EMEA Base Oil Price Report 24.08.21
Fundamentals in European, Middle Eastern and African base oil markets are vastly different from those in Asia-Pacific and the United States, creating new arbitrage opportunities between the regions. Specifically, product availability is easing in Europe, the Middle East and Africa as supply increases and demand has diminished during the holiday season.
API Group I markets within EMEA regions had been resisting markdowns, but rumors are that in talking numbers for September delivery, prices succumbed to buyer pressure caused by the ever weakening export market and arguments that the June and July run-up in values was not sustainable.
Group ll and Group lll markets throughout the EMEA areas appear to be holding on to their recent highs, although there has been some talk of downward price adjustments for the lower vis Group ll grades. Group lll remains buoyant with healthy demand for all barrels which are available during September, and with the two major turnarounds now completed large volumes of products have been noticed moving from the Spanish producer to European re-delivery hubs and also India. Almost 40kt of Group lll grades are moving during the second half of August.
Refinery run rates have still not come back to anything like pre-Covid levels, with the virus still affecting many principal markets and the demand for transportation fuels still not returning to pre-pandemic levels. This situation does not allow for a full allocation of feedstocks for producing base stocks. Some refineries are forecast to start ramping up run rates during September, but there still remains a note of caution around the petroleum product markets.
Crude prices had dropped during the past two weeks but have now recovered in early trading this week to come back to almost the same values as two weeks ago. Demand is still patchy for major players in AsiaPac and the Americas, and longer term going into 2022 forecasts are that crude will struggle to remain at current levels.
Dated Brent has re-established itself to post at $68.50 per bbl, marginally lower than two weeks back. This price is in respect of October front month. WTI has also performed similarly now standing at $65.45 per bbl, this level now also being in respect of October front month.
With crude levels steady ICE LS Gas Oil prices have also returned to similar levels as last reported, posting at $567 pmt now for September front month. Prices were obtained from late London ICE trading on 23rd August 2021.
Europe
Export prices in respect of Group l base oils in the European arena are lower across the board, with solvent neutrals losing much of the huge price rises which happened earlier. With demand falling away during August and increasing quantities of material becoming available prices are under severe pressure. Many comments have suggested that with the meteoric rises seen earlier in the year, numbers had to re-adjust at some stage and this is happening now. Whether prices will return to springtime levels remains an unknown, but certainly the direction for export numbers is southwards.
Producers are not looking to build large inventories and are hence keen to seize every opportunity to move large parcels of Group l grades to export destinations. The problem has been that traders and receivers are not rushing to close purchases with prices moving downwards hence on top of the August decline in demand, there is also a degree of stand-off with many buyers waiting until September before making commitments to large cargoes. Buyers are looking for September barrels at lower prices with today’s levels coming under severe pressure.
Prices in respect of quantities of solvent neutral 150 are lower by $100-$150 pmt, and now figure between $895-$950 pmt, even SN 500 which was in higher demand has moved downwards being assessed between $1395-$1460 pmt. There may be a further narrowing between viscosities with some buyers saying that they will not purchase SN 500 until the price has fallen below $1200 pmt.
Bright stock is somewhat of an enigma with some sellers trying to offer around the recent highs with levels in excess of $2200 pmt, but at the same time others, perhaps recognising that to move large parcels of this grade, prices must reflect what buyers are prepared to pay, given that there is now more product available around the market. Prices are placed into a wide range this week due to the variations seen from seller to seller, and levels are assessed between $1750-$1865 pmt.
Domestic or regional European prices had been holding up with August prices almost in line with those for July which were at their highest. However, looking forward to September domestic levels are being reported to come crashing down, although these prices have not yet come into the market. Comments received last week suggested that many buyers were taking little or no products during August, with many blending operations on short time working, with only skeleton staff levels to cover for health and safety only. Some facilities were using August for maintenance and repair work hence August has not been a representative period in terms of base oil offtake and sales.
There is still a considerable differential between export and domestic numbers although it is expected that domestic prices will be seen to fall further and may establish a more ‘normal’ premium to export levels given time over the next few months. The differential this week for September pricing is assessed between €75-€155 pmt, domestic numbers remaining the higher.
European Group ll prices are relatively stable with September prices being discounted only slightly from July and August levels. Demand even during August has remained buoyant with sellers expecting a further boost during the remaining part of this year. The gap between Group l and Group ll is probably at its widest for some time and with Group l prices still predicted to fall further, this pricing gap between the two product groups could be extended further.
