EMEA Base Oil Price Report 02.11.21
European, Middle Eastern and African base oil markets are mixed this week, with prices continuing to weaken in some regions whilst appearing stable in others. With the end of the year fast approaching, procurement in most markets is slowing as blenders and resellers look to reduce inventories as much as possible.
API Group I oils have seen the strangest moves in some areas. This group of base oils saw record high prices just before summer, and then prices crashed as availabilities improved following maintenance turnarounds at some refineries and the start of a lower demand cycle. Prices fell steeply, and when raw material costs rose some base oil values were below breakeven levels, leading producers to raise prices again. This situation is by no means universal, since some sellers are still keen to move large slugs of Group I grades, particularly into export destinations. To this end, large discounts and low prices are still around the markets and can be negotiated with some suppliers.
The scene is different for Group II oils, which are not subject to heavy discounting. Values for these oils have eroded a bit since summer, but far less than Group I grades. Prices for Group III oils remain firm, reflecting strong demand. Availability is tight, although there were reports last week that supply is now steady.
Crude oil costs appear to have peaked a couple weeks back and now have weakened slightly. The change is not dramatic but may indicate that demand for crude is starting to wane towards year end. Some analysts forecast weaker values for the next few months, but there are sceptics predicting yet higher levels. Large suppliers such as Saudi Arabia have announced that they do not want to see higher crude prices, since they could hurt some struggling economies.
Dated deliveries of Brent crude have stepped back from their peak to $84.50 per barrel, around $1 lower than last reported, now for January front month settlement. The crack between the two main marker crudes, Brent and West Texas Intermediate, has narrowed to its thinnest in some time – less than $0.50 per barrel – as WTI rose to $84.10/bbl, now for December front month.
ICE low-sulfur gas oil fell around $25 per metric tons during the past two weeks to $725/t, for November front month. These prices were obtained from London ICE trading late Monday.
Europe
Group I European export prices have changed tack, with a halt coming to the continuous erosion that has affected these grades the past few months. Some producers have announced increases in prices for some of the grades, particularly heavier oils, although it remains to be seen how much buyers accept these markups. Certainly some of the prices seen over the last month have not taken into account the recent rises in raw material cost, with feedstocks rising by more than 50% during the course of this year. Some refiners are yet to act to push number higher, therefore this report has taken an average of prices available in the market at the end of last week
Prices for solvent neutral 150 are stable to firm between $810 per ton and $855/t. SN500 has rallied considerably, perhaps due to higher demand in export markets for this heavier grade, with prices rising some $25/t-$50/t to $1,095/t-$1,145/t. Bright stock had stabilized and is now firming at $1,325/t-$1,390/t.
These levels appear satisfactory to cover recent feedstock increases. There is still a lot of material available in the market, and with inventories running high and getting higher, these small markups may come under pressure from buyers.
Prices for Group I sales within Europe have stabilized as the discounting that was applied during October eased. Sellers are keen to focus attention on higher raw material costs, while buyers are underscoring the elevated level of base oil values. Despite buyer calls for markdowns, most suppliers maintained prices at the same levels as October.
There is much material around the market once again, and buyers have choices when looking to take material for November and December. Therefore the market could see downward pressures again over the next few weeks. The marketplace is quite foggy at this time.
The differential between export and intra-regional prices remains unchanged, although with export levels perhaps starting to rise it may now narrow. The differential remains between €75/t and €125/t, export values being lower.
Group II prices in the European arena are stable with the recent pressures to take these prices lower having been abating over the past couple of weeks. Buyers are claiming that the moves to the recent highs earlier in the year cannot be maintained for all time and that Group II base oil prices must be adjusted to reflect the market as it stands now rather than some months back. Producers and suppliers have insisted that with mounting raw material costs, prices are around where they should be, taking account of relatively strong demand and supply of these grades not showing and length.
