EMEA Base Oil Price Report
Economies remain paralyzed by the spread of Covid-19 with many employees and their bosses working from home wherever possible. This does not make for a happy scene for the base oi markets where many players are reeling from the potential threats to business, the full effects of which are yet to be felt.
The coronavirus pandemic is widespread, and while some parts of the world may be over the worst of the problem, others are just beginning to realize the implications. Europe, the Middle East and Africa are affected, with countries like Italy and Spain badly hit by the pandemic. The United Kingdom and Germany seem to be managing the situation perhaps better than others, but the effects are global, with everyone being subject to restrictions on movement of people and materials.
From what can be gleaned from the base oil markets, many refiners and producers have cut back production of all petroleum products, including base oils, while maintaining the availability of base stocks to an extremely limited marketplace. Many blending operations have either closed down or gone to a skeleton operation keeping finished lubricants moving to critical applications such as medical and military transport, in addition to marine and land transportation which are vital elements to keep food and medical supplies flowing internationally.
Crude oil prices had reached their nadir during last week, but due to the intervention of United States President Donald Trump in the battle raging between Saudi Arabia and Russia, crude received a welcome boost in pricing, taking both dated deliveries of Brent crude and West Texas Intermediate crude back up the scale at least partially. Levels have moved upwards by some $10 per barrel from the low points reached last week.
Dated deliveries of Brent crude have moved upwards at $32.75 per barrel now for June front month, with West Texas Intermediate crude showing at $26.50/bbl still for May front month settlement.
ICE LS Gas Oil prices are subject to a very weak market due to the restrictions being imposed on vehicle movements and also warmer weather moving into Europe. For these reasons this market has not reacted with the same percentage moves as crude but has almost reluctantly moved up by around $15 per metric ton over last week’s level to record at a level of $298/t for April front month.
There are reports around which suggest that the world is running out of storage capacity for crude oil and with tanks full in almost every market, a containment problem could start to evolve. This could naturally curtail production output, but even against this backdrop the main players are still ramping up exports to move crude to limited markets where demand is almost zero.
Saudi Arabia is trying to convene another meeting of OPEC members to negotiate production cutbacks which is designed to enable crude prices to firm. However, Saudi Aramco in trying to limit production to move prices higher, started last weekend by increasing production to 12 million barrels per day, the peak of that country’s output.
These prices were obtained from London ICE trading late Monday.
This week has been even more difficult to define base oil markets, with many gaps appearing in the supply and production chains. Vessel fixtures are down considerably for cargoes of base oil, as are the routine purchases ex-tank storage hubs. There are a number of majors involved in intra-company movements of base oil, perhaps redistributing stocks and supplies into available space in various storage hubs.
Prices in this report remain unchanged this week, but are also maintained in wide ranges.
There has also been a major falling off for enquiries for new cargoes of Group I base oils, and with many of the export destinations now in lockdown, it is difficult to see any short term possibility to alter this situation.
European Group I export prices are repeated with SN150 between $425/t-$540/t and SN500 at $425/t-$550/t. Bright stock remains assessed between $505/t-$625/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.
Local European Group I markets have seen a dramatic reduction in activity with only a few blenders purchasing material from refineries or from storage hubs around the European mainland. Prices remain unchanged due to a lack of information coming out of the usual sources.
Those players able to make contact this week have commented that they consider the market to be weaker, with some local sales offered at vastly discounted levels. However, they also added that material which is in reseller’s tanks had been bought and delivered sometime back, with sellers unwilling to sell material at a loss, thereby maintaining prices as they were prior to the spread of the virus.
Others have mentioned that transport can be an issue with many of the drivers and operatives either staying at home, or in some cases, self-isolating from the disease. Offices have closed, although some storage installations remain operational. Lockdown restrictions mean that very few people are working normally and it may be some months before markets become re-established.
The price differential between domestic prices and those applying to exports is reported at $75/t-$100/t, local prices being the higher.
Group II prices are suggested to be weaker, but in the light of little evidence to back up scenario, prices are maintained this week. The suggestion that some source decreases have started to affect the European markets is yet to be confirmed.
