EMEA Base Oil Price Report 03.09.21
Base oil markets in Europe, the Middle East and Africa are lurching from one problem to another, with supply issues increasing exponentially as availability of various grades tightens. Shortages of some grades have now become a reality, with some buyers, particularly in the export markets, unable to lay hands on quantities needed to cover urgent requirements.
This is especially the case for API Group I requirements going into markets such as West Africa, the Middle East Gulf and the West Coast of India, where receivers are desperately looking to find suitable parcels but in more than one instance are coming up empty. Traditional sources such as the United States Gulf Coast, the Mediterranean and Northwestern Europe are all basically dry and offer few prospects for relief over the next few months.
Majors are closely guarding available supplies, ensuring that their own affiliates are covered. Some are guarding against tightness caused by maintenance shutdowns, others against severe rogue weather conditions such as were experienced lately in the U.S. Many of the shipping fixtures noted over the past few weeks have been down to major producers distributing large parcels of base oils of various types to cover requirements in regions such as Singapore, South Africa, West Africa and South America. These sometimes temporary supply requirements may start to change as more production comes back on line, thus easing what has become a critical supply issue.
The backdrop, of course, is the COVID-19 pandemic that has reduced many areas of demand from the norm while also causing refinery cutbacks that have curbed feedstock availability. With lockdowns and other restrictions on movement of goods and people across the globe, traffic in air and land transport dipped to an all-time low, battering demand for fuels.
With short markets come price increases, and as potential buyers offer ever higher numbers to be able to lay hands on supplies of all types of base oil, values levels have continued to rise in all sectors. Group I and Group III have seen the largest increments, but even API Group II, having gone shorter due to supply constraints in the U.S., is becoming more snug.
Additional price pressure has also arrived in the form of higher crude and feedstock prices, with dated Brent crude numbers breaking through the $70 per barrel mark in early trading this week. Although levels have subsequently fallen back, there remains considerable strength in crude pricing due to OPEC and other major suppliers such as Russia curbing output rates in the face of resurgent demand.
Dated deliveries of Brent crude retreated from Monday’s high, but nevertheless have firmed by more than $7 per barrel from the last report, two weeks ago, and now shows at $69.05 per barrel, now for May front month settlement. West Texas Intermediate crude has also shown a degree of strength and has risen to $65.80 per barrel, still for April front month.
In the last few days of March front month trading, ICE LS gas oil prices also jumped to record a price at $549 per metric ton. These prices were obtained from London ICE trading late Monday.
Europe
Prices for European Group I exports have risen dramatically during the past two weeks, although some traders have commented that price increases appear to be slowing, purely on the basis that there are few avails to go around and with fewer transactions there are limited opportunities for sellers to hike prices higher still.
With maintenance turnarounds approaching at a number of major Group I refineries, the dearth of Group I product is set to continue, at least into the summer, when feedstock may recover.
On the basis of the small number of deals reported during the past two weeks, prices appear to have hardened by $25/t-$50/t, the heavier neutrals increasing by the higher number. SN150 prices are now between $825/t-$865/t, with SN500 moving up to $920/t-$975/t. The one bright stock trade completed was heard last week at a level of $1125/t. putting this grade in a price range between $1120/t-$1150/t.
Sellers continue to offer smaller quantities to export markets such as West Africa, East Africa and Middle East Gulf in flexi-bags with a premium being added to the numbers above.
Bulk Group I export prices refer to cargo-sized parcels of at least 2,000 tons of Group I base oils, sold on an FOB basis ex mainland European supply points, always subject to availability.
Regional prices around Europe have started to come into line with export levels, since as suspected sellers advised swingeing increases to domestic prices from March 1. Increases have been in the region of $75/t-$100/t, bringing prices into line and on a par with export levels. Buyers have had little choice other than to accept these increases, since the alternative is to be without an allocation of supplies, and even with the downturn in overall production of finished lubricants, there still remains a need to be able to offer for forward supplies of automotive and industrial oils into the summer period when hopefully demand will start to pick up again.
Blenders have little choice other than to pass on increasing costs to end users, prompting some countries to become concerned regarding post Covid inflation moves, not just in this industry but also other areas where prices are rising. The domestic base oil market remains very tight with some players indicating that they are not able to procure all the base oils they require. Leading the increases upwards were long- term contracts being index linked and based on export prices, hence this has caused prices to rise very quickly.
