EMEA Base Oil Price Report
The hot news this week, apart from the continuing saga of coronavirus, is that West Texas Intermediate crude prices have collapsed. The U.S. benchmark crude is trading at its lowest level this century, while base oil demand continues to be virtually non-existent.
West Texas Intermediate crude is also in a state of “super-contango” because the gap between the price paid for oil today and contracts for delivery in future months is at its highest level in more than a decade. This should encourage traders to store oil and hold out for higher prices, but today’s barrels are being sold at distressed prices as they struggle to find buyers amid fears that there might not be available storage capacity to house supplies.
What does this mean for base oils? In the short term and in other better circumstances this would be an excellent opportunity for base oil refiners to maximize output and sell at very considerable margins due to feedstock costs being at all-time low. However, given the global economic situation with the coronavirus, demand is almost non-existent, hence sellers are not in a position to capitalize on lower priced raw materials.
The Europe, Middle East and Africa base oil scene is fragmented with some pockets of activity where availability of all types of base oil is good. Sellers are looking to move stocks out of tank almost at any price merely to free up storage space for further production down the line. At the same time there are other regions where little availability is recorded since production has been cut back to a bare minimum only for emergency services and operations.
Dated deliveries of Brent crude, while not succumbing to the rigors of WTI, have weakened from last week’s levels by some $7 per barrel trading down to $25.90 for June front month. A new massive crack has appeared between the two market crudes as WTI is now at +/- $6.90 per barrel still for May front month settlement. This is a new all-time low for WTI despite efforts made by U.S. President Donald Trump and OPEC+ to contain production and move prices higher. The missing part of this jigsaw is demand.
ICE LS Gas Oil prices have dropped drastically this week due to demand for road fuels gone and no heating oil being burnt, and is struggling to find any momentum to recover. Prices are recorded some $35 lower than last posted at $266 per metric ton for May front month.
These prices were obtained from London ICE trading late Monday.
Base oil prices are complicated, being affected by negative demand due to the coronavirus situation, and additionally by lower crude and feedstock prices. Some sellers are looking to move material at almost any price while others are holding out having purchased stocks when prices were higher and don’t want to sell at losses. Prices have come off the highs which were included in the ranges last week, but spreads are still exceptionally wide, with one-off spot special prices being offered by some sellers. There are also regional variations: parts of Europe paint an entirely different picture to markets in the Middle East and Africa.
It has become increasingly difficult to establish accurate pricing information since many sources are either not available or cannot be contacted. Those responding to inquiries have also been vague with trading and business missing from day-to-day activities.
European API Group I export prices are marked down again, losing ground to the lack of demand. Solvent neutral 150 is now between $400/t-$475/t, and SN500 is at $400/t-$480/t. Bright stock has also succumbed to the markets at $480/t-$525/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.
Regional European Group I markets are failing and have very little activity. Some sources have commented that they are starting to prepare plans for restarting operations, and some are forecasting that demand will rise quickly once the lockdown situation starts to ease. There are going to be challenges for this market since base oils may not be in position to restart full scale blending operations in a short period of time. Producers remain pessimistic regarding the return of demand, and are being careful about commitments on terms supplies.
Some local resellers may yet be rewarded for retaining stocks and choosing not to sell material in the meantime. Some are forecasting that prices will bounce back to former levels, although with vacuum gas oil prices at an all-time low, it is difficult to see how suppliers can justify raising prices in the current climate. Others are taking a more realistic view commenting that it will take some time for the markets to fully recover and that it may be a year or more before any semblance of normality and working practices can be resumed.
Transportation remains an issue with a lack of drivers and operatives missing. There are signs of economies starting to loosen the grip of lockdowns with Germany re-opening retail outlets and some of Spain’s factories and building sites returning to work. The social distancing advice will remain however, and this will curtail the re-opening of many venues such as restaurants and bars, and sites where crowds of people normally congregate, all of which are directly or indirectly involved in a healthy economy.
The price differential between domestic prices and those applying to exports is maintained at $75/t-$100/t, local prices being the higher.
Group II prices have fallen, and some comment that the EU import tariff limit may not have been reached as yet, and may not be reached due to the downturn in supplying imported Group II base oils. The extraordinary circumstances of the coronavirus spread may have altered the supply patterns to such an extent that imports are nowhere near the levels estimated prior to the lockdown policies throughout Europe. No comments were received from any EU source.
Prices are again adjusted downwards, but remain in wide ranges due to variations in different sellers’ responses to the current situation. Prices are assessed at $425/t-$525/t (€390/t-€480/t) for the two lighter-viscosity grades (150N and 220N), and higher-viscosity grades (500N and 600N) at $430/t-$550/t (€395/t-€505/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 markets have been rattled by declining demand throughout Europe, although there are still some small sales being made to the number of blenders still working. These sales may be for blenders supplying finished lubricants for medical services.
For the handful of sales being made, prices are marked down. Partly approved Group III base oils range at €500/t-€595/t for 4 centiStoke grades, and 6 cSt and 8 cSt base oils at €510/t-€600/t. There have been some one-off offers for small spot sales which have been recorded at the lower end of these ranges. Prices refer to FCA supplies ex Northwestern European hubs.
Prices for European OEM fully approved Group III base oils are under pressure and have wider spreads due to some sellers trying to compete with partly approved prices. Levels have been assessed at €520/t-€650/t for 4 centiStoke base oils, with 6 cSt grades at €555/t-€685/t and 8 cSt oils between €525/t-€675/t.
Baltic and Black Seas
Baltic trade is dull, with few inquiries for any supplies of Russian export barrels out of the main ports. There were rumors of another large enquiry for Nigeria, but no confirmation could be established due to missing personnel from the selling and buying camps. Some hopes remain that with the lockdowns being eased, some movements will return to this market. It has not been clearly established if supplies were coming out of Russia, where there has been a major rise in coronavirus cases over the past few days.
