EMEA Base Oil Price Report 05.10.21
European, Middle Eastern and African base oil markets are steady with only marginal erosion to prices across the various base oil types. API Group I is still taking the brunt of weaker price levels, with solvent neutrals and bright stock continuing the downward trend, although this movement is not quite so marked as seen around a month ago.
Some pundits suggested that Group I demand is demonstrating inherent weakness in the face of continued COVID-19 outbreaks and lockdowns aimed at containing the disease. Group II oils could also face some downward pricing pressure due to a growing delta between prices for the two API groups, which has reached extreme levels. Group I values have not dragged down Group II prices yet, although the latter have come off summer highs. Group III base oils appear to be resistant to any form of price erosion, with levels still climbing, and a firmer number asked by sellers in this sector. There may be a period of stability for API Group III, with some postulating that prices may have reached their zenith and may stabilize around current levels.
The one factor which could add fresh impetus to prices moving upwards is the strong moves for crude oil, which has been on a rollercoaster over the last few days. Crude oil prices dipped to less than $77 per barrel at the end of last week. This week has seen a rally to new recent highs, with dated deliveries of Brent crude showing at levels approaching $82 per barrel.
Crude oil prices have been rising in the main, putting pressure on petroleum product price levels, and hence feedstock costs will be increasing for base oils. Forecasts were originally for crude to weaken during the fourth quarter this year, but these predictions are being reworked to show crude prices rising towards the end of 2021.
Dated deliveries of Brent crude are currently reported at $81.60 per barrel, almost $6 higher than last reported two weeks back. This level is now for December front month. West Texas Intermediate crude has also risen in tandem and now shows at a level of $77.90 per barrel, some $8 higher than last reported. West Texas Intermediate crude levels are now for November front month.
ICE LS gas oil prices rose steeply this week, going against all forecasts for this product. Levels for this product are around $698 per metric ton, still for October front month. This is the highest price for LSGO for some months, and with crude expected to rise again over the next few days, LSGO could breach the resistance level of $700/t.
Prices were obtained from late London ICE trading on Oct. 4.
Europe
Export prices for European Group I base oils are lower, continuing the gradual but steady price erosion. Availabilities are now reported as good, and sellers are looking to move large parcels of Group I grades to regular export destinations. Some of these regions, such as West Africa, are very quiet, with little buying activity causing stocks to increase in sellers tanks. Sellers are prepared to heavily discount to move large slugs of Group I grades, thus contributing to the prices weakening further.
Prices for quantities of SN150 are lower at the high end of the range by some $20/t-$30/t, with levels now established at $810/t-$850/t. SN500 has also seen levels drop, softening by $25/t-$40/t to land at $1,095/t-$1,125/t. Sellers are trying to hold on to higher levels of sale, using the argument that raw material costs in the form of feedstocks are rising fast. With crude and product prices rising steeply, producers may have a case for maintaining higher prices, or at least not allowing levels to slip lower than current offers.
Bright stock also moved lower, with prices dropping by around $50/t-$75/t. The range of prices narrowed considerably, with numbers gravitating lower and various sources having to compete to move quantities of this grade. Levels for bright stock are assessed at $1,390/t-$1,445/t, but predictions are that this grade will possibly fall further due to lower price expectations for bright stock and blended SN900 in key export markets.
European domestic markets are retaining higher prices, although many buyers – seeing what is happening in the export markets – are applying pressure on suppliers to reduce selling levels on a regular basis. Where previously, buyers would receive a price valid for one month, they are now looking for weekly or even daily prices, which are constantly under review. The beginning of October saw large discounts applied to prices that were valid during September. Large reductions have been the norm rather than the exception.
The one aspect in defense of sellers holding prices higher is the differential between Group I and Group II grades, which is the largest ever seen. The difference in price is such that some blenders are postponing planned moves to Group II base stocks, because of the price advantage of staying with Group I base oils wherever possible. Some of the latest finished lubricants’ formulations do not allow for the use of Group I base oils, hence there are wide variations in finished lubricant prices where Group I base stocks are still being used instead of Group II oils.
The differential between export and domestic prices is not as great as was seen during September. This difference is assessed at €125/t-€175/t, with domestic numbers remaining the higher.
Group II prices around Europe are mainly remaining high because these base oils are not attracting the aggressive countering from buyers that would mean that levels were becoming weaker. Prices are starting to show a little vulnerability, with some buyers requesting price reviews for October lifting. These are resisted as much as possible by sellers, although there are reports this week that concessions on prices were given to some buyers. Demand remains strong, with more blending operations returning to higher levels of output for finished lubricants.
Prices are relatively steady, with only a few instances of discounting for October month, although there are reports of lower numbers for lighter vis grades.