The differential between export and domestic pricing is much reduced with indications that export and domestic price levels are broadly now in line. The differential is therefore assessed between €5/t-€10/t, export levels still being the higher.
Group II numbers have risen from the start of this month with a number of suppliers indicating that they may have to implement an allocation system, due to increasing demand from some blenders not able to access sufficient Group I supplies, and turning to Group II as replacement stocks. This, in a time when the market is going shorter anyway with production cutbacks from some refiners in U.S., the knock-on effect is becoming more pronounced.
Also with higher ACEA specifications for some automotive lubricants coming in towards the end of this year, there are added pressures to move to Group II and Group III base stocks, and away from existing Group I formulations.
Prices are hiked to new higher levels this week, with levels assessed at $955/t-$995/t (€800/t-€835) in respect of the three lighter vis grades (100N, 150N and 220N), with higher vis grade (600N) between $1,025/t-$1,085/t (€860/t-€910).
Prices are in respect of 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 U.S.
Group III markets around Europe continue to be exceptionally tight against a background of major turnarounds programmed for a couple of month’s time. Suppliers continue to re-stock hubs from primary production centers, with large cargoes of Group III grades moving from Mediterranean to Antwerp-Rotterdam-Amsterdam and Far East where one unit’s production is depleted due to maintenance.
Demand is increasing for Group III base oils, whilst availabilities from all sources are pushed to limits. Further supply sources could be introduced later in the year, given the successful completion of new and converted production at a number of Russian refineries.
Group III base oils holding full European OEM approvals are moved higher with prices now between €985/t-€1,055/t in respect of 4 centiStoke base oils, with 6 cSt and 8 cSt grades between €1055/t-€1,185/t.
Baltic and Black Seas
Trade in the Baltic regions picked up a little, but still appears to be constrained by the lack of material emanating from Russian refineries. Whether or not refiners are opting to supply into the Russian domestic markets is not clear because significant quantities of Russian export grades have actually moved out of Baltic ports.
A “smaller than usual” 5,000 tons cargo loaded at the beginning of March destined for Nigeria. Other significant movements have seen material loading out of Kaliningrad and Riga for the east coast of the United Kingdom and the west coast of the U.K., in addition to one cargo of 4,000 tons going into Rotterdam. There are also prompt shipping inquiries for cargoes to load out of Svetly terminal for Singapore and northwestern France.
With material flowing out from Baltic ports designated as Russian origin, U.K. importers report no new problems which are otherwise being encountered when importing base oils from an EU source. Additional documentation and procedures are in place to allow for imports of additives and base oils from EU countries. At the same time, exports of blended lubricants to EU customers were fraught with additional freight forwarding charges and bureaucratic delays.
These problems moved buyers to prefer to deal with Baltic suppliers rather than material coming out of Gdansk, Le Havre and Rotterdam, for example.
Russian refineries are set to start the turnaround season with four major Russian refineries which will be affected to some extent or another, but how this will affect the flow of material through Baltic storage plants remains to be seen. The supply situation in the Baltic is set to remain relatively tight, with only the one major producer exporting on a continuous basis from the storage facility at Svetly terminal in Kaliningrad.
FOB prices moved in tandem with mainland European levels, adding significantly to existing numbers. Levels are re-assessed higher, with SN150 now at $765/t-$795 per metric ton, SN500 is now at $845/t-$885/t, with minimum 95 viscosity index bright stock at $1,095/t. Blended SN900, if available, is put at around $925/t.
The Turkish market is still weak, with currency problems still a major issue when importing cargoes from Greece and Italy in U.S. dollars. Group I base oils from Livorno and Aghio going into the Turkish market have again seen prices hike due to limited availabilities, but these quantities are vital because there are still no reports of restarted output from the local refinery at Izmir. The Tupras refinery went down for maintenance in January and was due to restart at the end of February.
There are still reports, however, of small quantities made available, with local prices remaining at the higher levels set in February. Sales in Turkish lira were equivalent to the following U.S. dollar numbers: SN100 was priced up at $900/t, SN150 to around $865/t, with SN500 at $915/t, while bright stock rose to $1,000/t. These prices are net FCA, with a loading fee of $16/t to be added. It is worth noting that levels are now in line with the latest Mediterranean FOB levels.
Group I base oil prices from the Mediterranean are raised to around $885/t for SN150, with SN500 pushed higher at around $975/t. Both prices are CIF Marmara ports, such as Gebze, Turkey or Derince.
