EMEA Base Oil Price Report 18/05/21
Remarkably, the base oil supply scene tightened further the past two weeks as availability in all product groups diminished. API Group I supplies remain exceptionally elusive as maintenance turnarounds take their toll and producers advertise few spot availabilities.
Group II is also becoming scarce, some buyers being unable to procure quantities necessary to produce contracted volumes of finished lubricants. Some large end-users are in turn struggling to maintain their own operations and output of machinery and goods. Group III supplies are remote, with sellers offering to supply only regular customers – in many cases with lags of up to three months. New buyers looking for material in any of the base oil groups are struggling to find availabilities, and the situation is preventing any flexibility in base oil purchasing. These conditions have caused prices to remain firm. Many sellers are raising prices on a routine basis, some adopting weekly reviews that consistently result in the same action.
There is little indication of downward pressure. Some sellers have said that there must be limits to what the markets can absorb, but these apparently have not been reached as yet.
Crude oil prices remain firm and perhaps have not risen as sharply as many feared around a month ago. Tensions in the Middle East however are not helping to stabilize values, and some commentators warn that levels may rise more if tensions ratchet further, for example should Iran become directly involved in the conflict in Gaza.
Dated deliveries of Brent crude rose approximately $1 during the past two weeks to $68.45 per barrel for July front month settlement. West Texas Intermediate crude moved higher by a similar increment to $65.05/bbl, still for June front month.
ICE LS gas oil prices rose some $15 per metric ton to $559/t. These prices were obtained from ICE London trading late Monday.
Europe
Prices for Group I exports from Europe increased since the last report. Many players in the market had speculated that levels had peaked around three weeks back, but the economics of supply and demand thwarted that view.
Various destinations are desperate to buy product, with some receivers in West Africa withdrawing from the base oil market due to lack of availability. Buyers in the Middle East Gulf and Turkey are likewise struggling to find quantities of Group I base stocks. Shortages are having knock-on effects as stocks dwindle and prices are extremely high at lube retailers.
Prices for solvent neutral 150 were seen last week between $1,400 per ton and $1,475/t, but SN500 being more sought after, and obviously less available, has risen to $1,595/t-$1,700/t. Some buyers are shying away form the market, saying that they can no longer pass on markups.
Bright stock remains extremely tight with only regular buyers able to purchase quantities of this grade. Price levels in respect of export quantities of bright stock are now being reported between $2,120/t-$2,155/t, more than $100/t higher than two weeks ago. This incremental process has not happened in one hit, prices have been escalating on an almost daily basis over the past six weeks.
With bright stock being so scarce many receivers have been looking at alternative grades such as blended SN900, using heavier SN1200 and SN500 to arrive at a suitable substitute grade. This option has been made available for receivers in Nigeria for example, although there are some formulations which require bright stock as one of the blend constituents. These finished lubricants are simply not being produced at this moment.
These prices refer to cargo-sized parcels of at least minimum 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 oils sold within Europe also rose the past few weeks after previously lagging behind exports. In some areas local problems play a factor. Availability in Eastern Europe has been further pinched by turnarounds in Poland and a halt to supply from Mol’s refinery in Hungary for the month of May.
In response, buyers have tried a variety of tactics to lay hands on material, for example trying to access stocks from Russian traders or alternative suppliers in Northwestern Europe. Some buyers have succeeded while others have drawn blanks.
It has not been a case of suppliers implementing allocations; buyers were simply told that no supplies would be available. The market is waiting to hear if production will resume sufficiently for material to become available during June.
Blenders are frantically trying to convince their customers to accept the cost increases imposed on blenders. Some have succeeded, but there were reports last week of end users refusing to take deliveries of some products since they cannot ultimately pass on the increases.
Differentials between export and domestic prices have in the most disappeared, with both sets of base oils adopting the same pricing. Export prices perhaps still remain slightly higher than domestic levels, purely on the basis that cargoes being talked last week reflected higher numbers for future loadings. The differential is assessed between €0/t-€20/t.
Group II prices are marked higher this time around with availabilities starting to show weaker supply patterns with less material being available. Reports of strong demand have maintained pressure for prices to move ever higher, particularly for heavier viscosity grades. There are some reports of new buyers being declined by suppliers whilst at the same time. Major suppliers of Group II grades are committed to regular customers to honor supplies of Group II grades. albeit at higher prices than were set or agreed at the beginning of May.
