EMEA Base Oil Report – 20.10.20
With a resurgence of COVID-19 sweeping through many countries in Europe, the Middle East and Africa, there appears to be little or no respite for commerce or industry.
Businesses have been hit badly by the effects of the coronavirus as demand for oil products plunged sharply. Economies are taking hit after hit, with no end in sight for many trying to survive. Many weaker and smaller businesses have folded never to reopen, closing the doors on many years of developing trade and services to the community. Companies involved in the base oil trade have not been excluded as a number of blending operations shut down.
A few traders have also gone very quiet since they have few opportunities to expand or develop new business and existing outlets are being severely restricted by the downturn in trade in many countries. As hopes of an early arrival of a vaccine fade, most companies are now looking to next year or even 2022, before things can return to anything close to normal.
Although demand has not exactly been flourishing, base oil prices have risen across the API categories, with the largest increases being seen in the API Group I camp. Group II prices have also moved upwards, although perhaps more stealthily than Group l, and Group III base oils have shown signs of strength in demand, likewise undergoing markups the past few weeks.
Crude oil and petroleum products have shown a modicum of strength over the past couple weeks with dated deliveries of Brent crude almost reached $44 per barrel last week. However, trading has again been confined to a narrow range with no real new triggers to stimulate demand. The crack between the two major marker crudes remains tight, with dated Brent only showing around $2 higher than West Texas Intermediate.
Dated deliveries of Brent lists at $42.95/bbl for December front month settlement, firmer by around $1.50 than last reported. WTI rose to $40.90/bbl for November front month.
ICE LS gas oil levels are some $10 higher than last and is currently showing a price of $340 per metric ton, now also for November front month settlement. These prices were obtained from London ICE trading late Monday.
Europe
European export prices for Group I base oils continue to firm on the back of limited availabilities, particularly for heavier grades. There are many uncovered inquiries that have been batted around the market for some weeks now without traders being able to lay hands on quantities required from some export destinations such as West Africa. Sellers have continued to boost prices where availability of material allows. Levels are pushed higher, moving closer to – and in some instances exceeding – regional Group I prices.
Export values rose another $10-$30 per ton to $635/t-$675/t for solvent neutral 150. SN500 climbed by a larger increment to $665/t-$690/t. Bright stock is exceptionally tight, with few suppliers having large parcels for export sales and prices quoted between $720/t-$765/t.
These 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.
Domestic European Group I prices had risen earlier in the month in line with the large increases seen for export prices, but being mid-month, prices have flattened out and will continue to remain at current levels until the beginning of November. Some players are postulating that prices may not remain at the new highs, since more availability is being forecast to come to the market, and with demand being depressed with the second wave of coronavirus infections in most major markets in mainland Europe.
Another factor is that year-end is approaching when most buyers scale back on purchasing base oils looking to minimize inventories for the year end. However, it is acknowledged that this year may be completely different with markets being turned upside down, and seasonality factors being largely ignored.
The differential between domestic and export numbers is lowered since export prices have continued to rise, whereas domestic levels have remained at monthly prices set at the beginning of October. Therefore the differential is assessed at between €35/t-€85/t, regional prices being the higher.
Group II prices remain in a firm vein with some suppliers trying to push levels higher for November sales. These increases are being resisted by buyers who are maintaining that there is plentiful supply of Group II grades around the European markets, and with demand taking a coronavirus hit, it would appear that buyers at least have some negotiating room when it comes to Group II prices.
The EU duty waiver quota of 200,000 tons per each six month period has been extended to the middle of next year at the current level. This means that there will be no adjustment to the quota until July 2021 at the earliest. The only good news for importers not coming from a FTA is that the United Kingdom will be leaving the EU on Dec. 31, and any barrels which were included in EU figures will be exempt from the duty waiver quota system. It is not clear as yet what rules will be adopted for Group II imports into the U.K. market.
Group II prices have firmed marginally since the last report, with levels moving upwards by some $5/t-$10/t during the last couple of weeks, although many prices are held firm for a month, thus diluting increases.
Prices are assessed at levels of $800/t-$850pmt (€680/t-€725) for 150 neutral and 220N, with 500N and 600N at $865/t-$890/t (€740/t-€760). These values pertain to a wide range of Group II oils, including grades from Europe and the United States with full slates of finished lubricant approvals, but also unapproved or partly-approved grades from the Middle East, the Far East and the U.S.
