Base oil markets in Europe, the Middle East and Africa are reeling from continuing effects of the coronavirus pandemic. Export prices for API Group I base stocks are coming under the most severe pressure due to complete lack of substantial demand from export destinations, coupled with competing supply, mostly from the United States.
The overall effect is that prices are under pressure since sellers are almost desperate to move base oils due to rising inventories and limited storage. Output has slowed but production rates are still outstripping demand by a factor of around five to one, piling pressure on selling numbers.
That said, profitability and margins for base oils are still relatively substantial, given that feedstock costs have been at an all-time low, hence producers are keen to sell base oils even at a time when the market is at its most difficult.
The outcome of this situation for base oil markets has been nothing short of disastrous, since with restrictions on travel and lockdowns operational in many countries, factories and plants have been closed with demand for finished almost disappearing overnight. These changes in demand cycles take a very short time to be effective, but may take many years for recovery to bring back some form of the original status quo prior to the pandemic.
Crude prices have rallied this week on the back of increasing demand from China, and also news of a possible vaccine against the coronavirus disease out of the United Kingdom within the next few months. All markets have been buoyed by the news amid easing restrictions by a number of countries.
Dated deliveries of Brent crude has risen to post over $35 per barrel, with West Texas Intermediate crude playing catch-up at higher than $33/bbl. This is the smallest crack seen for some time, suggesting that both crudes are in a better place than they were some weeks ago. Stocks of crude have fallen enough to allay fears of the underlying threat of limited storage, which appears to have at least receded for the time being.
Dated deliveries of Brent crude currently trades at $35.45/bbl, for July front month settlement, some $10 higher than last reported two weeks ago. West Texas Intermediate crude has recovered to post at $33.05/bbl, now also for July front month.
In turn, ICE LS Gas Oil prices have rallied above $300 per metric ton. This petroleum product marker now posts at $303/t in late Monday trading, some $145 higher than when at its nadir.
The above prices were obtained from ICE trading in London Monday.
The not so good news is that European Group I export prices have been through the wringer since last reported, taking these base oil grades lower in price.
FOB levels for SN150 are now between $345/t-$385/t, and SN500 is in a similar range at $365/t-$405/t. Bright stock is also adjusted downwards at $385/t-$425/t. The interesting aspect now is that bright stock levels are only marginally higher than SN500, with few export destinations open to take this grade in large quantities.
There are limited opportunities opening up because markets such as Turkey are now totally dependent on imported Group I base oils, soaking up a lot of the over-capacity and stocks held by Group I producers in the Mediterranean.
There have been and there are other cargoes being currently negotiated, partly brought about by the closure and suspension of all operations until July 1 at the Tupras refinery at Izmir. Base oils are now sold out, and with another six weeks of closure stocks will take time to build up. There may be base oils available until sometime in August, assuming that start-up proceeds as planned after July 1.
The above price levels refer to cargo sized (minimum 2,000 tons) parcels of Group I base oils, FOB ex mainland European supply points, always subject to availability.
With the easing of restrictions in some countries and the lockdowns coming to en end, some are hopeful that base oils will be resurgent and that a market recovery for European regions may be just around the corner. The realists however paint a different picture, and European domestic markets could take months, if not years, to return to a situation existing prior the coronavirus spread.
There are new ways of working which many will have to get used to. These schemes are having to be drafted and tried before many plants and factories can resume operations, while some blenders in Europe choose to remain closed until some positive signs are gleaned from various markets around Europe. There are also some operations which will not reopen due to financial and economic constraints.
Selling prices for Group I base oil however have stood up, although many sources have intimated that it is too soon to take stock of where prices may actually lie. Many buyers are not positioned to start taking quantities of material just yet. Prices are considerably higher than those being played in export markets, widening the delta between the two sets of prices.
The price differential between domestic prices and export numbers is widened and now assessed at €80/t-€155/t, local prices being the higher. Bright stock is particularly evident by being priced much higher in regional markets, this being where the differential of around $155 is applied.
Group II prices have also been affected by falling demand but perhaps not to the extent that Group I export prices have felt the squeeze. Sellers had tried to maintain May prices, but inevitably some concessions have been made, bringing levels down.
The EU import tariff figures continue to be vague, and online information is vastly out of date and bears little relation to actual imports which have been corroborated by importers. From information gathered, a meeting was to take place either last week or this week to discuss the new limits for July to the end of 2020, but without meaningful data this task would appear to be spurious at best, and in the worst case scenario, just plain wrong.
