After the chaos of last week’s collapse of crude oil prices, markets have been adjusting upwards – at least until early Monday when values started to slide again.
This phenomenal weakness of the market has been caused by two basic elements, the first being the fall-off in demand due to the coronavirus pandemic, and the secondly being the continued build-up in crude stocks and inventories – for which few storage facilities remain. The collision of those circumstances drove West Texas Intermediate prices into negative territory for the first time ever April 20, when they sank to an astonishing minus $40.32 per barrel.
The front month for contract settlements changed to June that evening, briefly buoying WTI back into positive territory. But dated deliveries of Brent crude fell below the $20/bbl barrier Monday, sinking to $19.65. WTI fared no better, sinking back to $12.55/bbl.
For the first time this century, ICE LS gas oil fell below $200 per metric ton, settling at $197/t late Monday, some $70 off last week’s level.
The above prices were obtained from ICE trading in London Monday.
In the meantime, major economies are being buffeted by the effects of the Covid-19 pandemic and lockdown measures to contain it. Mountains of debt are accumulating as governments struggle to stabilize financial markets and preserve jobs.
Base oils are mired in a mini version of the crude crisis as producers are unable to cut back sufficiently for the lack of demand. There are reports of containment issues at some refineries, and all third-party storage seems to have been allocated.
This is not a universal picture however, since supply chains have been interrupted at various stages with some base oils not moving from refinery to receivers who may perform the role of distributors or resellers. This is causing breaches in availabilities for some blenders that continue to operate, in some cases complicating efforts to obtain the right base stocks for finished lubricants needed for activities essential to the fight against Covid-19.
Ironically if these were normal times, it would be an ideal situation in which to sell base oils, with extremely low raw material costs. With the market in tatters, though, few buyers are looking to take substantial quantities of base oil. There are pockets of activity, for example in West Africa, where a number of cargoes are expected into Nigeria in the next few weeks. More inquiries are being issued, perhaps by parties seeing bargains in the price collapse.
Base oil prices are fragmented with some regions’ sellers trying to hang on to current or existing prices, but overall any buyers are able to counter and basically bid for trade at very low levels, some of which are being countenanced by sellers just to move quantities of material. The greatest effects are being seen and felt in the Group I camp where some prices have been decimated, whilst others are maintaining numbers which have been around for the last few weeks.
The result of this episode is that price ranges have had to expand to take account of these wide variations, leaving it increasingly difficult to obtain accurate prices. Group II and Group III markets are also been affected, but the real drama is the Group I scene.
Europe
European API Group I export prices are lower this week with FOB levels in respect of SN150 now between $385/t-$450/t, and SN500 around the same range between $390/t-$450/t. Bright stock is also weaker with prices now assessed between $475/t-$550/t, but with fewer sellers having the ability to offer large quantities of bright stock, this part of the market is more limited, with most sellers only offering bright stock if accompanied by other Group I grades.
The above price levels refer to cargo-sized parcels of at least 2,000 tons of API Group I base oils, FOB ex mainland European supply points, always subject to availability.
There are some tentative signs that some activity is starting to return to the local domestic markets throughout Europe but this is very restricted with companies putting into place new working practices which will require social distancing and very different ways of going about daily business.
These changes will be brought in slowly whilst activity resumes to a certain extent in the procurement and blending of base oils and additives. There is a gloom filled certainty that business will not return to normal and that life is going to be different for all concerned.
Sources say they are preparing plans to restart operations, but this is against a realism that demand may take years to return to former levels, if at all, with end users not requiring anything like the quantities of finished lubricants previously consumed. Some parties are suggesting that there will have to be rationalization in the markets with perhaps some smaller operations either amalgamating with others, or sadly disappearing from the market altogether.
There have been reports of some blenders finding difficulty in accessing particular grades and types of base oil, although generally there is ample availability throughout Europe, at least to get things underway once again.
With the dip to export low prices, the price differential between domestic prices and those applying to exports is maintained and is assessed between $75/t-$100/t. Local prices being the higher.
Group II prices have been more difficult to ascertain with the main sellers and the few buyers who have been taking these grades unwilling to discuss exact numbers although there have been suggestions that monthly prices are being revised downwards from May 1.
It is still not clear what the position is on the EU import tariff limit since EU staff have not returned to their posts as yet, and cannot be reached to check the latest situation.
Prices are adjusted lower at the high ends of the ranges, but still with wide spreads due to variations in sellers’ responses to the current situation. Prices are assessed between $425/t-$495/t (€390/t-€455) in respect of the two lighter vis grades (150N and 220N), with higher vis grades (500N and 600N) between $430/t-$520/t (€395/t-€480).
