As Covid-19 spreads across the globe, businesses and trade have been subjected to a number of restrictions and travel bans. Lockdowns in Spain and Italy are taking their toll, with most businesses closing down for the foreseeable future, endangering economies further.
Markets will take some considerable time to recover, with the effects now anticipated to drag on for months, if not years. In fact so far the full effects of coronavirus are yet to filter through many countries with some only starting to encounter the fallout from the pathogen.
All parts of the oil market are feeling the effects of the virus, and along with the sparring between Russia and Saudi Arabia, the total scenario has caused crude prices to sink further. There are talks around the markets postulating that crude oil could fall to as low as $20 per barrel. This unprecedented fall is being stoked by the “war” between the two major producers and also of course the negative effect on demand due to the coronavirus
Crude oil levels have fallen again with dated deliveries of Brent crude below $31/bbl in Monday trading for May front month. West Texas Intermediate crude has slumped to a new low at $30.15/bbl, still for April front month settlement. Again a very small crack now exists between the two marker crudes.
ICE LS Gas Oil prices have also collapsed, falling to a new level of $315 per metric ton, now for April front month settlement, $50/t lower than one week ago.
These prices were obtained from London ICE trading late Monday.
To an extent base oil prices have been shielded, but nevertheless base oils are not immune to the hard facts that petroleum product and feedstock prices have taken a beating over the past few weeks. Up until now sellers have been trying to maintain base oil numbers, but the day of reckoning has arrived, since base stocks will not only respond to the falling fundamental prices, but demand has started to drop, causing sellers real problems with rising inventories and a dearth of buyers. Finished lubricant demand is set to fall through the floor and effects are starting with blenders scaling back operating levels with short-time working and some with staff being laid off.
This in addition to the working and travelling restrictions is causing a perfect storm for the base oil trade.
Europe
European Group I export prices moved lower this week, but it is largely indeterminate to state actual prices in this report. The price ranges are widening with some offers still reflecting relatively high numbers, while at the other end of the scale some sellers are becoming desperate and offering special discounts to move material promptly.
Estimates for solvent neutral 150 are now between $425/t-$540/t with SN500 at $425/t-$550/t. Bright stock is assessed at $505/t-$625/t. The ranges are wider than last week, and prices reflect contracted terms as well as spot deals which can attract much lower selling levels.
The implications of lower prices could mean that a number of suppliers could be facing large financial losses with existing stocks having been laid down at much higher rates.
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.
Regional Group I prices have also come under pressure with buyers almost missing from the scene due to lockdowns. The market is definitely weaker, but it has been very difficult to ascertain where prices are right now. The market will have to re-establish itself when things start to flatten out. The few buyers contacted this week commented that they are holding back on any purchases right now.
The price differential between domestic prices and those applying to exports is once again not reported due to the markets being in a state of flux, devoid of reference price points.
There are doubts regarding the news that the EU Group II quota had been reached, and clarification is being sought from EU sources. The suggestion is that data being issued by the EU may be historical and not up to date, therefore not taking into account all quantities of Group II base oils imported from sources such as the U.S.
In the meantime, as with Group I base oils, demand has weakened considerably over the past week with buyers advising distributors that they wish to delay taking further stocks at this time.
Some suppliers are still trying to hold on to existing price levels, in some cases citing that markets could rebound if an end to the crude battle and coronavirus become apparent.
Wide ranging assessments this week are established at $525/t-$695/t (€480/t-€635/t) for the two lighter viscosity grades (150N and 220N), with higher viscosity grades (500N and 600N) between $575/t-$685/t (€545/t-€630/t).
These prices apply to Group II oils with full slates of finished lubricant approvals as well as those with partial slates or no approvals.
Group III sales are down with buyers adopting a similar stance to Group I and Group II purchasing. Many have said that the market will need to get reinvented after the European lockdown situation is over. The fact that very little business is being transacted has blurred any real definition as to where prices are at the moment, and indeed where they may be heading. Buyers are adamant that should they require replacement stocks, they will be paying lower prices than previously, but how much lower and when purchases will be concluded is for the future.
