EMEA Base Oil Price Report
With attendee numbers down from last year, the ICIS World Base Oils & Lubricants Conference was obviously feeling the effects of the Covid-19 coronavirus that started out in China. Many players from the Far East, India and even Europe were missing. With new cases being identified in Italy and the United Kingdom this week, the term pandemic is starting to be used.
Industrial and commercial operations in China have been particularly affected so far, but the implications for a global downturn are real and are starting the drip-feed through routine and ordinary business. The impacts on the base oil industry have so far been relatively localized to Far Eastern markets, but many discussions at the conference last week centered around supply and pricing for the short, medium and even longer terms.
With imports of base oils from the Middle East Gulf falling in Far East markets, suppliers and producers may be tempted to maximize sales into the European arena, which could exacerbate an already lengthening supply scenario. This is only one potential development for the market to deal with; there may be many more difficult situations that have not yet been thought out.
Crude oil prices, which had begun to climb, have now reversed again. Dated deliveries of Brent crude are now posting at $57.10 per barrel for April front month settlement, down some $2 from the peak of the past few days. West Texas Intermediate fell to $51.27/barrel, now also for April front month. ICE LS gas oil dipped to $489 per metric ton, in March front month settlement, some $25 lower than last reported. These prices were obtained from London ICE trading late Monday.
Despite concerns that the overall economy could slow, there seemed to be consensus at last week’s conference in London that supply and availability are balancing out. Nevertheless, concerns remain, and market players are watching the crude oil roller coaster and waiting to see how the virus affects lubricant demand.
Prices for API Group I exports from Europe remain unchanged, with solvent neutral 150 between $565 per ton and $600/t, SN500 at $575/t-$620/t and bright stock assessed at $655/t-$685/t. These levels refer to cargo-sized parcels of at least 2,000 tons, sold on an FOB basis from European supply points, always subject to availability.
Conditions for Group I sales within Europe also appear stable, but of course could be shaken by large changes to crude and feedstock levels. Discussions are progressing for March deliveries with the overriding sentiment being that prices do not currently face upward or downward pressure.
Suppliers are forever being asked to reduce values, but while there is a rationale for cuts at the moment, sellers are keen to point out that demand is brisk at the moment and supplies not long.
The price differential between sales within the region and exports remains unchanged this week, with the latter €85/t-€110/t lower.
There was much discussion at the ICIS conference about the European Union’s new quota system and effects it may eventually have on the European Group II market. Most suppliers affected by the quota, which applies a 3.7 percent tariff on imports after the first 200,000 tons in each six-month period, say they are firmly committed to remain competitive in the European market. There is, and will continue to be intense lobbying to adjust the size of the quota, but no assurances have been made that anything will change.
Quota limits will probably be reached around early March, and there is no evidence yet of a tiered pricing structure. Prices are unchanged at $755/t-$800/t (€690/t-€755) for 150 neutral and 220N, while 500N and 600N are at $790/t-$825/t (€730/t-€755). These prices apply to Group II oils with full slates of finished lubricant approvals as well as those with partial slates or no approvals.
European Group III markets are subject to a potential oversupply situation gathering with excess product from Far East and from Middle East Gulf sources which supply into the Far East markets, gathering in inventories. This has not been identified as a containment problem at the moment, but there will be a time lag between the outbreak of the virus and the subsequent effects. Thus it may be some months yet before exposure to a real oversupply hits the European markets.
Prices are revised this week after discussions held last week, with the current partly-approved Group III base oils ranging between €715/t-€725/t in respect of 4 centiStoke grades, with 6 cSt and 8 cSt base oils between €720/t-€730/t. Prices refer to FCA supplies ex Northwestern European hubs. It was also noted that some partly-approved Group III base stocks may acquire approved status sooner rather than later, and that positive steps are currently being taken to achieve this goal.
Prices in respect of European OEM fully approved Group III base oils are reassessed between €760/t-€825/t for 4 cSt base oils, €800/t-€855/t for 6 cSt and €775/t-€860/t for 8 cSt.
Baltic and Black Seas
The number of large inquiries in the Baltic has diminished over the past few days, with both sellers and receivers honing requirements to a more realistic level. One of the large enquiries will possibly be confirmed this week with around 15,000 tons of Russian export grades only being loaded out of the Baltic for Nigeria.
According to suppliers in the region prices have been holding up, and perhaps have not come under pressure due to the limited availabilities in the Baltic market. Supplies are still relatively tight in the Baltic with availabilities only now showing for April loading from some resellers and distributors.
The inquiry to load a quantity of 8.4,000 tons of three grades Angola is still on the table to load at the end of February, and it would appear that this parcel will load on a stand-alone basis, rather than as a part-cargo for other West Africa destinations.
There are also noted cargoes loading for Antwerp-Rotterdam-Amsterdam and the United Kingdom out of the Baltic, most of these are deals which were either negotiated in January or form part of the contracted cargo program.
Baltic prices are maintained this week with the main grades such as SN150 at around $525/t-$545/t with SN500 also in the same range between $525/t-$545/t. SN150, SN500 and bright stock loading from Gdansk are indicated between $565/t-$600/t in respect of the neutrals, with bright stock between $645/t-$675/t FOB.
The news from last week at the conference in London is that further Kavkaz, Russia, STS cargoes are being explored for receivers in United Arab Emirates, in addition to contracted supplies to Greece and Singapore. It was unclear whether the Singapore trade would be affected by the coronavirus epidemic, which may slow the deliveries of the Russian export barrels to this destination.
