Globally, green shoots are appearing in some base oil markets as demand starts to rebuild after some eight months of COVID-19. The original areas affected appear to be coming out of the dark, albeit slowly – areas such as China South Korea and other Asian nations.
However other regions such as Australasia, Europe, the United States and South America are still battling high numbers of new cases that hamper a return to some semblance of normality.
The “new normal” is here to stay according to reliable sources, suggesting that it may be some years before the base oil scene in Europe, the Middle East and Africa returns to anything resembling pre-pandemic times. As part of the energy industry, base oils have been badly affected by the fall in demand for industrial and consumer goods, since manufacturing in all instances is heavily reliant on lubricants and the various types base stocks used to make them.
Perhaps the last month has not been truly representative of how economies are coping, since many people have taken time away from businesses on vacation, and it may only be in the next couple of weeks that evidence comes to light as many return to work after the summer recess.
European markets may remain dull, though, with some regions experiencing increasing infection rates. This is against forecasts, which were originally optimistic that markets would be returning to normality after the summer, although there were always fears about a winter return of the disease. But no real improvements have been seen as yet, suggesting that it may be well into 2021 before any good news starts to filter through from hard hit economies.
API Group I base oils around Europe have gone extremely tight, with some grades such as bright stock and heavier neutrals showing zero availability for export markets. There are a number of inquiries for export markets with little or no possibility of cover for these requirements.
Group II demand is being forecast to pick up after summer. A number of large blenders are inquiring about availabilities in light of the tightening Group l market. This may be the impetus needed to push some operations to switch to Group II, although estimates are that blending output will be down some 40% year to year.
Group III prices are said to be slowly firming, perhaps not as fast as some of the suppliers would wish however. There is ample supply in the market, although some sellers are reporting that they may start to be running down inventories that have remained high during the last month due to replenishment imports and the resumption of full production from local producers after turnarounds have been completed.
Crude oil costs remain in the same narrow range as last reported after little movement. Dated deliveries of Brent crude are at $44.70 per barrel, marginally lower than two weeks ago, for October front month settlement. West Texas Intermediate is at $42.65/bbl, also for October front month. ICE LS gas oil reflects an almost identical price as previous at $369 per metric ton, now for September settlement.
These prices were obtained from London ICE trading late Monday.
Europe
Prices for Group l exports from Europe have risen some $20 to $30 per barrel for those small quantities of material available. There are reported shortages of the heavier grades such as bright stock and solvent neutral 1200, which has caused the availability of blended SN900 to become very tight. September availability is looking as the market goes short, but the few deals that have been transacted have seen prices for SN150 and SN500 move considerably higher.
Traders have again reported difficulties in assembling suitable cargoes for traditional export markets such as West Africa and MEG. The large enquiries for receivers in these regions remain around the market but with little chance of being covered, at least in the short term.
FOB prices in respect of SN150 are pushed higher to between $440/t-$475/t, with SN500 also moving upwards to between $450/t-$485/t. There are no reported prices in respect of bright stock due to the non-availability of this grade in large quantities, although smaller parcels have been quoted in an offer around $550/t, although there were no reported buyers at this price for a relatively small parcel.
The above prices refer to cargo-sized parcels of at least 2,000 tons sold on an FOB basis ex mainland European supply points, always subject to availability.
Prices for Group I sales with Europe have also followed the export trend upwards with prices being quoted this week for September deliveries being pushed higher by some $25/t-$40/t for the neutrals. Buyers are wary that there may be a shortage of Group I material available generally, with demand forecast to rise during September after what has been a varied summer season with some operations remaining fully open trying to make up for lost time during lockdown, although others have adopted the traditional short-time working, whilst other blenders have closed shop altogether, at least for the month of August.
With the threat of new coronavirus restrictions in Spain and France with secondary infections increasing across Europe, there are fears that there may be further lockdowns either nationally or regionally for certain areas. A true picture of the latest market conditions may only be judged following the general return to work after the end of August.
With prices moving up, sellers are keen to maximize availabilities into the domestic markets where price levels are much higher than those which can be achieved in export sales.
The differential between domestic and export numbers is widened, with all Group l grades being made available for domestic buyers, with traders in the export markets being denied access to some grades. The differential is assessed between €75/t-€145/t, regional prices being the higher.
Group II availability is adequate given that demand has been down over the past few months, although it would appear to be improving during July and August and September may bring even more demand for these grades. Prices are steady although some suppliers have been trying to push levels higher for August, with repeat action for September, but buyers are resisting these moves citing the large differential in price between Group I and Group II grades.
This argument may not hold sway at the moment since with Group I availability tightening, prices are starting to come closer together.
Group II prices are firmer, with numbers across the board moving up by $5/t-$10/t for September deliveries and ex-tank sales.