Prices pertain to a wide range of Group II base oils, including European, and U.S. fully approved grades, but also unapproved or partly-approved grades from Middle East, Far East and the U.S.
Group III reports are that some sellers have not moved prices lower, citing the fact that there is little point in reducing prices since buyers are just not around to lift material at the moment. This may start to change with an indication that a major producer in Spain has exported up 45,000 tons of Group II grades to Mediterranean markets and also to a hubs in Antwerp-Rotterdam-Amsterdam. This considerable quantity being shipped may reflect containment issues at the refinery, redistributing stocks into hub storage.
There remain some small sales to the few blenders whose plants remain open at the moment. Some have commented this week that with car manufacturers going back into production the market may be starting to repair itself, however there is an element of caution attached to these sentiments since the volume of vehicles forecast is much lower than prior to the onset of the coronavirus.
Prices are reported as weaker this week with revisions for monthly pricing being taken down for the month of May. Partly-approved Group III base oils are ranging between €475/t-€575/t in respect of 4 centiStoke grades, with 6 and 8 cSt base oils between €495/t-€600/t. Prices refer to FCA supplies ex northwestern European hubs. Prices in respect of European OEM fully approved Group III base oils are also revised lower particularly at the higher ends of the spreads. Levels are now assessed between €525-/t-€620/t in respect of 4 centiStoke base oils, with 6 cSt grades between €535/t-€640/t and 8 cSt oils between €525/t-€650/t.
Baltic and Black Sea
Baltic reports are that most trade is missing, although one large cargo loaded out of Kaliningrad for receivers in the United Arab Emirates and Singapore. This cargo normally would have loaded out of the Black Sea, STS from Kavkaz, Russia, but for operational or logistical reasons the loading was reallocated to the North. There are few enquiries, but a Scandinavian cargo of some 3,000 tons did load out of Liepaja around mid-month, and another parcel from Gdansk in the southern Baltic moved 4,000 tons of Group I grades into Antwerp-Rotterdam-Amsterdam.
It is not clear whether supply lines may have broken, with Russia experiencing a surge in coronavirus cases over the past few days. The lockdown may prevent normal movement of refinery products by rail, thus limiting supply of Russian export barrels arriving into tank in the Baltic.
The rumored Nigerian enquiry may have been covered from the Mediterranean as an alternative, since charter rates out of the Baltic rose due to the dearth of tonnage available.
Indication prices are slightly lower, but with little evidence of trades completed. The Russian export quantity loaded out of Svetly may have been heavily discounted to offset the additional freight costs that would have been incurred in shipping from the North. FOB prices in for the two main grades SN150 and SN500 are now around $375/t-$440/t. SN150, SN500 and bright stock out of Gdansk are indicated in line with mainland European levels at $385/t-$450/t for the neutrals, with bright stock at $475/t-$550/t FOB.
Turkish and neighboring Black Sea base oil markets are almost inactive from the point of imported base oils. A couple of Mediterranean cargoes out of Greek and Italian suppliers are reported loading at the end of April for delivery into Gebze, Turkey.
With the Kavkaz, Russia, STS facility supply covered from the Baltic, there is interest to look at a Nigerian cargo to load from this location. This was investigated before, but for whatever reason this voyage never happened, but if the barrels are available, receivers in Lagos may look to take low-priced base oil as an opportunistic purchase. The cargo would possibly be around 15,000 tons in total, comprising mainly SN900 and SN500 with smaller quantities of SN150.
Prices are assessed at $365/t-$390/t for SN500, with smaller quantities of SN150 at $355/t.
Group I supplies from Greek and Italian sources are rumored to be heavily discounted to tempt Turkish buyers to commit to taking these barrels. Sources suggest that prices are attractive, with indications at $435/t for quantities of SN150, with SN500 at $450/t basis CIF Marmara in lots of 2,500 tons-3,000 tons per cargo.
Group II and Group III base oils out of tank from Gebze, Turkey, are reported, with stocks still in tank and substantial inventories with few blenders lifting material. Selling levels may be unattractive to local buyers, with prices heard at $620/t-$650/t for low and high vis Group II grades, and with partly-approved Group III base oils at $640/t-$675/t.
Middle East
With India virtually closed, Red Sea exports are lower this week. Reported cargoes are moving, including one loaded for receivers in northwestern Europe. The suggestion is that this was a parcel of Group II light grades that this receiver would use instead of producing light solvent neutral grades.