STS prices in respect of Russian export grades are very competitive and are pitched around $460/t-$475/t in respect of SN500, with smaller parcels of SN150 at around $460/t.
Russian offers to Turkish receivers in Gebze, Turkey, are indicated at around $535/t in respect of SN500, with SN150 at $525/t CIF.
There are new offers Group I offers from Algerian storage for Turkish receivers in Gebze and Derince, totaling some 10,000 tons, split into two parcels one of 7,000 tons and the other 3,000 tons. This source offered material some months ago which was taken up by Turkish buyers, hence these levels are deemed to be competitive against other Mediterranean offers, for example from Greece, where prices are assessed at $625/t in respect of SN150 with SN500 at $635/t basis CIF Derince. SN600 is indicated at around $640/t. Algerian prices may be around $20/t-$25/t below other Mediterranean indications.
Group II and Group III prices on an ex-tank basis within Turkey are maintained again this week. Selling levels are indicated between $795/t-$835/t in respect of the Group II grades, with partly-approved Group III base oils between $810/t-$845/t.
Middle East Gulf
In the Red Sea regions Group I and Group II base oils continue to load out of Yanbu and Jeddah ports with cargoes for receivers in Pakistan and U.A.E. There may be fewer Indian cargoes programmed, but could just be a lull after the large quantities of Group I and Group II which are being delivered into that market during February and early March.
Middle East Gulf markets see continuing large quantities of Group I and Group II base oils coming into ports in Fujairah and Sharjah in U.A.E. from Saudi Arabia, these being in addition to the part-cargo from Kavkaz, Russia, in the Black Sea. Prices have been reconfirmed from sources, and in respect of SN500 levels are around $548/t CIF U.A.E.
Price indications from Mediterranean sellers and traders for Group I supplies are indicated at $645/t in respect of SN500, SN150 around $635/t, with bright stock at $730/t. All CIF Hamriyah, U.A.E. The arbitrage does not appear to be open for supplies from these sources at the moment, and unless European FOB prices levels dip, then this trade will remain firmly closed for the time being.
It was confirmed by certain sources during last week that Iranian barrels of Group I base oil are still emanating from the southern ports of Bandar-e Emam Khomeyni and Bandar Bushehr. These exports are being loaded on Iranian, and sometimes Indian flagged vessels, thus getting around the U.S. sanctions imposed on Iranian exports. Prices appear to be lower by around $20/t this month, as against January levels Numbers are put at around $565/t in respect of SN500, landed into U.A.E., where some of the material is being transshipped to the west coast of Indian ports. There are limitations due to the international banking system which is off limits to Iranian traders, thus transactions are performed through the auspices of local banks in U.A.E. in local currency.
Adnoc’s plant in Al Ruwais has started the scheduled maintenance on replacing catalyst in the cracker. However this will not affect Group II and Group III base oil production, since the specification and quality of the feedstock will be preserved. All existing markets will be fully covered and serviced, and with the appointment of a new Chinese distributor this market will continue to expand for Adnoc. The coronavirus may have some short term effects on supplies however, limiting imports into China from Al Ruwais.
Group III base oil exports from Middle East Gulf sources in Al Ruwais and Sitra, Bahrain, have notional FOB prices maintained this week.
FOB levels are assessed between $630/t-$675/t in respect of partly-approved range of Group III base oils selling into Europe, U.S., India and the Far East. 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 by as much as $50/t in some cases.
‘Nexbase’ branded Group III base oils produced at Sitra refinery in Bahrain, and marketed by Neste will have higher notional netbacks between $745/t-$810/t in respect of the three main Group III grades, 4 centiStoke, 6 cSt, and 8 cSt.
Notional FOB prices on a netback basis are based on prices derived and informally assessed from regional selling levels, less marketing, handling and freight costs.
Group II base oils which are delivered in large quantities on a break/bulk basis to distributors in U.A.E., and are then resold throughout the Middle East Gulf regions, have selling price levels indicated on an FCA basis ex U.A.E. hub storage between $785/t-$920/t in for light-viscosity grades and $810/t-$925/t for 500N and 600N. These prices are based on FOB numbers from Far East and Red Sea, plus freight, storage and handling, and distributor costs and margins.
Mediterranean trade into and out of North African ports has thrown up some new sea routes with Group I material from Arzew in Algeria being offered into Turkish receivers. It is considered that this supply may comprise of material produced in Augusta refinery and which has been stored in Arzew, although there were rumors that production of base oils for export had restarted from the local refinery. More detail is being sought. A large Group III cargo of some 7,000 tons is loading out of Spain for a two port discharge in Israel.
The vessel has been fixed taking 16.1,000 tons of Group l, Group II, and Group III basse oils to West Africa and South Africa. The cargo will load out of Rotterdam and U.K., discharging 5,000 tons of three Group I grades, SN150, SN500 and bright stock into Tema in Ghana. The remaining cargo will continue to Durban.
Nigerian imported Group I grades from the Baltic are still at enquiry stage for the follow-up cargo anticipated to be firmed last week Only one parcel is now anticipated, rather than the two parcels of around 15,000 tons, this being as sources indicated last week. The next loading will possibly be out of Svetly where larger vessels can be accommodated.
Prices in respect of Group I base oils being imported through Apapa are once again maintained with CFR/CIF levels indicated between $645/t-$660/t in respect of SN150, SN500 is placed between $650/t-$665/t, with bright stock between $745/t-$760/t. Blended SN900 is maintained between $670/t-$685/t. Prices are for cargoes of at least 10,000 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 email@example.com.