As demand improves for Group III base oils prices are perhaps a little firmer than last reported, although these increments are not substantial, and to an extent are also negotiable with many buyers being offered TVAs or other forms of discounts.
Sellers are back to prioritizing market share in what is a very difficult markets in Europe at this time. The market looks to be well stocked and supplied at the moment since with the second wave of coronavirus limiting demand buyers are taking smaller quantities more regularly and with year-end approaching this pattern is set to continue into November and December.
Prices are being described as steady this week with levels maintained between €710/t-€735/t in respect of the range of partly-approved Group III base oils. Levels are assessed between €715/t-€735/t for the 6 cSt and 8 cSt grades, with 3cst and 4 centiStoke in a range of €710/t-€725/t. Prices refer to FCA supplies ex northwestern European hubs.
Prices in respect of fully-approved Group III base oils holding the full range of European OEM approvals are also maintained this time around in ranges between €760/t-€785/t for 4 centiStoke base oils, with 6 and 8 cSt at €785/t-€805/t.
Baltic and Black Seas
Baltic trade remains dull, with few cargoes announced for October delivery into the traditional markets in Antwerp-Rotterdam-Amsterdam, Scandinavia and the United Kingdom. However, one parcel of nearly 4,000 tons loaded out of Liepaja last week for receivers on the east coast of the United Kingdom. Replenishment stocks from Russian refineries remain low, with smaller quantities of material coming through FOB status in the Baltic ports. Traders were given something of a lifeline in that the European mainstream market remains tight in supply terms, but at the same time reports are that COVID-19 has limited demand for Russian barrels to supplement and augment the mainstream markets.
Nigerian buyers looking for coverage for a quantity of 10,000 tons of three API Group I base oil grades are assessing alternative sources to cover this requirement for delivery on a now prompt basis during first half of November. One small parcel was indicated to load out of the Baltic for Nigeria, although 2,000 tons in bulk would not appear to be a feasible option, given sea freight costs. There have been suggestions that this parcel should be offered for sale in flexies, which would make more economic and logistical sense for this type of quantity.
Indication prices for FOB levels are SN150 priced around $620 per metric ton, SN500 around $650/t and BS 150 at $725/t. Levels rose again since last reported, indicating that higher prices have to be paid to Russian refiners who have the option to sell locally or into markets such as China and Ukraine, where prices are higher.
SN150, SN500 and quantities of bright stock from Gdansk may be aligned with mainstream European prices, rising over the last few weeks to $635/t-$685/t for the neutrals, with bright stock at $715/t-$755/t FOB.
In Turkey buyers are taking Group I base oils from Izmir refinery at very attractive prices, with which sellers out-with Turkey are unable to compete. In dollar equivalent terms, prices are rumored to be $75/t-$90/t lower than Mediterranean sellers are able to offer on a CIF basis into Gebze, Turkey or Derince.
However, that said, there is a prompt enquiry for 3,000 tons of Group I grades to load from Livorno for discharge into Derince. It will be interesting to see if this cargo is finally sold and delivered. There are reports that the Turkish economy is in dire straits and that even taking away the effects of the coronavirus, the situation is critical, with the currency in freefall against the dollar and other parts of the economy faltering. Demand for finished lubricants is poor; hence, base oil supply was down against previous years. Export markets once supplied from Turkey have mostly disappeared, leaving Turkish blenders to scrape around the local markets to maintain volumes of finished lubes.
Indications for the offer from Livorno are heard at around $635/t for SN150, with SN500 at around $655/t basis CIF Derince. Prices for supplies of smaller quantities of SN500 in flexies were established at around $700/t basis CIF Istanbul.
No news is heard regarding further cargoes loading out of the STS facility at Kavkaz, Russia. Rumors are that a further large slug of Russian export barrels will load either for Singapore or for Greece and Rotterdam. Buyers in Middle East Gulf are also expected to show interest in material from this source, since prices appear to be attractive, compared to Mediterranean or U.S. Gulf coast. Latest Indications for Kavkaz, Russia, STS prices are around $525/t-$560/t for SN500, with quantities of SN150 at $500/t-$525/t. Levels from this source are gradually playing catch-up with European mainstream prices, but may still have a little way to go.
Group II and Group III base oils available on an FCA basis in Gebze, Turkey. These have price levels at €750/t-€825/t for the low and high vis Group II grades, with partly-approved Group III base oils also higher to levels at €735/t-€775/t. Fully approved Group III material is available ex-tank at levels of €785/t-€825/t.