Prices are adjusted lower this week taking account of the pressures on sellers to acknowledge market conditions, however against these new prices, sellers should be very happy to supply customers with Group II grades at these levels, since with raw material costs collapsing over the past few weeks, margins have never been better.
Prices are now assessed at $625/t-$660/t (€575/t-€605/t) for the two lighter-viscosity grades (150N and 220N), and higher-viscosity grades (500N and 600N) at $685/t-$710/t (€630/t-€650/t).
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.
Coronavirus has wreaked havoc on the Group III markets. A significant downturn in offtake levels being reported by nearly all sellers. Buyers who entered into contracts at the end of 2019 are often finding that their index-linked prices are making them uncompetitive against spot purchases.
These buyers are no longer lifting their monthly allocation, instead those still operational have been purchasing spot parcels from sellers who have the flexibility to adjust prices downwards. There is a great deal of ill-feeling around the market at the moment and suppliers who have contracts try to exact authority by insisting that buyers take their monthly total, but some are countering with reasons such as coronavirus restrictions which do not allow them to lift as per contract.
There are glimmers of hope for Group III sales: many factories and plants around Europe are re-starting operations, although this will take time to ramp up back to per-virus levels.
Prices are moving lower, now assessed at €610/t-€670/t for the range of partly approved Group III base oils. Numbers are ranging at €610/t-€655/t for 6 centiStoke and 8 cSt base oils, and 4 cSt grades at €610/t-€650/t. Prices refer to FCA supplies ex Northwestern European hubs.
Prices for European OEM fully approved Group III base oils are also realigned at €655-/t-€710/t for 4 cSt base oils, with 6 cSt and 8 cSt grades at €635/t-€725/t. The wide variations and the low ends of the ranges are where some sellers are discounting prices to compete with partly approved material.
Baltic and Black Sea
Baltic news is limited, as is the trade coming out of this region. A small number of cargoes were announced as moving to Antwerp-Rotterdam-Amsterdam. One was also loaded out of Riga and unusually discharged into Gdansk, where material has simultaneously loaded for receivers in Antwerp-Rotterdam-Amsterdam. This may be the initial movement to build a larger cargo for an export destination such as West Africa, using the Gdansk supply to make up the balance of the parcel. A shipping enquiry for late May would load up to 10,000 tons of base oils for Nigerian receivers out of Gdansk port. That may be the ultimate reason for taking additional material out of Riga, where there could be a pricing edge.
The DAF trade for trains arriving at the Latvian border is slow, because with few large enquiries from export destinations, it has been quiet in terms of looking to load Baltic cargoes.
Indication prices are maintained in light of the poor levels of business reported. FOB prices for SN150 and SN500 are put at $335/t-$375/t. SN150, SN500 and bright stock out of Gdansk also remain unchanged, and are indicated in line with mainland European levels at $345/t-$405/t for solvent neutrals, with bright stock at $385/t-$425/t FOB.
With the exception of the Turkish internal market, Black Sea base oil trade has been dull, with little Russian export barrels showing out of Azov. Certainly, no new large cargoes are advised as loading out of the STS facility at Kavkaz, Russia.
The Nigerian trial for a cargo to load out of Kavkaz, Russia, appears to have been put on hold, but prices from Kavkaz, Russia, are assessed lower this week. The CIF offers heard would yield STS numbers around $315/t-$350/t for SN500, with smaller quantities of SN150 at $310/t.
Offers of Group I supplies from Algerian, Portuguese, Greek, and Italian sources are being circulated presently in the market since buyers in Turkey looking for ex-tank supplies are being forced to look at imported material. Demand in Turkey is not strong as yet, but suppliers are expecting a gradual lift in sales of base oils due to some of the Turkish blenders going back to work. One cargo of 4,000 tons-5,000 tons of Group I grades was fixed firm from Arzew and loaded towards the end of last week.
Prices indications are around $405/t for quantities of SN150 with SN500 at $425/t basis CIF Gebze, Turkey, in lots of 2,500 tons-3,000 tons per cargo. SN100 is also indicated at $415/t on the same delivery basis.
The local refinery at Izmir sold out of existing stocks of base oil. After start-up on July 1, no availabilities of base oil will be possible until sometime into August, after production is ramped up after the refinery closure. Last known prices were recorded during last week, these levels perhaps being similar to ex-tank prices available from Gebze, Turkey, port.
SN100 was priced at Tl 3,569/t ($500), SN150 at Tl 3,529/t ($494), SN500 at Tl 3,599/t ($504), and bright stock at Tl 4,189/t ($586.50).These prices are historical and are only published as a guide.