Group II prices are assessed higher at $700/t-$740/t (€640-€675) for 150 neutral and 220N, with 500N and 600N at $725/t-$760/t (€665/t-€695/t).
These prices apply to a wide range of Group II base oils, including fully approved grades from Europe and the U.S., as well as unapproved or partly-approved grades from the Middle East, East Asia and the U.S.
Group III base oils are enjoying a boosted order list for September with a number of buyers having booked significant quantities of these grades for FCA liftings during September. Partly-approved and also fully approved Group III base oils are available around the European markets with distributors and producers looking to top-up in tank stocks during September due to higher demand for Group III grades than anticipated.
The market for fully-approved grades is now well covered with two major producers, one in Spain, and another in Finland capable of covering requirements for Volkswagen approved formulations. Other sectors of the market are served by imports from Russia, normally going into Eastern Europe, along with two sources located in the Middle East Gulf, and a further global supplier bringing material in from Malaysia.
Prices are steady although they are tending to move slightly upwards over the past few days with levels indicated between €690/t-€715/t in respect of the range of partly-approved Group III base oils. Prices are assessed between €700/t-€710/t in respect of 6 and 8 cSt base oils, with 3 and 4 cSt grades between €690/t-€700/t. Prices refer to FCA supplies ex Northwestern European hubs.
The prices for fully approved Group III base oils have moved upwards, with levels now in a range of €740/t-€760/t in respect of 4 cSt base oils, with 6 and 8 cSt grades between €765/t-€785/t. Often it can be found that some fully-approved Group III base oils are being discounted from the above ranges to compete with partly-approved material.
Baltic and Black Seas
Baltic trade has not changed much during the past two weeks, with few Russian exports coming out by rail to replenish inventories that were very low in the first place. Russian refineries are able to place available base oils into alternative markets, which provide higher margins. With limited availabilities coming out of the main refineries there is no spare capacity to sell at lower prices through Baltic resellers.
Inquiries continue for large parcels of either Russian export grades or mainstream European quality API Group I base oils to go into Nigeria, although there are other problems for importers into that market at this time. Russian export specs could cover part of this requirement. But with little of the two main grades SN150 and SN500, and no avails of heavier grades such as SN1200, opportunities are limited to sell into the West Africa market due to reliance on heavy vis grades for that supply slate.
One cargo of 3,000 tons is moving to the United Kingdom from Riga. Although a larger cargo loaded out of Kaliningrad for receivers in Singapore, this supply often loaded out of Kavkaz, Russia, from the same supplier. FOB prices for barrels loaded for the United Kingdom are expected at $365/t-$385/t per metric ton for SN150 and SN500.
SN150, SN500 and bright stock – although only a small quantity was sold into Antwerp-Rotterdam-Amsterdam – from Gdansk are indicated at $435/t-$465/t for solvent neutrals, and bright stock, if available, at $500/t-$525/t FOB.
Reports from local sources in Turkey indicated that there may be availability of Group I base oils from the restarted Izmir refinery around the end August to early September.
Mediterranean sources report that even into September availabilities for Group I barrels to be sold into Turkey are severely limited. Prices for the first available supplies are expected to be much higher than previous cargo offers if they are accepted by Turkish receivers, who may be able to purchase at lower cost from the Izmir supplier.
Indications for possible Mediterranean offers are now assessed at $510/t in for SN150, with SN500 and SN600 at $525/t basis CIF Gebze, Turkey, in cargo lots of 2,500 tons-5,000 tons.
Another large cargo loaded from the STS facility at Kavkaz, Russia. This parcel is around 11,000 tons, with a small parcel delivered into a Greek port prior to the balance of 9,000 tons being discharged into Rotterdam. The interesting point is that the same supplier loaded 5,800 tons out of the Baltic for Singapore, whilst this quantity out of Azov is bound for northwestern Europe.
Kavkaz, Russia, STS levels are maintained at $365/t-$380/t for SN500, with quantities of SN150 at $355/t-$370/t. Prices have risen but are still not in the same camp as the mainstream European levels, and are also substantially below Baltic indications.
Ex-tank sales of Group II and Group III base oils are maintained at previous levels, which are at €720/t-€785/t for low and high vis Group II grades, with partly-approved Group II and III base oils adjusted higher at €690/t-€710/t.
A Red Sea supplier loaded 5,500 tons of cargo for Pakistani receivers, this cargo perhaps forming part of contractual supplies to this buyer. The Egyptian General Petroleum Corp. tender supply will load out of Yanbu’al Bahr during the first week of September, with 3,000 tons of bright stock to be discharged into Alexandria.