In addition to Mediterranean-sourced Group I base oils, material is offered from Uzbekistan, with three grades making up a cargo of some 3,000 tons in total, which is loading on a prompt basis for discharge into Izmit.
Local prices for Group II and Group III base oils on basis of ex-tank Gebze, Turkey, are placed higher at €865/t-€895/t for the low vis Group II grades, with the higher vis 600N at €1,025/t-€1,085/t.
Group III grades are assessed at €1,030/t-€1,095/t for partly-approved and fully-approved 4 centiStoke material, with 6 cSt grades at €1,045/t-€1,225/t, and 8 cSt material at €1,025/t-€1,190/t. The ranges for ex-tank prices vary tremendously, depending on supplier and specification.
Middle East
Following completion of maintenance work at Yanbu, Red Sea reports show only one large planned cargo loading for receivers in Sharjah. The cargo will load out of Yanbu and Jeddah with 17,500 tons of various grades. There were a number of large cargoes sent from the Red Sea to the west coast of India and the east coast of India recently, so there may be a lull until later in the month. Indian buyers are still keen to take material from this source, due to problems from other Group I sources, such as the U.S. Gulf and Europe, and a much shorter voyage time.
In the Middle East Gulf, reports are that an Iranian cargo was confirmed loading with 3,000 tons of SN500+ for receivers in the west coast of India. This is the first confirmed cargo to be identified following the recent supply to blenders in United Arab Emirates with a heavy solvent neutral. Prices are assessed at around $945/t, basis CFR Hazira port, equivalent to an FOB level at around $885/t-$900/t.
The export of Group III base oils out of Al Ruwais in U.A.E. and Sitra in Bahrain continues with cargoes moving to a Mediterranean hub from Sitra, whilst at the same time two large parcels of 8,000 tons and 10,000 tons, respectively, are to load for China and Europe. Both cargoes will load during the second half of March, with arrival into Antwerp-Rotterdam-Amsterdam around early May. Cargoes of Group III base oils will now have notional netbacks assessed higher. The increases are based on higher selling prices in Europe and China.
Netbacks are indicated at $950/t-$1,025/t for 4 centiStoke, 6 cSt and 8 cSt partly-approved Group III base oils. The range of fully-approved grades from Sitra in Bahrain are placed higher due to the pricing differential in export markets. These grades may netback at $1,070/t-$1,265/t for the 4 centiStoke, 6 cSt and 8 cSt Group III base oils. The ranges are expressly wide due to variations in selling prices in different markets.
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 oils FCA U.A.E. storage are maintained at March 1 prices, in ranges at $945/t-$965/t for the light vis grades of 100N, 150N and 220N, with heavier 500N and 600N grades at $1,070/t-$1,100/t.
The wide range takes into account various base oils supplied from different sources such as the Far East and the Red Sea, and which have been delivered into the U.A.E. in both bulk and in flexies, with varying contract terms and selling conditions.
Africa
A further large slug of base oils will load for South Africa around the end of March. The cargo will as usual load out of Rotterdam with topping off in a southern U.K. port. The cargo will comprise of a total of 11,000 tons with Group l, Group II and Group III base oils possibly being loaded. Agents indicate ETA Durban to be around early days of May.
In West African trade, a further supply will be made to receivers based in Tema, Ghana, under the annual tender arrangements. A cargo of around 5.7,000 tons will two-port load from Rotterdam and Fawley with three grades of Group I base oils, SN150, SN500 and bright stock. This will be a stand-alone cargo, with no other discharge ports involved.
Nigerian buyers are awaiting the Baltic 5,000 tons cargo that will arrive in Apapa around the end of March or early April. Prices for this parcel are expected to be higher than numbers previously set, since the freight costs alone will be substantially higher for this smaller quantity than for a larger cargo of some 10,000-15,000 tons. The large cargo loaded out of Aghio should discharge in Apapa in another week or so.
CFR/CIF levels for API Group I base oils landing into Apapa in Lagos are now placed at $895/t for SN150 and SN500 at $965/t, with higher specification SN900 with VI min 95, at around $995/t. Bright stock has been unavailable. Bearing in mind that these quantities will have been purchased and negotiated some months back, prices may be lower than expected from current FOB levels.
Cargoes loading forward from March 1 onwards will entail much higher prices, estimated currently at around $975/t for SN150, SN500 at around $1,065/t, SN900 around $1095/t and bright stock, if at all available, at around $1,255/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.