Prices are amended and are assessed at levels of $1,420/t-$1,455/t (€1,225/t-€1,275) for 100 neutral, 150N and 220N, but with 600N vaulting to new highs of $1,820/t-$1,865/t (€1,560/t-€1,610). The differential between the lighter vis grades and 600N has been dramatic and has happened over the past few weeks. Comments received by this report suggest that some sellers and buyers in the market consider that this divergence will only widen further in days and weeks to come.
Prices are in respect of a wide range of Group II base oils, including European, and U.S. fully approved grades, but also material from Middle East, Far East and U.S.
The European Group III picture is one where the market is becoming tighter with a limit on the supplies of these grades which can be produced and made available to an increasing number of buyers within Europe. Sellers, either directly or through distributors, are looking at allocations in some instances with others reportedly selling three to four months in advance, distributing material which has no spot availability. These sales are to regular buyers who are committing to purchase the quantities of base oil being offered. This does not appear to be a problem for blenders who can take as much product as is available.
Turnarounds are playing a part i this tighter market with two major European maintenance programs underway, and with few signs of new production coming on-stream from facilities in Russia.
Prices are continually firming as each month passes, with new levels are being established in advance. Going forward, levels are currently being assessed between €1,455/t-€1,500/t in respect of the range of partly-approved Group III base oils. Prices are between €1,475/t-€1,500/t for the 6 cSt and 8 cSt grades, with 4 centiStoke grades between €1,455/t-€1,470/t. Prices are in respect of FCA supplies ex Antwerp-Rotterdam-Amsterdam hubs.
With many buyers not overly concerned regarding approvals, as long as quality and specifications are met, the differential between partly-approved oils and those holding the Volkswagen standard has lessened, with the important factor now being availability and assured supply continuing into the future.
However, Group III base oils which do hold the full European OEM approvals are posted slightly higher with prices currently between €1,500/t-€1,525/t in respect of 4 centiStoke base oils, with 6 cSt and 8 cSt grades between €1,565/t-€1,595/t.
Baltic and Black Seas
Baltic Sea reports a number of cargoes moving to northwestern Europe and Antwerp-Rotterdam-Amsterdam, but no the United Kingdom movements are noted this week which is unusual, since many of the blenders based in U.K. continue to rely on Russian export barrels. Some players are opting to move to re-refined base oils since these are now at an acceptable standard for regular blending, and with Group I material being very short overall, this option is readily taken up.
One large cargo is currently loading out of Svetly with 12,000 tons of Russian export material sold to contracted receivers in Singapore. This supply was originally handled from a Black Sea source, but has lately been transferred to the Baltic. In addition the same supplier has loaded an 8,000 tons parcel for a two port discharge in Rotterdam and northwestern France. Another smaller cargo of some 4,000 tons has loaded out of Riga for contracted buyers in Antwerp-Rotterdam-Amsterdam.
Prices appeared to have peaked previously, but with a large enquiry for some 12-15,000 tons being negotiated for Nigeria, numbers appear to have firmed again. This is probable on the back of ever firmer numbers for Group I avails in mainland Europe. FOB levels for Russian export barrels are re-assessed presently with SN150 at $1365/t-$1420/t, SN500 being more in demand for export, is offered between $1550/t-$1595/t. It is believed that a parcel of blended SN900 will comprise part of the large Nigerian cargo and this grades may be priced at around $1645/t.
In the Black Sea region the Turkish base oil markets are experiencing the same problems as those in mainland Europe, but with the Turkish economy being in a rather sorry state, options for importing cargoes from the regular Group I suppliers in Aghio and Livorno are limited.
The news that the Uzbek refinery at Fergana has been sold may affect the availability for base oils produced at that location to find their way into the Turkish markets. There have always been options for material from Fergana to come into Turkey, although the grade slate is not considered ideal and with lower specifications production may not continue from this source.
From Mediterranean sources there is one 3,000 tons parcel which loaded out of Livorno at the end of last month which has gone into Derince. Another part-cargo from a major is to discharge into Gebze, Turkey, and Gemlick, so there are signs that local blenders and traders are able to organise banking and finance to make these U.S. dollar purchases.
Mediterranean sourced offer levels are put at around $1,510/t CIF in respect of SN150 with SN500 around $1725/t. These prices have been revised upwards in view of recent increases pertaining to FOB levels.