Prices were readjusted last week, and are maintained as such. Wide ranging assessments remain at $485/t-$650/t (€445/t-€595/t) for the two lighter viscosity grades (150N and 220N), with higher vis grades (500N and 600N) at $495/t-$650/t (€455/t-€595/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 trade has stalled with business dropping off due to demand being almost removed from the market. With many units in the automotive sector closed, factory fills using finished lubricants have disappeared and with huge reductions of the numbers of vehicles on European roads, requirements for lubricants have all but disappeared. Group III base oils are increasingly utilized in the new generation of engine oils, and with demand gone for these grades, so has demand for replacement stocks.
For the sake of good order, prices are maintained with partly approved Group III base oils at €555/t-€695/t for 4 centiStoke grades, with 6 cSt and 8 cSt base oils at €565/t-€695/t. Prices refer to FCA supplies ex Northwestern European hubs.
Prices for European original equipment manufacturer fully approved Group III base oils also remain in the wider spreads reported last week, at €595/t-€745/t for 4 centiStoke base oils, with 6 cSt grades at €625/t-€765/t and 8 cSt oils at €630/t-€775/t.
Baltic and Black Seas
The Baltic region is quiet after the recent spike in activity, when two large cargoes loaded out of the region for receivers in Nigeria. Restrictions on movement of people curtailed buying activity to replace stocks from Russian refineries. There may be lower availabilities for Russian export grades over the next few months, with some resellers and distributors going on to short-time working, and others trying to operate from home.
Only one cargo was notified this week, loading out of the Baltic port of Liepaja for the east coast of the U.K. This small cargo of 2,000 tons of Group I Russian grades may be the last for some time, according to sources in the U.K., where demand has died. How contract supplies to resellers in Antwerp-Rotterdam-Amsterdam will be affected is unknown at this time. Talks of cancelled shipping fixtures have taken place, although these have not been specific.
Enquiries for future cargoes are at an all time low, with some sellers trying to contact usual traders and receivers to investigate any possibility for trades during May and June. These are met with bland question marks, with few able to read how and when normality will return.
Indications are maintained for any vestiges of trade that may still be around, with FOB prices in respect of both SN150 and SN500 grades around $410/t-$510/t. SN150, SN500 and bright stock from lower Baltic sources in Gdansk are merely indicated at around $425/t-$525/t in respect of neutrals, with bright stock between $530/t-$595/t FOB.
Black Sea trade is also quiet, with little traffic coming out or crossing the sea. The Kavkaz, Russia, STS loading is thought to happen on a prompt basis with the 10,000 tons parcel sailing for Rotterdam. Demand for this transshipment parcel may be waning, with receivers in the Caribbean facing the coronavirus, which may have temporarily halted traffic coming into that region. The cargo can be stored in Rotterdam until such time as demand recovers. Prices are heard between $410/t-$425/t in respect of SN500, with smaller quantities of SN150 at around $410/t. Prices are indications only.
One Group I cargo loaded out Greece for Turkish buyers in Derince. Although offers are still made to Turkish receivers, there is little interest in taking these larger parcels. They may sit in storage for some time before being utilized in blending operations. Indications for Greek cargoes were reduced to $510/t for quantities of SN150 with SN500 at $520/t basis CIF Marmara.
One offer is for a supply of Group II base oils to load out of the Red Sea for receivers in Gebze, Turkey. This parcel of 5,000 tons may be re-thought under current circumstances, since gain of the throughput of this cargo may become extremely slow due to lack of demand.
The large parcel of Group III grades that loaded out of the Middle East Gulf will be arriving into Gebze, Turkey, very shortly. With demand missing, this large parcel may take some time to shift.
Group II and Group III grades are still pushed out of tank from Gebze, Turkey, with selling levels maintained 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 rumored to be lower now, with heavy discounting applied. Sellers are trying to maximize cash flow, perhaps even selling a loss just to move material out of tank.
