EMEA Base Oil Price Report – 20.04.21
A bizarre scene has settled over base oil markets where traders and other spot buyers are complaining that product from all base oil groups is simply unavailable.
That said, there have been a large number of vessel fixtures and an even larger number of shipping inquiries for the remaining days of April. Many of the cargo movements around and about Europe, the Middle Eastern and Africa have involved the major players either meeting contract arrangements or re-positioning inventories from one hub to another.
With a flood of maintenance turnarounds about to hit the base oil market, product re-positioning may be vitally important for main players to meet and honor supply commitments in what has become an exceptionally tight market. Base oil markets are short, mainly due to a lack of feedstocks available to refiners due to cutbacks in transportation fuels. Things were to be returning to some form of normality, but wave after wave of infections have hit major economies such as France, Italy, Germany and Middle East Gulf regions, which are reeling from new surges of infections coming from Iran and India.
Refiners are not ready just yet to turn on the taps since the immediate future looks at best uncertain, and at worst, bleak.
If there is any good news, it is that upward pricing pressure may be easing as many buyers are unable to pass on the rapid fire increases of the past few weeks. Some finished lubricant blenders said that it has been incredibly difficult to cover raw material cost increases and that they would have to incur financial losses to meet contracted deliveries.
Price hikes have at least slowed, with few of the hefty $100 per metric ton gains still being implemented. Buyers say the market cannot absorb further large upswings. If such sentiment is to stabilize values, it is not happening yet!
Crude prices added further pressure, firmed by a few dollars per barrel, reputedly on increasing demand from major Far East buyers. Dated deliveries of Brent crude moved upwards by some $3 per barrel from the last report and now stands at $66.90/bbl for June front month settlement. West Texas Intermediate crude climbed by a similar margin to $63.00/bbl, still for May front month.
ICE LS gas oil has followed the same trend to $532 per metric ton, some $25 higher than last reported. These prices were obtained from London ICE trading late Monday.
Europe
Prices for Group I exports from Europe may have stabilized to some extent, although availability has certainly not improved for large spot parcels of these grades. It must be added that few if any sellers are willing to negotiate discounts from their offers.
Most of the trades conducted have been contracted or quasi-contracted supplies, where regular past buyers have been able to lay hands on sizeable parcels for export markets in regions such as West Africa and Middle East Gulf and India. Demand in those markets remains strong, with many requirements uncovered and little chance of meeting the demand levels.
Prices are deemed to have plateaued at higher levels with Indications for quantities of solvent neutral 150 seen between $1,375 per ton and $1,440/t and SN500 at $1,510/t-$1,645/t. These levels have risen from the last report, since prices continued to rise after publication of the last issue two weeks ago, but the pace of the increments has slowed.
Bright stock remains exceptionally tight, with only some contracted sales moving from Mediterranean sources to Greek operators who do not produce this grade. Bright stock values have been reported at $1,900/t-$2,050/t.
These 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.
Prices for Group I sold within the region have remained at levels established at the beginning of April, and although many suppliers reserved the right to increase prices on a more frequent basis, this appears not to have been necessary since the starting point at the beginning of the month was already at a very high level.
Buyers continue to complain about values linked to indices, some contending that editors of some reports are failing to report changes on a timely basis, thereby causing massive adjustments that are impossible for buyers to work into supply economics.
Some lubricant blenders are finding it tough to fulfill deliveries to large customers where they are locked into term prices for their products. This has been particularly critical in some automotive factory fill contracts, and some companies have invoked force majeure clauses to avoid heavy losses.
Differentials between export and regional pricing have not changed drastically, but the former levels still remain slightly ahead of the latter. The differential is now assessed at €10/t-€35/t.
Group II levels have continued to move upwards, closing the differential between these grades and Group I numbers, which had vaulted ahead. This oddball situation is starting to rectify itself. Availabilities for Group II have tightened, though it is unclear whether this is because of buyers executing purchases in light of the scarcity.
Some sources said that European availabilities of Group II were shortened due cold weather disruptions along the U.S. Gulf Coast. Others suggest that less material has been arriving from Far East sources. The bottom line is that shortages exist despite demand having been slowed by the coronavirus pandemic. Many believe this situation is temporary and imports will rebound to fill the vacuum. This may depend on the availability of feedstocks to enable production to be stepped up.
Prices have risen to $1,540/t-$1,625/t (€1,325/t-€1,400) for 100 neutral, 150N and 220N and $1,655/t-$1,695/t (€1,425/t-€1,460) for 600N. These prices apply to a wide range of Group II base oils, including oils from Europe and the U.S. with full slates of finished product approvals and to those from the Middle East, the Far East and the U.S. with less than full slates.
European Group III markets are exceptionally tight, and even with large cargoes of replenishment stocks arriving from Malaysia, the Middle East Gulf plus output from Spain and Finland, demand still appears to be outstripping supply. This is despite COVID-19 case spikes that are suppressing lubricant demand. There are few chances to increase the supply slate into the European market with almost every source producing and delivering at maximum.
Once again there is no spot availability in the market, and quantities now arriving into Europe have been earmarked for supply to various regular buyers for delivery during May.
Prices for oils with partial slates of approvals are now assessed at €1,400/t-€1,450/t for the 6 and 8 centiStoke grades and €1,380/t-€1,420/t for 4 cSt, all on an FCA basis ex Antwerp-Rotterdam-Amsterdam hubs.
Group III oils with full slates of European OEM approvals have risen to €1,455/t-€1,495/t for 4 cSt and €1,525/t-€1,555/t for 6 and 8 cSt. Current prices pertaining to deliveries to be made during the remainder of April are as per last report.