Group II prices are slightly lower than last reported, with levels assessed at $1,395/t-$1,445/t (€1,200/t-€1,242) for the three lighter vis grades (100N, 150N and 220N), with the higher 600N vis grade a modicum lower, at $1,755/t-$1,825/t (€1,500/t-€1,560).
Prices are for a wide range of Group II base oils, including European and U.S. fully approved grades, but also material from the Middle East, Far East and the United States.
Group III prices for October see levels moving higher for FCA supplies, with distributors confirming that prices from producers have risen for CIF cargoes coming into the European arena. These increases were passed on to end users, and there may be further adjustments made for November and December, since higher feedstock costs will be in the pipeline following the crude rises.
Neste’s new Group III+ 4 centiStoke is reported to be available to a limited number of blenders, but the roll out of this new grade will be of interest to a wide range of blenders in the future. There have been reports of formulations being altered to reflect the use of this grade instead of using polyalphaolefins.
Prices for sales for this new grade have not yet been disclosed, although a couple of blenders indicated or suggested that the estimated cost from the last report – around €2,500/t – is not too far away from reality.
Notably, following the resumption of “normal” production following a turnaround at a refinery in Spain, some 42,000 tons of Group III grades were loaded for various destinations, including Rotterdam, Mumbai and Gemlik. This large quantity was loaded during September, spanning six cargoes in all.
Prices are higher for October barrels, with levels now approaching €1,720/t/t-€1,785/t for the range of partly-approved Group III base oils. Prices of €1,740/t/t-€1,785/t are for 6 cst and 8 cst grades, while 4 cSt grades are pitched at €1,720/t/t-€1,765/t. Prices are for FCA supplies from Antwerp-Rotterdam-Amsterdam hubs.
Group III base oils carrying the full package of European original equipment manufacturer approvals – for example, Volkswagen –
are priced higher, at €1,765/t/t-€1,795/t for 4 cst base oils, with 6 cst and 8 cst grades at €1,785/t-€1,810/t.
Baltic and Black Seas
Baltic base oil prices for Russian export barrels drifted lower without too much pressure from buyers. A couple of notable cargoes loaded, one bound for Nigeria and the other for receivers on the U.S. Gulf Coast, where the arbitrage remains wide open. The arbitrage is estimated at around $450 per metric ton for this supply of 3,000 tons into the U.S. Gulf Coast. The parcel loaded for Apapa was around 13,000 tons in total, including a sizeable quantity of SN900.
Taking advantage of another arbitrage, a cargo of 7,500 tons of API Group I Russian grades loaded out of Kaliningrad for discharge into Santos in Brazil. This opportunistic supply will provide healthy margins, with the arbitrage fully open and estimated at around $400/t for this type of supply.
Russian export barrels also been shipped into Dordrecht and the east coast of the United Kingdom, from Baltic sources in the Baltic. All material loaded came out of Riga port.
FOB prices are revised downwards this week, with levels moving lower. Prices for SN150 are assessed at $850/t-$875/t, with SN500 at $995/t-$1,025/t. SN900 where available, is priced at around $1,065/t.
Turkey and Black Sea news is that the local refinery in Izmir restarted production of base oils and is selling to Turkish traders and blenders in the local markets. At the same time, the producer is also making material available for an export tender, which will be on the basis of an FOB sale from Aliaga. It is assumed that the Group I base oils will be transported by truck, bringing in the quantity for an export sale. Previous cargoes sold on this basis went into Nigeria, for example, the quantity at around 6,000 tons of four grades – SN100, SN150, SN500 and bright stock. Bids for the tender will be registered during October. The tender will no doubt be priced on a very different basis than the domestic sales, which are currently around $150/t-$175/t higher than Group I offers from sources in Italy and Greece. The advantage is that buyers can purchase smaller quantities by truck load, and pay for these supplies in Turkish lira.
Turkish blenders that normally import base oils from Mediterranean sources are still missing from the market, with some sources citing difficulties in being able to open a letter of credit. Whether this is down to a national shortage of foreign currency such as the U.S. dollar or whether buyers are lacking the cash flow to be able to fund the letter of credit is not clear.
A number of offers from sellers based in Greece and Italy were shown to receivers in Gebze, Turkey, and Derince, with CIF price indications at around $885/t CIF for SN150, with SN500 around $1,155/t. There still remains little buying interest even at the new adjusted levels, with receivers looking for prices around $100/t lower for the SN500.
Imported Group II base oil prices are slightly lower, while Group III prices remain firm. Prices for the range of Group II base oils are placed at €1,410/t-€1,455/t for low vis Group II grades, with higher vis 600N at €1,775/t-€1,825/t.