Middle East
As part of the large exported quantities out of Yanbu’al Bahr and Jeddah refineries, the final cargoes may load during the next 10 days and will move Group I and Group II base oils to Pakistan and the United Arab Emirates. A smaller parcel of bright stock out of Yanbu is also due to load for Singapore, where demand is positive for this grade.
In Middle East Gulf regions a large base oil cargo will load out of Rotterdam for discharge into two ports in the U.A.E. The regular supply from this producer will arrive into Jebel Ali in addition to material being supplied into Fujairah. Further news is that the large split cargo out of the U.S. Gulf will discharge firstly into Mumbai anchorage and thence into Jebel Ali around the end of October or early into November. The cargo with 20,000 tons of Group I base oils in total will be split almost equally between the two destinations.
There has been no further word on the Italian cargo that was offered into the U.A.E. Local thoughts suggest that the price was too high for receivers.
Iranian exports are out of the picture at this time, with no reported cargo movements moving into west coast India or into the U.A.E. There was some news last week that Iran was experiencing very high levels of COVID-19 infections and that the country had gone into a form of lockdown. No reports from local sources confirm these actions, but should the news be accurate, it may spell trouble for Iran refineries and the production from these units.
Local sources based in Sharjah indicate nebulous quantities of Iranian SN500+, but exactly where these quantities are located is not published. Prices are indicated higher than previously heard at $640/t-$665/t, delivered CFR to the U.A.E. SN150 is also indicated at $600/t-$625/t.
Around 25,000 tons of Group III base oils loaded out of Al Ruwais, the largest parcel of 12,000 tons moving to mainland China, while another two cargoes of around 6,000 tons each will load for the west coast of India and northwestern Europe, respectively. The European cargo is a follow up replenishment parcel for distribution in northwestern Europe, although this parcel will discharge into Le Havre rather than Dordrecht. At the same time material from storage is loading out of Bahrain for local supply in the U.A.E. and also for receivers in India.
Gas-to-liquid production of Group III base oils continues from Qatar with a large major taking the bulk of the production from this plant for internal re-distribution.
Netbacks for Group III base oils from Al Ruwais and Sitra are maintained in this report, with no further news of confirmed increases to selling prices in regional markets. Levels are put at $680/t-$740/t for the range of 4 centiStoke, 6 cSt and 8 cSt partly-approved Group III base oils. Fully approved base oils, marketed by Neste, will theoretically netback at a higher level due to higher selling prices. This production is assessed to netback at $760/t-$820/t for 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.
Group II base stocks ex-tank U.A.E. have prices maintained this week, with FCA levels at $710/t-$785/t for light vis grades 100N, 150N and 220N, along with the heavier 500N/600N grades at $745/t-$825/t. Prices relate to varying quantities, with differing contract terms and selling conditions.
Africa
South African shipping sources notified about another large cargo. This cargo will arrive into Durban towards the end of November to discharge around 13,000 tons of various base oils. It is assumed that this parcel will consist of both Group I and Group II base stocks, but since this vessel will not load out of the U.K. refinery, Group III grades will not make up the cargo on this voyage.
Latest West African news is that a cargo will load out of Rotterdam at the beginning of November to cover the Ghana contract, with 5,600 tons of Group I grades going into Tema port. This will form the last delivery under the contract for 2020, and will supplement the cargo which is currently discharging at this time.
Nigerian sources are still frustrated with problems in obtaining some basic grades for supply into the Nigerian market. Heavy vis grades – such as SN500 and SN900 – are still scarce, while bright stock has now become expensive on an FOB basis, all of which meant that the local market in Nigerian for ex-tank sales of base oils has undergone significant upward price adjustments over the past few weeks.
The enquiry for a parcel of 10,000 tons of Group I grades for Nigeria remains uncovered, with traders looking at alternative sources such as the U.S. Gulf, in addition to Baltic and European options.
Prices for Group I base oils sold or offered into Nigeria are maintained as per last reported because no new cargoes emerged during October.
CFR/CIF offers remain in the same frame as previous, at $770/t-$790/t for quantities of SN150. SN500 is at $790/t-$810/t, and even without any reported offers for SN900, indications are that selling levels could fall to $825/t-$840/t, should material be available. Bright stock was indicated at a slightly higher level at around $885/t.
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.