Middle East
In the Middle East Gulf, there are no reported deals done to take cargoes of Group I base stocks into the region. Although Red Sea sources provide some cover for Group I and Group II base oils going into the region, it has become an issue that no other material was seen entering the region from sources such as the U.S. Gulf Coast, Black Sea or Mediterranean. There are suggestions that Iranian base oils are coming out under the radar, and are distributed in the United Arab Emirates by local traders.
This may explain why no news was gathered on the large tender for Iranian Group I base oils. These availabilities may have been allocated to local buyers; however, there are still no reports of any shipping inquiries coming to the market, suggesting that shipments may have been undertaken by Iranian or locally flagged U.A.E. vessels.
Indications in respect of Iranian SN500 are around $475/t-$500/t CFR, with SN150 at around $465/t-$485/t.
The buyers in the U.A.E. who issued the enquiry for Russian barrels from Kavkaz, Russia, may have missed out on an opportunity, with the news that a large parcel was allocated elsewhere. The suggestion that selling into the U.A.E. is not so attractive for Russian refiners may have proved true, although local reports suggest that the specifications of Kavkaz, Russia, barrels are not high enough to be used universally by U.A.E. blenders.
Large Group III cargoes of 8,200 tons will discharge at three main ports in India, and another 5,000 tons for receivers in Karachi will load out of Al Ruwais during the latter days of August and the first week of September. A further cargo of 5,000 tons already loaded out of Sitra for buyers in the west coast of India. The actual seller of the Sitra cargo is not clear, since it could be Bapco or Neste, both of whom have drawing rights from Sitra.
Notional netbacks for exports of Group III base oils from two Middle East Gulf sources, Al Ruwais and Sitra, are maintained on the basis of selling prices in markets such as Europe, the U.S., China and India. Levels are assessed at $640/t-$695/t for 4 centiStoke, 6 cSt and 8 cSt partly-approved Group III base oils. Group III base oils, marketed in various markets by Neste, are assessed higher, although contribution may be retained by the company due to obtaining and paying for approvals from European original equipment manufacturers. Ex-tank costs are identical for all parties loading base oils out of Sitra refinery. Neste’s oils are assessed to netback at $720/t-$775/t for the 4 cSt, 6 cSt and 8 cSt Group III base oils.
Notional FOB prices on a netback basis are based on prices derived and informally assessed from regional selling levels, less marketing, handling and estimated freight costs.
The low priced Group II base oils, said to originate from a Middle East refiner, were unconfirmed at a level of $495/t for N150, with N500 being around $565/t.
Imported major supplied prices are maintained with FCA indications at $655/t-$735/t for light vis grades 100N, 150N and 220N and for 500N and 600N at $675/t-$760/t. Prices relate to specific quantities and contract terms and conditions.
Partly approved Group III base oils ex-tank U.A.E. sold by Adnoc and Bapco, with the base oils primarily delivered from Al Ruwais and Sitra, are heard at $600/t-$675/t for 4 cSt, 6 cSt and 8 cSt grades.
Africa
South African shipping sources confirmed that another large cargo with some 14,300 tons of various grades is loading out of Rotterdam and a southern U.K. port before sailing firstly to Tema to discharge around 5,000 tons of three Group I grades. It will then proceed to Durban to discharge the balance of the cargo. This will be the first movement into South Africa for some time. The markets in that region were severely hit by the COVID-19 pandemic, with restrictions only lifted late last week.
The same major supplied 12,500 tons of the three main Group I grades. This parcel will also load out of Rotterdam and Fawley, U.K. The vessel will discharge in Apapa port in Lagos, although it is not clear who the charterer of the vessel is, since this trade is normally assumed by traders who specialize in this business.
In Nigeria reports suggest a tightening of availability for foreign currency, in this case U.S. dollars, which limits the ability of local banks to open letters of credit. Dollars have to be bid for by local banks and with this situation brewing, traders will not be able to supply cargoes of base oil without having a Nigerian L/C issued and then confirmed by a prime European bank.
At the same time, options to put together one or two cargoes from either Baltic or mainland Europe are limited due to the markets going shorter. With reports of no bright stock and SN900 availabilities to offer into Nigeria at this time, the problem becomes exacerbated when trying to accommodate this supply for a total of 17,000 tons.
Prices for replacement stocks of Group l base oils offered into Nigeria are reacting to higher FOB numbers from sources. As such levels are assessed higher,
CFR/CIF offers are now assessed at $595/t-$610/t for SN150 and SN500 at $615/t-$625/t, but with no offered prices for either bright stock or SN90. That is due to current non-availability of these grades.
A respected source added that the market in Nigeria is currently well supplied.
Lube Report temporarily publishes Ray Masson’s column every other week. His EMEA Base Oil Price Report will appear again in next week’s issue.
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.