Group III ex tank sales currently are at €1,725/t-€1,750/t for partly-approved and fully-approved 4 centiStoke material, with 6 cSt and 8 cSt grades at €1,635/t-€1,760/t.
Middle East
Among Red Sea reports there appears a fixture for a vessel to deliver 5,000 tons of Group I base oils into Sudanese receivers in Port Suakhin. Also there are some interesting inquiries for product to move to Brazil from Yanbu and Jeddah. This is a new route, and the arbitrage may be open for material to move into South America from this source. Other usual traffic sees large cargoes moving from Red Sea to the west coast of India, Pakistan and the United Arab Emirates.
Middle East notes suggest that a small cargo of rubber process oil was supplied from Iran to receivers on the west coast of India, although no other base oil movements are recorded from the southern Iranian ports of BIK, BB and BA. However, there are still pockets of supply in the U.A.E. locations showing what must be Iranian SN500, these quantities being for FOB sale out of storage. The quantities appear to be available on a revolving basis, suggesting that base oils are coming out of Iran and are being shipped out to various markets through the U.A.E.
The material is priced at $1,325/t-$1,345/t FOB, discounted by some $100/t from the last firm offer. Prices would have to be adjusted downwards again to ensure that this material could be competitive going into the west coast of India or East Africa.
Group III export cargoes loading out of Al Ruwais and Sitra have gone into a quiet spell, with only one small parcel of 1,000 tons arranged out of Bahrain for buyers in Mumbai. Large cargoes still move out of Qatar, with more than 100,000 tons programmed for loading during the last quarter of this year. Parcels of 20,000-30,000 tons will load from Ras Laffan on a regular basis between now and the year-end.
Netback assessments for Group III base oils exported from Al Ruwais and Sitra are moved upwards again this week, with evidence of higher selling prices in markets such as U.S. and Europe.
Netbacks for Group III base oils exported from Middle East Gulf are now estimated at $1,825/t-$1,875/t for 4 cSt, 6 cSt and 8 cSt partly-approved Group III base oils. Group III base oils from Sitra refinery holding full European original equipment manufacturer approvals will netback higher. These grades are assessed to netback at $1,840/t-$1,900/t for 4 cSt, 6 cSt, and 8 cSt Group III base oils.
Notional netback levels are 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 Middle East Gulf from various sources in the U.S., Asia-Pacific, Saudi Arabia and Europe, and resold on an FCA or delivered basis, have prices adjusted lower, to $1,555/t-$1,665/t for light vis grades 100N, 150N and 220N, with the heavier vis 500N and 600N grades at $1,850/t-$1,885/t.
Africa
South Africa shipping agents have confirmed that the vessel loaded out of Rotterdam and Fawley, with a cargo of around 21,000 tons of base oils and other chemicals for Durban discharge, will arrive into the port around the end of October to early November. Thereafter it will sail to final discharge in Mombasa.
West African reports confirmed that the inquiry for a vessel to load out of Singapore with some 6,000 tons of base oils for Apapa port, Nigeria appears to have dropped off the radar, along with the parallel enquiry for the same cargo to move to Rotterdam. With one major sending large quantities of base oils to Singapore from European sources, it could be that a larger substitute cargo of 13,000 tons coming out of Rotterdam and Fawley will supersede the Singapore source.
Nigeria appears to be in a state of impasse at the moment, with two traders having heavily discounted selling prices a few weeks back. Nigerian receivers are looking for unattainable prices for new cargoes. They are looking for $950/t for SN150, $1,050/t for SN500 and $100/t for SN900. These levels are impossible to meet at the moment, with suppliers in Baltic and Europe unable to meet FOB numbers that would yield delivered prices at those levels.
Traders are looking at levels that approximate to around $100/t-$120/t higher than the numbers requested from Nigerian buyers, but with no buying interest from receivers, the market has come to a standstill. Nigeria is also facing problems with available foreign currency, thus hindering the opening of local letters of credit, as is necessary due to exchange controls in the country. Local banks are unable to lay hands on sufficient dollars to open the letters of credit thus the payment instruments cannot be issued to confirming banks in Europe at this point.
There are also complaints from traders regarding discharge arrangements with potential demurrage. This is in addition to buyers back trading following contract acceptance, a typical ploy when an opportunity arises.
CFR/CIF levels for Group I base oils landing into Apapa, are lowered this week with the Baltic loading producing much lower prices.
Prices are indicated in offers at $1,050/t for small quantities of SN150, SN500 is offered at around $1,150/t, and SN900 at around $1,200/t. It may take a few weeks before the various parties can agree on price levels that are mutually acceptable to all sides.
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.