Group II and Group III base oils ex-tank from Gebze, Turkey, are available from traders, but it is heard that with a number of cargoes coming into storage some weeks back, large inventory volumes remain up for sale. A further cargo loaded at the end of April from Red Sea suppliers out of Yanbu, hence this parcel will be arriving prompt with around 4,000 tons of Group II grades on board. Prices are heard at $620/t-$650/t for low and high vis Group II grades, with partly-approved Group III base oils at $640/t-$675/t.
Middle East Gulf
Red Sea trade was muted over the Ramadan period, but also with Indian ports limited by the coronavirus threat or even closed for imports, Saudi Arabian cargoes have been slowing down. There are a couple of enquiries for material to load out of Yanbu and Jeddah for Red Sea receivers in Sudan, coupled with a cargo to cover the Egyptian General Petroleum Corp.’s bright stock requirement going into Alexandria in Egypt. There is also a possible cargo to load for receivers in Sharjah port in United Arab Emirates during second half May
With the end of the Holy Month of Ramadan, and now the Eid holidays, Middle East countries were swift to curtail holiday celebrations in the wake of the coronavirus contagion. A number of restrictions are still in place with movement of people affected. This in turn is limiting commercial activity which some say will only return to some form of normality in Middle East Gulf after the summer recess. Therefore it may be into September before import and export trades start moving again.
Iran has suffered badly from the virus, with no Iranian cargoes reported over the last two weeks, and with the situation in both India and U.A.E., there is no demand for Iranian base oil cargoes. However, sources confirm that there are still offered prices for Iranian material with indications only at $400/t-$435/t CFR for SN500+. SN150 is indicated at $400/t-$425/t CFR/ CIF
Offers of Group I cargoes are coming out of the United States for supply into U.A.E., some of these delivered in tandem with supplies moving into the west coast of India. Traders are making offers for two large cargoes: the first, a cargo of up to 20,000 tons of Group I base oils from U.S. East Coast; and the second loading out of the U.S. Gulf for around 10,000 tons of the same Group I grades.
Group III exports from Middle East Gulf sources are slower, although two smaller parcels may assemble out of Sitra for China and U.A.E. Indian receivers report that their tanks are full and that they cannot look at taking further quantities of Group III base oils at the moment. Indications are that exports of Group III may not fully resume for a few months or at least until business gets back to normal.
Notional netbacks remain estimated at $495/t-$535/t for the partly-approved range of 4 centiStoke, 6 cSt and 8 cSt partly-approved Group III base oils. Group III base oils from Sitra in Bahrain, marketed by Neste, are assessed as having notional netbacks of $625/t-$680/t FOB for three Group III grades, 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.
Base oil supplies out of U.A.E. hub storage started to pick up, but with the Eid holidays this trade will be quiet until after the end of the holidays next week. Prices are maintained as per last report, with indications on an FCA basis assessed at $600/t-$690/t for the light vis grades 100N/150N/ 220N, with 500N/600N at $620/t-$700/t. Group III grades are also offered on an ex-tank basis U.A.E., for $555/t-$600/t for 4 centiStoke, 6 cSt and 8 cSt grades.
A number of cross-Mediterranean cargoes will be happening over the next few weeks with Turkey bereft of local base oils from Izmir. This means that imports will be coming into Gebze, Turkey and Derince from the usual Mediterranean sources. The first of these supplies was already confirmed out of Arzew with a Group I cargo of 4,000 tons-5,000 tons loading on a prompt basis. North African receivers are slow due to virus considerations, Ramadan and now Eid holidays.
As mentioned, two further cargoes are worked for receivers in West Africa, with up to 10,000 tons mooted out of Gdansk, and the long-standing enquiry worked for loading out of a west Mediterranean terminal. This latter cargo was on the table for some time, although reports suggest that banking systems in Nigeria are not functioning as normal with a shortage of foreign currency. It is not clear whether this is due to coronavirus implications or not.
Sources in Nigeria reported that the coronavirus is having a dire effect on local trade, with many people in lockdown and some of the principal blending operations closed.
Current prices for Group I base oils imported into Nigeria are maintained as per last, with CFR/CIF levels assessed at $520/t-$530/t for SN150, SN500 in a range at $540/t-$555/t, and bright stock, where applicable, at $640/t-$660/t. SN900 is indicated at $560/t-$575/t.
Prices are for cargoes of at least 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 firstname.lastname@example.org.
- Base Oil Report