EMEA Base Oil Price Report 15.06.21
Supply of API Group I base oils is easing somewhat in Europe, the Middle East and Africa, but availability remains snug – especially in Europe – and prices have not dropped. Group II values are also steady, and Group III prices have begun to rise again on the back of a scarcity and rising feedstock costs.
Many in the market had anticipated that base oil availabilities would improve when refiners started to ramp up output of transportation and in the process increased production of vacuum gas oil, which is used as a feedstock for base oils. So far, base oil availabilities do not appear to have improved, though some suggest that the effect on base oils may take some time to materialize. Buyers have been trying to negotiate prices but in most cases without much success. Sellers recognize that supply is still woefully short for all types of base oil and are refusing to budge from the high levels established the past few months.
One factor helping to maintain upward pressure on prices is the cost of crude oil. Dated deliveries of Brent crude rose about $4 since the last report to $73.25 per barrel, now for August front month settlement. West Texas Intermediate increased a similar amount to $71.50/bbl, still for July front month. Values have risen due to a combination of increased demand from markets such as China and Japan and production controls by OPEC. There are signs, though, that taps may open as Saudi Arabia’s oil minister declared that output will increase over the next few weeks.
ICE LS gas oil prices rose around $30 per metric ton to $594/t. All of these prices were obtained from London ICE trading late Monday.
Europe
Prices for Group I exports from Europe are reportedly stable. There is not an abundance of material in the region with a number of refineries completing temporary maintenance shutdowns. Some of those producers have said it will take rebuild inventories, and Group l avails may not improve until September.
Some buyers in export markets are delaying large purchases while waiting for markets to soften over the summer, but it is questionable whether that will happen. Currently there is no material to spare, and shots of additional supply – for example Russian barrels – will not be available from resellers and distributors until August. Buyers who wait are risking an exposed position should availabilities not improve.
Prices are possibly softer for the lighter grades, but heavier solvent neutrals and bright stock still remain elusive with high prices. Solvent neutral 150 is between $1,325 per ton and $1,395/t, whilst SN500 is at $1,675/t-$1,785/t. Bright stock still remains extremely tight with prices reported between $2120/t-$2155/t.
Bulk Group I export 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 within Europe remain at higher levels throughout the region. Availability remains relatively tight, and a number of blending operations are unable to produce sufficient quantities of finished lubricants to cover contracted deals. Prices appear to be holding at the higher levels with no real downward pressure.
With the holiday season approaching, many are preparing to go on short time working, or even closing operations totally for up to three to four weeks during August. This may alleviate the pressure on supplies in the short term, but unless more material comes to the market after August, the same situation could be facing blenders into September.
Refiners have started to increase output of transportation fuels, which will yield extra quantities of feedstocks for production of Group I base oils. Much depends on the progress against the coronavirus pandemic as restrictions on travel and social distancing are still in place in many key markets around Europe. Uncertainty remains in light of new variants that are spreading.
Differentials between export and intra-regional prices are assessed at €5/t-€20/t, the latter being slightly higher.
Group II prices are steady at the high levels of their ranges, reflecting relatively strong demand. Amid reports that the European Commission will once again lower its quota for imports exempted from a 3.7% duty – applied to oils from countries that do not enjoy free trade status with the bloc – there are suggestions that some United States producers are targeting alternative markets such as Central and South America rather than deal with increasing costs of supplying into Europe. This could have a detrimental long-term effect for the Group II market in the European Union since its own production of Group II is less than demand.
Prices are unchanged this week at $1,420/t-$1,455/t (€1,225/t-€1,275) for 100 neutral, 150N and 220N, while 600N continues to sell at a premium at $1,820/t-$1,865/t (€1,560/t-€1,610). These prices apply to a wide range of Group II products, including grades from Europe and the and U.S. grades with full slates of finished lubricant approvals and others from the U.S., the Middle East and the Far East with partial slates or no approvals.
Group III prices continue to climb amid reports of shortages that may stem from maintenance shutdowns at large producers. Allocations remains a feature of this market, limiting availabilities for blending operations throughout Europe. The market remains tight, with little room for maneuver from existing suppliers.
Prices for oils with partial slates of approvals are assessed at €1,520/t-€1,555/t for 6 and 8 centiStoke grades and €1,500/t-€1,525/t for 4 cSt, all on an FCA basis ex Antwerp-Rotterdam-Amsterdam hubs. Group III oils with full slates of European automaker approvals are at €1,545/t-€1,565/t for 4 cSt and €1,600/t-€1,655/t for 6 and 8 cSt.
Baltic and Black Seas
Baltic Sea reports describe a couple of large inquiries that have apparently become firm deals during the past week. These two potential cargoes should load this week or next and contain a total of 20,000 tons of mostly SN500 and SN900. Another large parcel loaded out of Kaliningrad, Russia, toward the beginning of June, with 7,000 tons of Russian export barrels going to Singapore. A cargo bound for Dordrecht, Netherlands, loaded out of Riga, Latvia, around the end of the first week of June.
Sources said business may slow during the remainder of June and into July, with the next large Russian refinery tender – from Rosneft – effectively not due to deliver material into shore tanks in the Baltic until August. Buyers are hoping that prices moderate by then, but bidders are reportedly prioritizing successful procurement so that they do run out during the summer.
Prices are assessed at $1,375/t-$1,400/t for SN150 and $1,675/t-$1,725/t for SN500, which is in demand for export destinations in regions such as West Africa. SN900 forms a large part of Nigerian cargoes and is priced around $1,765/t.