A relatively large number of vessel enquiries remain for Group I and Group II material to load out of Yanbu, and Group I solvent neutrals to load out of Jeddah. However, destinations for these cargoes are in India, United Arab Emirates, and Pakistan, where the virus situation has escalated suddenly, with India in total lockdown. These parcels may be put on hold until either the situation resolves itself or until normal working practices are restored in India
Contract business with supplies of bright stock going into Egypt will probably go ahead, since by deadline no advice regarding a force majeure call was heard from Egyptian General Petroleum Corp. One parcel of 5,000 tons is due to be loaded towards the end of April.
The coronavirus has restricted much of the trade in Middle East Gulf and U.A.E. in particular, although an offer was made for a 6,000 tons cargo of Group I neutrals to load out of Greece for buyers in U.A.E. This may represent a move to take material out of storage in Greece, perhaps due to containment problems, since the prices heard were exceptionally low for CFR/CIF levels into Sharjah. Receivers in the U.A.E. are reluctant to commit to further large parcels at the present. Many unknown factors are at work, such as where are base oil prices moving, and more importantly, whether demand picks up in the near future for finished lubricants.
People are in lockdown in the U.A.E., with business suspended much as in Europe. Sources are working from residences, with offices closed for day-to-day business.
Restrictions are strictly enforced on any and all Iranian vessels discharging small quantities of base oils into Hamriyah in Sharjah. An unusual cargo apparently loaded out of an Iranian port during March for receivers in Hazira, in the west coast of India. The unusual nature of this cargo was its size, with almost 12,000 tons of Iranian Group I grades, SN500 mostly, with some SN150. Prices for this material were indicated at around $498/t CFR in respect of SN500. This would have been negotiated and even loaded prior to the crude slump. Iranian prices are no longer established into U.A.E. because no reported parcels are arriving due to the current situation in both U.A.E. and Iran, where the coronavirus death toll is one of the highest in the world.
Group III news concerns a 6,000 tons cargo sold out of Sitra and moving into Hamriyah. This local trade appears to be continuing, although no reported cargoes loaded or moved out of the Middle East Gulf to India and Far East of late. Activity from both Al Ruwais and Sitra may have been suspended for the foreseeable future, due to distributors avoiding ullage problems in receiving terminals because of the lockdowns and lack of a market.
Notional FOB prices are maintained with levels between $545/t-$585/t in respect of the partly-approved range of 4 centiStoke and 6 cSt Group III base oils. Eight cSt grades, which would have been sold into India and Far East, will have slightly lower FOB prices due to discounted selling prices in those regions. Few, if any, cargoes are expected to move during the coming weeks.
“Nexbase”-branded Group III base oils from Sitra, marketed by Neste, also remain unaltered, with notional netbacks between $675/t-$730/t FOB in respect of 4 centiStoke, 6 cSt, and 8 cSt viscosities.
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.
With one offer for a large Group II cargo from South Korea, some 12,000 tons of Group II grades is proposed for receivers in the U.A.E. The potential supplier has real problems in moving material out of the refinery at this time.
Generally, Group II base oil supply out of U.A.E. hub storage is very quiet due to the new restrictive practices to combat the virus. Numbers as indications only on an FCA basis are between $675/t-$810/t in respect of the light vis grades 100N/150N/ 220N, with 500N/600N between $700/t-$830/t.
Cross-Mediterranean trade is dull, with no new reports of material moving from Italian or Spanish Mediterranean ports into North Africa.
South Africa is experiencing real problems with the onset and spread of the coronavirus, with shops and offices closed and people remaining indoors at home. Base oil trade continues with large cargoes on the high seas for discharge into Durban storage, but perhaps a lull will occur in this trade since South Africa is going through the same, if not a worse, situation as is happening in Europe.
Covid-19 is now rife throughout West Africa, with receivers in Nigeria in no hurry to look for further cargoes of base oils to be imported. The current plans for lockdown or restriction of movement in West Africa are not clear, particularly in Nigeria.
Current prices in respect of API Group I base oils imported into Nigeria will have had lower FOB prices, resulting in lower CFR numbers. CFR/CIF levels are maintained as last with levels indicated between $595/t-$625/t. That’s in respect of SN150, SN500 between $600/t-$640/t, and bright stock, forming part of the cargo, between $710/t-$730/t. An Indication in respect of blended SN900 is between $625/t-$645/t.
Prices are in respect of cargoes of minimum 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.