Prices are lower this week with an inherent weaker sentiment around the market. Partly approved Group III base oils are placed in a range between €645/t-€695/t for 4 centiStoke grades, with 6 cSt and 8 cSt base oils between €660/t-€695/t. Prices refer to FCA supplies ex northwestern European hubs.
Prices for European OEM fully approved Group III base oils are assessed lower, at €695/t-€745/t for 4 centiStoke base oils, with 6 cSt grades at €725/t-€765/t and 8 cSt oils at €730/t-€775/t.
Baltic and Black Sea
Baltic markets reported very few trades, and most movements out of the region were to contracted buyers in Antwerp-Rotterdam-Amsterdam. The Baltic market slowed this week, with fewer enquiries for deep-sea destinations such as West Africa. A number of shipping enquiries for March shipments to Nigeria remained, although it was heard that an element of back trading had started with buyers now looking for lower prices as result of the crude and feedstock downward moves. A couple of small cargoes were noted for the east coast of the United Kingdom, but these were fixed some time back, with delivery and prices honored by sellers and buyers alike.
Two potential 15,000 tons parcels may be moved during March to Apapa, although these may now be in doubt due to prices starting to move lower. It will be very difficult to negotiate prices for long haul cargoes, since by the time a vessel discharges in Nigeria, some 21 to 25 days would have elapsed. With the current rate of change to prices, buyers will more likely wait until the market flattens out.
Indications are that purchasing of replacement stocks from Russian refineries was temporarily suspended by most traders and distributors in the Baltic because all parties want to see where prices head in the short and medium term. Product available FOB is priced as follows, with SN150 at around $490/t-$510/t with SN500 in the same range. SN150, SN500 and bright stock loading out of Gdansk have indications at around $495/t-$525/t in respect of the neutrals, with bright stock between $595/t-$625/t FOB.
Further large parcels were assessed for loading at the Kavkaz, Russia, STS facility in the Black Sea. Cargoes between 15,000 tons-18,000 tons are potentially feasible for later this month, although it may be into April before the follow-up cargoes are loaded. STS prices are hazy at this time, although there are reports that sellers are looking at very low numbers again, perhaps as low as $425/t-$440/t in respect of SN500, with smaller parcels of SN150 at around $420/t. Prices are indications only at this point, with buyers waiting to see how far the prices may fall in response to lower Russian crude and feedstock levels.
Offers to Turkish buyers in Gebze, Turkey, appear to have been withdrawn, perhaps at the behest of the buyers because it was heard that local Tukish prices had been drastically reduced to clear inventory. Numbers in local currency indicated the equivalent of $430/t in respect of SN500, with SN150 at $425/t. These prices were not confirmed, but were heard from sources in the Turkish market late on Monday.
One deal was completed for 3,000 tons of Group I grades out of a Greek supplier, although this deal was fixed prior to the market downturn. The price offered from Greek sellers was heard at around $575/t in respect of SN150 with SN500 at $595/t basis CIF Derince. SN600 was indicated at the same level, around $595/t.
Turkish traders in Gebze, Turkey, are offering Group II and Group III grades although few buyers were interested in purchasing even small quantities of these grades due to possible price realignment. Many local buyers are in lockdown and had no interest in buying replacement stocks. Selling levels were indicated between $695/t-$725/t in respect of the low and high vis Group II grades, with partly-approved Group III base oils between $710/t-$745/t. These prices are around $100 lower than previously noted, perhaps indicating that resellers look to move prompt quantities out of tank. No buyers were interested.
Middle East
Following large quantities of exports from Yanbu and Jeddah going into India and United Arab Emirates, Red Sea trade appears to concentrate on movements through the Suez Canal to Egypt and Turkey, although the latter movement is still at the offer stage and is not yet confirmed as firm. The EGPC contract for the second quarter was retained by the incumbent supplier from Saudi Arabia, with two cargoes loading together, making for 5,000 tons of bright stock for loading during the second half of April.