Black Sea sources report an STS cargo of 7,000 tons loaded out of Kavkaz, Russia, bound for Apapa port in Lagos, Nigeria. This route has long been mentioned as a possibility and would appear to have at last been tapped. The composition of the cargo is unknown, but the predominant grade will be SN500. There are no suggestions that SN900 was included since heavier grades such as SN1200 (used to blend SN900) are not readily available ex Kavkaz.
Sources reports that cargoes totaling 20,000 tons of Korean products have been successfully delivered into Israeli ports via STS operations.
Once again there are no reported cargoes loading from Mediterranean sources for Turkish ports such as Derince and Gebze. Local blenders are presumably being covered by Group I material out of the refinery in Izmir. Indicative Mediterranean prices are assessed at $1,510/t for SN150 and $1,825/t, both on a CIF basis.
Prices for imported Group II and Group III base oils sold basis ex tank Gebze have risen after the arrival of replacement stocks from Middle East Gulf and European sources – stocks that would have been marked higher on an FOB basis. Prices are at €1,565/t-€1,585/t for low-viscosity Group II grades and €1,855/t-€1,895/t for S600N. Local buyers have lamented that they cannot buy base oils at these higher levels since the blended end-products become prohibitively expensive for the local markets.
Group III imports into Turkey from the Middle East Gulf, available from distributors, are priced at €1,540/t-€1,585/t 4 cSt and €1,575/t-€1,595/t for 6 and 8 cSt. These values apply to oils with full and partial slates of approvals.
Middle East Gulf
A new cargo of some 14,000-15,000 tons is being considered from Yanbu’al Bahr, Saudi Arabia, to move to the West Coast of India. This is the such first movement for some time, perhaps because of the increase in COVID-19 infections in India. No other Red Sea shipping fixtures have been reported for June.
One of the main talking points in the Middle East Gulf market has been an inquiry to move 13,000 tons of base oils from Hamriyah, United Arab Emirates, to Lagos. This is an unusual inquiry both in terms of the cargo and the shipping route. It has been found that the vessel involved in this voyage did not load for West Africa, but sailed eastwards, eventually for South Korea to load. The other interesting point is that presumably the only possible Group I material to load would have been of Iranian origin and would consist of SN150 and SN500. Nigeria is not taking quantities of SN150 at this time so the cargo would he been almost exclusively SN500. It would be unusual for Nigerian receivers to take such a quantity of that grade. U.A.E. sources were unable to say if the total 13,000 tons in question remained in storage in Sharjah.
There is little news of base oils moving out of Iran. There are no shipping reports advising of any movements from the southern ports of Bandar-e Emam Khomeyni and Bandar Bushehr. Apparently there are smaller vessels that take parcels of base oil from Iran to stockplie in Sharjah. Often the material ends up used in the U.A.E. by blenders and distributors moving material into East African destinations.
Group III cargoes continue to load out of Al Ruwais, U.A.E., and Sitra, Bahrain, and there are reports that around 100,000 tons of Group III+ gas-to-liquids base oil has been exported from Qatar during the past quarter.
Netback assessments for Group III grades being exported from the Middle East Gulf are being raised due to higher selling prices in markets such as Europe, India, the Far East and the U.S. Levels are increased to $1,495/t-$1,600/t for partially approved 4, 6 and 8 cSt grades. Nexbase-branded oils ex Sitra carry full slates of approvals and yield greater netbacks due to higher pricing in export markets. These grades could now netback $1,545/t-$1,625/t for all viscosity grades.
Notional netback prices on calculated based on prices derived and informally assessed from regional selling levels, less marketing, handling and estimated freight costs.
Group II base oils imported into the U.A.E. from various sources in the U.S., the Far East, Saudi Arabia and Europe, both in bulk and in flexi-tanks, are priced ex storage at $1,575/t-$1,685/t for 100N, 150N and 220N, while 500N and 600N are at $1,845/t-$1,900/t.
Africa
South African shipping sources described another large cargo of 20,000 tons loading out of Rotterdam and Fawley, United Kingdom. The shipment may contain Group I, II and III oils, and while most of the shipment is bound for Durban, South Africa, 5,000 tons of three Group l grades will be discharged into Tema, Ghana, under an annual tender.
One cargo of 7,000 tons of Russian Group I was confirmed to have loaded out of the Kavkaz, and there are two other inquiries for Russian material, each loading from two Baltic ports to achieve the desired quantities of SN500 and SN900. Both vessels will load out of Riga, while the first will also load out of Kaliningrad and second in Liepaja, Latvia.
Another cargo is being will load toward the end of June from the Mediterranean. With the Nigerian market becoming a little softer, many buyers are sitting on the fence waiting for prices to fall, despite the fact that availabilities from sources in Europe and the U.S. are tight. Some traders are offering lower numbers in hopes of firming up on cargoes out of the Baltic and Mediterranean. A number of other traders are starting to offer material into Nigeria, and these offers have contained lower prices than had been seen up until now.
Offer levels for Group I base oils already sold firm and landing into Apapa next month reflect the latest FOB levels from the Baltic and Mediterranean plus freight and margins. Prices are confirmed at $1,895/t for SN150, around $1950/t for SN500, around $1965/t for higher grade SN500 and around $1,995/t for SN900 with viscosity index of at least 95, all on a CIF/CFR basis. Bright stock remains generally unavailable. One seller has consistently been offering prices in excess of $2,000/t for all grades, but generally without finalizing any deals so far.
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.