upwards. At the same time supplies from the U.S. Gulf and East coasts will also have moved upwards.
The same goes for supplies being organized for Guinea and Cote d’Ivoire. Parcels bound for receivers in those locations may be part of cargoes that are also going to Nigeria or Tema, Ghana. Guinea and Cote d’Ivoire could also piggy back onto shipments to South Africa, but this may involve difficult STS operations since the vessel going to South Africa would be larger and there are draft and LOA restrictions in the two West African nations.
Prices for Group I base oils currently being landed or bound for Apapa are maintained for now at $630/t-$645/t for SN150, $640/t-$655/t for SN500 and $720/t-$745/t for bright stock, all on a CIF/CFR basis. Blended SN900 remains at $650/t-$675/t. These prices are for cargoes of at least 10,000 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.