An interesting enquiry was floated for 5,000 tons of Group I grades to load out of the West Mediterranean for discharge into Aqaba. This may substitute for another possible cargo to load out of the Baltic for the same destination.
Another Kavkaz, Russia, loaded cargo is under consideration for delivery into U.A.E. receivers. Sellers made a tentative offer, although U.A.E. sources indicated they may delay to see how the market pans out. Trade in the U.A.E., while relatively strong, has taken fright from the effects of coronavirus, and a marked downturn occurred over the last two weeks.
A large 20,000 tons cargo to load out of the U.S. Gulf, with Group I base stocks for the west coast of India and three U.A.E. ports. The division of the parcel between India and the U.A.E. is not declared. If this is undertaken, it is reckoned that around 7,000 to 8,000 tons will discharge into U.A.E. ports.
There are new reports that Iranian small vessels have discharged small parcels of SN500 into Hamriyah port. Prices are unconfirmed but are heard at around $495/t in respect of SN500, CFR.
A couple of large cargoes are reported loading out of Sitra and Al Ruwais, with Group III base oils in both cases. The Sitra parcel is for 12,000 tons moving to the west coast of India, whilst the cargo out of the U.A.E. is bound for both the west coast of and the east coast of discharge points. Exports from Middle East Gulf sources in Al Ruwais and Sitra have notional FOB prices, which are maintained. Within the next few weeks, replenishment cargoes moving out to Europe, Far East and India are expected to have lower prices, thus pulling down FOB levels.
Levels remain between $630/t-$675/t in respect of the partly-approved range of Group III base oils moving into Europe, U.S., India and the Far East. Eight cSt grades, which are being sold into India and the Far East, will have lower FOB prices due to discounted selling prices in those regions. The local prices in respect of the 8 cSt material moved marginally higher in the Far East markets.
“Nexbase” branded Group III base oils exported from Sitra and marketed by Neste, are allocated higher FOB rates, with notional netbacks between $745/t-$810/t in respect of the three main Group III grades, 4 centiStoke, 6 cSt, and 8 cSt. Again these prices may have to be reviewed in light of events in markets such as Europe and U.S.
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 are being delivered in bulk to distributors in the U.A.E. Grades are resold to smaller receivers and blenders throughout the Middle East Gulf regions. Group II grades price levels are indicated on an FCA basis from U.A.E. hub storage between $785/t-$920/t in respect of the light vis grades 100N/150N/ 220N with 500N/600N between $810/t-$925/t. Prices are based on FOB numbers from Far East, Red Sea and U.S. Gulf, plus freight, storage and handling, and distributor overheads and margin.
Africa
South African shipping sources confirmed that another large cargo of Group l, Group II and Group III base oils will load out of Rotterdam and a U.K. port for discharge into Durban and Mombasa. This cargo may be a similar size to a 22,000 tons parcel, arranged by the same company.
Nigerian receivers have two cargoes arriving into Apapa in the next few days. With the possible cargoes still to load out of the Baltic and possibilities for other sources such as the U.S. Gulf or U.S. Atlantic Coast, a number of large cargoes may be planned for Nigeria.
However, buyers are prepared to sit back and wait for the effects of the crude and feedstock downturn to take effect before committing to large purchases of Group I.
Another possible cargo for Nigeria could load out of Livorno with around 14,000 tons of Group I grades, although part of this cargo may be for other receivers in Cote d’Ivoire and Guinea.
Currently prices in respect of API Group I base oils imported into Nigerian buyers are maintained, since cargoes arriving within the next couple of weeks were loaded and sold prior to the collapse in the oil markets. There are rumors of back trading raising its ugly head, although with cargoes already sold under agreement and letters of credit issued, any suggestion of renegotiation should be negated.
CFR/CIF levels are maintained and are indicated between $645/t-$660/t in respect of SN150, SN500 between $650/t-$665/t, with bright stock between $745/t-$760/t. Blended SN900 is between $670/t-$685/t.
Prices are in respect of cargoes of minimum 10,000 tons 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.