Another couple of reported cargoes loading for multiple receivers in India, Pakistan, and U.A.E., and more local trades are evident with an inquiry from Sudanese buyers, and of course the ongoing coverage of the Egyptian General Petroleum Corp. supply of bright stock into Alexandria.
Ramadan this year has become rather different with the coronavirus spread affecting all countries in the Middle East that are observing the Holy Month. With many cities in lockdown, in Saudi Arabia all pilgrimages to Mecca such as Hajj and Umrah were cancelled for devotees. The next few weeks may be very different than times past.
Iran has continued to report an enormous death toll and a listing of cases treated for covid-19, with many installations closed. Storage terminals and some refineries have been badly affected, with cutbacks to production of both fuels and base oils. Reports from countries such as Saudi Arabia, Kuwait, Qatar and Iraq indicate that the spread of the virus is gathering pace, with no end in sight for restrictions that were imposed about a month ago.
Base oil trade continues, although restrictions have meant that movement of people and material is limited. Blending operations in the main centers appear to be working, albeit on a reduced scale. Fewer cargoes are moving, but Group I supply from the Baltic and other parcels of Group I and Group II base stocks from Saudi Arabia will continue to top-up traders and distributors in Middle East Gulf regions. Fewer Group III cargoes are coming out of Al Ruwais and Sitra because many target markets are either closed or in lockdown. Trading became exceptionally difficult, with restrictions in place for the receiving and handling of cargoes of base oil.
One Group I Mediterranean cargo loaded earlier this month out of Sicily for receivers in U.A.E., although this may form part of a contracted supply that has proceeded for many years.
No reported Iranian cargoes were heard, since with sanctions and also the lockdown situations in Iran India and U.A.E., possibilities for moving Iranian base oils are slim. However, sources claim prices are still attached to Iranian supplies. Comments were received this week that prices may have come off further, with current indications at $375/t-$400/t CFR for SN500+.
Notional FOB prices are assessed for cargoes that may load out of Bahrain or Abu Dhabi. Levels are estimated at $495/t-$535/t for the partly-approved range of 4 centiStoke and 6 cSt Group III base oils. Eight cSt grades normally sold into India and Far East will have slightly lower FOB prices at $475/t-$515/t.
Branded Group III base oils from Sitra in Bahrain, shipped and marketed by Neste, are assessed as having notional netbacks at $625/t-$680/t FOB for three Group III grades 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.
Sources indicated that offers of large parcels of Group II base oils from Korea were issued, with one seller offering up to 18,000 tons of Group II grades to be split between receivers in the west coast of India and U.A.E. Whether this cargo will fly or not will depend on requirements over the next few weeks and months. Prices are believed to be exceptionally low, and rumors are suggesting that prices at $495/t-$550/t are possible.
Base oil supply out of U.A.E. hub storage is quiet, with only a few buyers looking to take quantities of these grades presently. Numbers are lower this week, and as indications are only on an FCA basis, are assessed at $600/t-$690/t for light vis grades 100N, 150N and 220N, with 500N/600N at $620/t-$700/t.
Africa
Trans-Mediterranean trade is again slow, with few offers on the table for any North African receivers.
South Africa reports from local shipping sources confirmed that another large cargo of mixed base oils will load this week in Rotterdam and then second-port load in the United Kingdom before proceeding with around 10,000 tons of base oils to West African receivers and then sail to Durban for final discharge. The split of the cargo is not known, although West Africa receivers will possibly take around 5,000 tons. The partial cargo discharging in Durban may contain Group III material.
Other West African reports are that the northwestern European cargo will supply Group I base oils into Conakry in Guinea, Abidjan in Cote d’Ivoire and Tema in Ghana. These locations are often covered in a single cargo, with smaller quantities going into Guinea and Cote d’Ivoire.
Nigeria sources report that the coronavirus spread is affecting business, with many players trying to operate on an isolation basis. One cargo is confirmed booked from the east coast of the U.S., with 16,000 tons of Group I grades on board. That will arrive into Apapa during the second half of May. Another possibility is for a parcel to be loaded from the Black Sea out of the STS facility at Kavkaz, Russia, and a further parcel to load out of the West Mediterranean during the first few days of May.
Current prices in respect of API Group I base oils imported into Nigeria are 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 will come under review when the next round of cargoes starts to arrive, since it is felt that FOB prices may have slipped and that this will be reflected in the CFR/CIF numbers on discharge at Lagos
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