Izmir refinery is currently producing base oils, these being sold in truck loads in local currency, although how the prices relate to U.S. dollar costs for raw material is not evident. This is difficult call since the Turkish lira is continuously devaluing against the dollar, and with all raw materials being purchased in dollars, covering costs is a formidable task.
Local prices in respect of imported Group II and Group III base oils sold on the basis of ex-tank Gebze, Turkey, are raised with lower vis Group II grades between €1,565/t-€1585/t in respect of the low vis Group II grades, with the higher vis 600N now hiked to €1855/t-€1895/t.
There are a number of cargoes of Group III base oils being planned for import into Turkey, some from Far East and others from Middle East Gulf. With these new arrivals prices relating to sales by distributors will move higher to between €1,540/t-€1,585/t in respect of partly-approved and fully-approved 4 centiStoke material, with 6 cSt and 8 cSt grades between €1575/t-€1595/t.
Middle East Gulf
From the Red Sea source at Yanbu a few cargoes are emerging for receivers in India, which has felt the repercussions from the Covid spike which hit the whole country badly. This has certainly affected the number imported cargoes of base oils, although one large 15,000 tons parcel has loaded out of Yanbu for receivers in the west coast of India. A future shipping enquiry is lodged to take Group III grades from South Korea, produced by the Saudi Arabian refiner’s associate company. This material is destined for Yanbu and the usual 5,000 tons will supplement the local Group I and Group II production.
Reports from Iran regarding base oil export are confusing. Some sources in United Arab Emirates have commented that material is being transported by road to Syria and Turkey, but no confirmation can be attained from any Iranian contacts. The country is said to be reeling from a new wave of Covid infections. similar to what has happened in India, but contacts within Iran have vehemently denied this occurrence, commenting that Iran is in a better position that U.A.E. regarding recovery from the pandemic, information which casts many doubts as to the true situation.
More Group III cargoes are noted coming out of Al Ruwais and Sitra, although some reports give information on enormous quantities of Group III base oils coming out of Qatar. These are not recorded by the same third party channels, and the GTL production from that is classed as inter-affiliate trade to global sites.
One 8,000 tons cargo has loaded out of Al Ruwais for receivers in China with another of similar quantity to load for replenishment into Europe.
Assessing netbacks in respect of the Group III grades out of Middle East Gulf, returns are increased to $1465/t-$1575/t in respect of 4 centiStoke, 6 cSt and 8 cSt partly-approved Group III base oils. ‘Nexbase’ grades ex Sitra being fully-approved, will netback slightly higher due to the pricing differential in some export markets. These grades may now netback between $1500/t-$1595/t in respect of 4 centiStoke, 6 cSt, and 8 cSt Group III base stocks.
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 which are imported in both bulk and flexies have prices ex U.A.E. storage increased to between $1575/t-$1685/t in respect of the light vis grades 100N/150N/ 220N, with heavier 500N/600N grades now substantially higher between $1845/t-$1900/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 flexitanks.
Africa
There are fewer cargoes of Group I base oil being touted for delivery into West Africa. The large number of enquiries which had been issued by buyers and receivers in Nigeria has receded, with local buyers becoming aware of the lack of availability and the enormous price hikes which have affected material going into the Nigerian market.
One smaller requirement is aimed at Cote d’Ivoire with some 2,500 tons perhaps loading for Abidjan. This quantity would normally be a part cargo, perhaps for South Africa, and a stand-alone deal will be an expensive operation.
The old problems have arisen yet again with banks unable to access foreign currency in large enough quantities to purchase cargoes of base oils. Also there are problems with individual companies’ credit lines which do not extend to the large value of purchases. When examined, a typical cargo of around 10,000 tons which cost around $6 million at the end of 2020, would now cost around $20 million. Not all the importers, traders and their banks can handle this size of purchase.
There are also the additional problems of the local markets accepting new prices for both traded base oils and finished products. This is another big ask.
There is only one possible prompt cargo around at this time, that being the parcel of 12-15,000 tons being negotiated out of the Baltic, However other traders may be looking at Greek sources again to provide at least a part-cargo. CFR/CIF offer levels in respect of Group I base oils to be landed into Apapa will reflect the latest FOB levels for May and beyond. These latest numbers are assessed to be around $1520/t in respect of SN150, SN500 at around $1725/t, with higher specification SN900 with VI min 95, at around $1785/t. Bright stock remains unavailable.
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.