There are some rumours around that lower priced Group ll grades could be coming from AsisPac sources where the markets is long, and producers in those regions may start to target higher priced, more profitable markets around the globe. There are a number of existing and new FTAs from which Group ll supplies could emanate, going into European and MEG receivers.
However, there are still relatively fewer imports coming into Europe from the U.S. where producers are building inventories as insurance against any potential disruption during the hurricane season. Major U.S. suppliers are still committed to the European market in spite of the draconian cutback to the import duty waiver quota. The quota for imports from non FTA sources will be cut from 150kt during the second half of 2021, and then to 75kt for the first half of 2022, thereafter the quota will be abolished.
The European market could face shortages for Group ll base oil should demand and the market return to pre-Covid levels with only one positive on the horizon that being the planned development in Gdansk refinery for a new unit producing 100N, 200N and 600N. However, this facility will not be operational until at least late 2024. The controlling owner of the refinery, PKN Orlen, will have to meet EU legislative requirements before the expansion can proceed.
Group ll prices remain relatively stable, with only nibbles of discounting taking place in a few rare deals. Levels are placed between $1500-$1595 pmt ( €1260-€1350) in respect of the three lighter vis grades (100N, 150N and 220N), with higher vis grades (600N) between $1775-$1845 pmt ( €1525-€1570 ).
Prices are in respect of a wide range of Group ll base oils, including European and U.S. fully approved grades, but also material from Middle East, Far East and U.S.
Group lll prices are steady, holding their firm levels established throughout the summer, and with increasing demand for these grades this pattern is set to continue over the next few months. With literally no spot availabilities September and October customers have been easy to commit to quantities reserved for them in advance of replenishment stocks arriving into hubs from Far East, MEG, in addition to redistributed material from European producers in Spain, UK and Finland.
The unit at Cartagena in Spain has lost no time in bridging large quantities of Group lll grades into the distribution hub in Rotterdam.
Prices are slightly firmer for September and October with levels between €1,580-€1,630 pmt in respect of the range of partly-approved Group lll base oils. Prices of €1,595-€1,630 pmt are in respect of the 6cst and 8cst grades. 4cst grades are pitched at between €1,580-€1,615 pmt. Prices are in respect of FCA supplies ex ARA hubs.
Group lll base oils holding full European OEM approvals (such as Volkswagen) will be priced higher, between €1,575-€1,635 pmt in respect of 4cst base oils, and 6cst and 8cst grades between €1,625-€1,675 pmt.
Baltic and Black Seas
Baltic prices continue their freefall, with further reductions to FOB levels taking prices lower. The discounting has not been as fierce as a couple of weeks back, but levels fell by up to $100 per metric ton from the last reported prices. Lower demand still is the order in Russian domestic markets, with the holiday month taking its toll on activities. This has meant that distributors and resellers in the Baltic have product to place into export markets.
There are a number of arbitrage openings for material to load out of Baltic ports, but August has been quiet, with only two cargoes plotted for the end of August. The first is for the east coast of the United Kingdom, with a parcel of 4,800 tons moving from Riga to Hull. The second is a relatively small cargo of 5,000 tons loading for receivers in Nigeria.
No further moves into the U.S. came from Kaliningrad, an arbitrage that remains open given the relatively firm prices for API Group I products in the U.S. The arbitrage difference between Baltic and U.S. Gulf at the moment is estimated in the order of $400/t. With freight for 5,000 tons cargo coming in around $85/t, healthy margins can be made.
FOB prices remain weak, with levels assessed with SN150 at $895/t-$925/t, SN500 at $1,095/t-$1,145/t, with SN900 at around $1,165/t.
In the Black Sea region traders are trying to take advantage of the arbitrage to the east coast of the U.S., with the promotion of a small parcel being aimed at receivers in Savannah. The numbers will work for this movement with a massive arbitrage advantage, although a suitable vessel may be difficult to locate and expensive to charter. Turkey is exceptionally quiet after the devastating fires which ravaged the south eastern part of the country. COVID-19 is also a recurring problem in some areas, and with many traditionally taking August for holidays, commercial activity is dull.
The refinery at Izmir has closed down production of base oils and is selling small quantities from existing inventory. No news is heard of for how long the stoppage will carry on, and in-tank inventory is also an unknown factor.