No shipping enquiries were reported this week, perhaps indicating the poor level of activity in the Baltic market.
Prices as indications-only are established lower, with FOB prices for two main grades SN150 and SN500 at $395/t-$440/t. SN150, SN500 and bright stock out of Gdansk are also indicated at $400/t-$475/t for neutrals, with bright stock perhaps slightly lower at $480/t-$525/t FOB.
Black Sea base oil markets are very quiet, although it was heard that a further large cargo out of Kavkaz, Russia, STS facility is being considered. Another report suggested that receivers in Far East were not yet ready to accept further supplies at this time. Rumors were that they could not handle additional barrels until July. Prices were suggested at $395/t-$420/t for SN500, with smaller quantities of SN150 at $395/t. No reports are heard of acceptance of these levels by any potential receivers in Far East, India or United Arab Emirates.
Group I offers from Greek and Italian sources still abound in the market but with few levels of interest being expressed in taking these parcels by receivers in Turkey.
Prices are expected to be very attractive, enabling suppliers to target larger quantities of Group I material at the Turkish market. Indications are heard at around $450/t for quantities of SN150 with SN500 at $460/t basis CIF Marmara.
The trade in Group II and Group III base oils out of tank in Gebze, Turkey, has all but disappeared, although stocks remain in tank that remain unsold at this time. Selling levels remain high because these purchases were made some time back when all prices were showing higher numbers. Prices were heard at $625/t-$675/t for low and high vis Group II grades, with partly-approved Group III base oils at $660/t-$685/t. Sellers do not want to offer lower levels due to a potential loss, and so are holding back from selling, hoping that market improvements are around the corner.
Regular markets closed due to lockdowns in India, the United Arab Emirates and the Far East. Red Sea vessel inquiries dwindled for Group I and Group II base oils to load out of Yanbu’al Bahr. Group I solvent neutrals loading out of Jeddah have disappeared and perhaps will not reappear until the virus situation in these localities has improved. It is difficult to see where base oils from this source can be placed at this time, other than some local supplies into regional blending operations.
A 6,000 tons bright stock cargo for Egyptian General Petroleum Co. supply into Alexandria seems to be going ahead. Commercial activity in Egypt has been badly hit, and the need for this requirement is unclear.
Coronavirus spread escalated in many Middle East Gulf regions, with many cities where the vast majority of the population is based in lockdown. Iran reported an enormous death toll due to Covid-19, with many installations such as storage terminals and some parts of refineries limited to minimum production of fuels and base oils. Countries such as Saudi Arabia, Kuwait, Qatar and Iraq were reported last week to be relatively unscathed. Since then, reports have been gathered to suggest that the situation in each of those locations is dire, with lockdown variations applied in the main cities of each country.
Trade evaporated in much of the Middle East Gulf region, with fewer cargo movements both in and out of the various receiving and supply points. Shipping dried up for Group II cargoes issuing from Al Ruwais and Sitra, and there are no reported imports of Group I base oils finding their way into U.A.E. or Oman. An offer remains for a Greek Mediterranean cargo to load for receivers in Sharjah, but sources said that this cargo may be on hold until the situation improves and becomes clearer.
Major centers plan to implement restarts to business, although these seem to be some way off. Some government sources look to June before there is any relaxation to social contact and general movement of people and goods.
Demand has dropped for all finished lubricants, with vehicles not being driven, and only vital supplies allowed into medical and food facilities.
There are no reports of any Iranian cargo movements into India or U.A.E., and local sources in the U.A.E. comment that prices may have fallen further with indications at $390/t-$410/t CFR in for SN500+.
Without any advice of cargoes loading out of Bahrain or Abu Dhabi, only notional FOB prices are assessed. Levels are worked at $495/t-$535/t for the partly-approved range of 4 centiStoke and 6 cSt Group III base oils. Eight cSt grades that would have been sold into India and Far East will have slightly lower FOB prices at $475/t-$515/t.
Group III base oils from Sitra in Bahrain, which are shipped and marketed by Neste, have notional netbacks now at $625/t-$680/t FOB for 4 cSt, 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, minus marketing, handling and freight costs.
Group II base oil supply from U.A.E. hub storage is almost removed, with few buyers looking to take significant quantities of these grades presently. Numbers are maintained as indications only on an FCA basis, and are assessed at $625/t-$760/t for light vis grades 100N/150N/ 220N, with 500N/600N at $650/t-$780/t.
Cross-Mediterranean trade is sluggish, with only offers for Group I grades made for receivers in Mohammedia, Morocco. There appears to be no hurry to finalize any deals due to the implications of the virus spread.
South Africa remains a limited market at the moment, having experienced a particularly tough regime in Johannesburg and Cape Town. Large cargoes on the high seas will arrive into Durban next month, although no further plans were announced regarding further supplies under this banner.
West African news is not positive when it comes to the Covid-19 spread, with many capitals and main centers in each of the West African countries experiencing a high incidence of the virus.
Cargoes will arrive into Nigeria over the next few weeks, and with rumors of a further parcel looked at out of the Baltic, perhaps business is carrying on in some form or another in Lagos.
Current prices for Group I base oils imported into Nigeria are merely maintained this week with CFR/CIF levels remaining at $595/t-$625/t for SN150, SN500 at $600/t-$640/t, and bright stock, where forming part of the cargo, at $710/t-$730/t. SN900 is indicated at $625/t-$645/t.
Prices are for cargoes of at least 10,000 tons delivered into Apapa port, Lagos, Nigeria.TAGS