Baltic and Black Seas
Baltic Sea trading reports limited movement of Russian export barrels, with a couple of cargoes moving out of Kaliningrad and Liepaja to the east coast of the United Kingdom. Another parcel loaded out of Riga for receivers in Dordrecht. The mainstay supplies are still coming through one producer’s facilities in Svetly, Kaliningrad, where another large parcel of up to some 12,000 tons loaded for regular receivers in Singapore.
Prices appear to have reached their peak and have started to flatten just north of the levels stated in the last report. There were some upward moves in the week following the last issue, but in the last few days reports are that prices have leveled out and may remain in the current ballpark for some time to come. There would not appear to be a great deal of upward pressure coming to bear on Baltic numbers, but equally there is little scope for discounting to set in, since Russian refineries had moved prices to their highest ever recorded.
FOB levels for Russian export grades are now assessed with SN150 at $1325/t-$1395/t, SN500 is offered between $1465/t-$1525/t. Very much subject to availability, SN900 is reckoned to be priced around $1585/t.
Black Sea trade is thin this week with only the cargo identified last time around loading finally out of Livorno some seven days ago, and has sailed for discharge into storage in Izmit port. The Group I cargo of 3,500 tons reputedly has prices which have never before been seen or talked about going into the Turkish market. Levels are established at around $1445/t CIF in respect of SN150 with SN500 around $1575/t. Receivers comment that since this cargo was negotiated some weeks back, the prices are perhaps not at the heights that they would be now. It is believed however, that the prices are index-linked with B/L date being the measure.
Local prices for imported Group II and Group III base oils being sold on the basis of ex-tank Gebze, Turkey, are placed higher, with low vis Group II grades between €1495/t-€1545/t in respect of the low vis Group II grades, with the higher vis 600N at €1545/t-€1600/t.
Group III grades sold by distributors have levels increased and are now assessed between €1495/t-€1545/t in respect of partly-approved and fully-approved 4 centiStoke material, with 6 cSt and 8 cSt grades between €1555/t-€1575/t.
Middle East Gulf
Red Sea traffic includes a cargo moving from Yanbu into Aqaba, Jordan, this being the first supply into that port for some time. Other material in some considerable quantities is moving out of Yanbu and Jeddah for receivers in Mumbai anchorage, United Arab Emirates and Pakistan. In all some 60,000 tons of various grades of Group I and Group II base stocks make up three cargoes one of which has already loaded and the other two will load towards the end of April.
During the second half of March a large cargo of RPO and base oils loaded out of a southern Iranian port, discharging into Sharjah and the balance of the cargo, possibly the RPO was to discharge into Kandla, in the west coast of India. The split of the cargo is not disclosed but it is thought that some 7,000 tons of base oils were put into storage in Hamriyah. The vessel carrying this cargo was internationally flagged, and will now carry the penalties under sanction rules pertaining to that vessel. The vessel will be barred from all U.S. ports and waters and will have other limitations when looking for charters in Western markets.
However, this is the largest base oil export seen for some time coming out of Iran, where there is a new wave of COVID infections being reported. Information is limited, but sources in U.A.E. have commented that this new wave may be the worst yet, and that the Iranian economy is almost on its knees. Further information is being sought.
Middle East Gulf is the new base oil export hub with a number of large Group III base oil cargoes ex Al Ruwais in U.A.E. and Sitra in Bahrain being moved to Europe, China and India. A total of 20,000 tons in three parcels is moving out of Adnoc with 8,000 tons loading out of Bahrain for distributors in the U.S.
Netbacks in respect of the Group III grades are marked higher at $1405/t-$1510/t in respect of 4 centiStoke, 6 cSt and 8 cSt partly-approved Group III base oils. Grades ex Sitra in Bahrain carrying full Neste approvals will netback higher due to the pricing differential in export markets. These grades may netback between $1465/t-$1575/t in respect of 4 centiStoke, 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 oil prices ex U.A.E. storage are also tweaked upwards between $1520/t-$1645/t in respect of the light vis grades 100N/150N/ 220N, with heavier 500N/600N grades between $1535/t-$1675/t.
The wide ranges take account of various base oils supplied from different sources such as U.S., Far East and Red Sea, which have been delivered into U.A.E. in both bulk and in flexies.
Africa
South African shipping sources have indicated a couple of cargoes, one of 11,000 tons of base oils which loaded during the early days of April, and the other which will load out of Rotterdam and a U.K. port before proceeding to Guinea and Cote d’Ivoire to discharge base oils into Conakry and Abidjan. The second cargo is large at around 20,000 tons total, although there is an unknown quantity of drilling fluids making up the cargo. The cargo will eventually sail to Durban for final discharge.
The same major is arranging a cargo for East Africa which will load out of a refinery and storage hub in the Mediterranean before discharging 7,200 tons of Group I and Group II base oils into receivers in Mombasa.
West African reports a number of enquiries for a total of some 30,000 tons of Group I base oils to go into the Nigerian market through Apapa. Unfortunately, at this time enquiries have only thrown up around 9,000 tons of available base oils, which will be split into two parcels one of 5,000 tons coming out of the Baltic and another of some 4,000 tons which may load out of Greece. Group I base oils are not available to cover the market, even with input from U.S. Gulf Coast sources, Baltic suppliers and Mediterranean sellers.
Since few cargoes have gone into Apapa over the past few weeks pricing has been rather sketchy, but relying on numbers advised in offers during the first half of April these prices can be considered to remain valid at this time.
CFR/CIF offer levels in respect of API Group I base oils landing into Apapa reflect the latest FOB levels available at source, and are assessed to be around $1475/t for SN150, SN500 at $1675/t, with higher specification SN900 with VI min 95, at around $1725/t. Bright stock remains unavailable, but estimates of prices would still be at the top side of $2100/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.