There are no reported Mediterranean sourced movements from Italy or Greece, going into the usual Turkish ports. Mediterranean indications from traders re prices for potential cargoes are moved lower, estimated at around $995/t CIF for SN150, with SN500 around $1,495/t.
Imported Group II and Group III base oil prices are maintained this time around, with no new imports mentioned for this report. Prices remain as advised for the Group II base oils, bat €1,465/t-€1,485/t for low vis Group II grades, with higher vis 600N at €1,825/t-€1,865/t. Group III ex-tank sales are at €1,640/t-€1,685/t for partly-approved and fully-approved 4 centiStoke material, with 6 cSt and 8 cSt grades at €1,675/t-€1,700/t.
Middle East
Interesting reports from the Red Sea this week have a Group I cargo out of Yanbu and Jeddah loading later this week for receivers in Rio de Janeiro. This is a first for this trade and route, which may suggest that an arbitrage is open between the Red Sea and Brazil, perhaps due to a shortage of U.S. barrels that may have traditionally covered this requirement out of the U.S. Gulf. The cargo is comprised of two grades, totaling 5,000 tons. Two large cargoes also loaded earlier in August for the west coast of India and for the United Arab Emirates – a total of 32,500 tons of Group I and Group II base oils made up the two cargoes.
There are no reported Iranian movements of base oil coming out of any of the lower Middle East Gulf ports that are normally used for the storage and loading of base oil cargoes.
However, there are reports of Group I availability for export in U.A.E. with one grade available out of storage in Jebel Ali. This material has a relatively high specification not matching any Iranian material other than the SN500+. The certificate of origin will state “U.A.E.,” and some 2,000 tons of this SN500 is available FOB on a prompt basis. Indication price is around $1,495/t, and availabilities may be around 3,000-4,000 tons of this grade on a monthly basis from October going forward.
Cargoes of Group III grades loaded out of Al Ruwais for the west coast of India and China, whilst a parcel of Group lll+ will load out of Ras Laffan in Qatar next week for Indian receivers in Mumbai. The receivers are thought to be the Indian affiliate of Shell, since Shell do not sell these Group lll+ grades directly to third parties, supplying only to affiliates and other appointed blenders.
Netback assessments for Group III base oils exported from Al Ruwais and Sitra are pushed higher, following price rises in export markets such as China, the U.S. and Europe.
Netbacks for Group III base oils exported from Middle East Gulf are assessed at $1,645/t-$1,755/t for 4 centiStoke, 6 cSt and 8 cSt partly-approved Group III base oils. Group III base oils from Sitra refinery, holding full approvals, will netback at a higher level due to pricing differentials in the various export markets. These grades are assessed to netback at $1,685/t-$1,775/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 oils are imported into the U.A.E. from numerous sources in the U.S., Asia-Pacific, Saudi Arabia and Europe, in both bulk and flexies, which are resold on an FCA basis. They have prices maintained remaining at $1,575/t-$1,685/t for light vis grades 100N, 150N and 220N, with the heavier vis 500N and 600N grades at $1,875/t-$1,920.
Africa
South African sources have advised that the large cargo of base oils and other chemicals was fixed and loaded out of Rotterdam and Fawley last week, arriving in Durban during the second half of September. The vessel will load over 14,500 tons of multiple grades.
Shipping reports that 11,300 tons of Group I grades will deliver into three West Africa ports – the first in Guinea, followed by Cote d’Ivoire, and finally 5,000 tons of three grades that will cover the Ghana requirement for Tema. The quantities going into Conakry and Abidjan are not disclosed.
Nigeria is quiet in terms of cargoes arriving, with only one Baltic enquiry out on the market, which may load later this week or next. Nigerian buyers are still hesitating to purchase large cargoes at this time, seeing that over the period of the last few weeks, Group I prices from Europe tumbled.
There are reports from Lagos that local blenders ran out of some base oils and that operations in a number of facilities were suspended until replenishment supplies arrive into Apapa. The cargo from Livorno with 5,000 tons of three Group I grades will be the first to arrive during the fist half of September.
CFR and CIF levels for Group I base oils, currently programmed to land into Apapa during August are maintained this week until confirmation of further cargoes are advised and confirmed. The Baltic cargo may have lower number attached to it, but until the cargo is loaded, this information remains strictly private and confidential.
Prices remain in the ranges advised in the last report and are assessed at $1,765/t for small quantities of SN150. SN500 is reckoned to be around $1,825/t, and SN900 with minimum viscosity index of 95, is priced at around $1,885/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.