The threat of imports from Asia-Pacific appears to have disappeared, with only a few incursions into the European markets from sources based in that region. Freight costs and an ever-changing market in the Far East may have dampened enthusiasm for moving large cargoes of Group II base oils in this direction.
Market share appears to be the emphasis from suppliers at this time, although without external supplies hitting the European markets, local producers and incumbent importers remain in a relatively strong position. Prices are stable, with no reports of lower numbers being quoted around the market.
Group II prices remain at the same levels as for October, with numbers between $1,395/t-$1,445/t (€1,200/t-€1,242) for 100 neutral, 150N and 220N, while 600N between $1,755/t-$1,825/t (€1,500/t-€1,560).
Prices are in respect of a range of Group II base oils, including European and U.S. fully approved grades, but also some small imports from Middle East.
Group III base oil prices remain strongly positive, with producers moving domestic and import numbers to reflect higher feedstock prices which have been affecting production over the last couple of months. Material which has been produced during this period and is now in tank, either at refineries or in hub storage, must now be priced accordingly to maintain target netbacks. Many plants producing Group III base oils are relatively new and strict financial controls will be imposed on ROI numbers. Pricing is the principal tool when maintaining returns on capital investment, hence the willingness in a strong market to move numbers higher.
As far as can be determined all suppliers operating in the European markets have applied increases to prices for November, these being announced some weeks back. Similarly there are prices set for December which also show higher levels.
Prices are moved upwards with levels between €1,750/t-€1,795/t in respect of the range of partly-approved Group III base oils. Prices of €1,770/t-€1,795/t are in respect of the 6 cSt and 8 cSt grades, whilst 4 centiStoke grades are assessed between €1,750/t-€1,780/t. Prices are in respect of FCA supplies ex Antwerp-Rotterdam-Amsterdam hubs.
Group III base oils qualifying for full European OEM approvals (e.g. Volkswagen) are priced higher, between €1,785/t-€1,820/t in respect of 4 centiStoke base oils, with 6 and 8 cSt grades at €1,800/t-€1,830/t.
Baltic and Black Seas
Baltic Sea base oil prices in respect of Russian export grades are rumored to have risen over the past couple of weeks although with the U.S. arbitrage still open, cargoes are being planned for November to move in that direction. It has been mooted that the last refinery tender from Russian producers was priced higher than in previous months, pushing FOB Baltic price a little higher.
Some sources were heard to comment that Baltic prices were trying to get lifted closer to mainland European levels, after being very keenly priced over the last couple of months. Whether firmer numbers within the European markets will have any effects on Baltic FOB levels will only be tested during the course of November. A close watch will be kept on any developments from the Baltic traders.
With crude prices remaining high it is anticipated that Gazprom and Rosneft will be targeting higher refinery gate prices this month with the resultant CPT Posin prices reflecting this move.
A small parcel of 2,500 tons out of Riga has loaded for Eastham in the west coast of the United Kingdom, along with another parcel of almost 5,000 tons moving from Baltic ports to Antwerp-Rotterdam-Amsterdam. Another long distance cargo loaded out of Kaliningrad for Singapore, with 9,000 tons of Russian export barrels making up this contract commitment. This end October cargo will not arrive into Singapore until well into December.
A two port loading including material out of Gdansk is being put together for 10,000 tons to go into Port Harcourt in Nigeria. The balance of the cargo will load out of Hamburg, perhaps taking a quantity of heavy naphthenic base oil, pale 2000, into the Nigerian market. This innovative move may be due to a dearth of SN 900 being available out of the Baltic ports.
FOB prices are taken a little higher than last published, with prices for SN 150 assessed at $860/t-$875/t, with SN 500 at $995/t-$1,025/t. SN 900, if and when available, will be priced at around $1,055/t.
Turkish buyers appear to have shunned Mediterranean cargoes again this time around, perhaps moving back to local truck deliveries from Izmir refinery, from where there will be another surplus of base oils which will be offered for export under a tender yet to be issued. It is expected that there will be another parcel of some 5,000-6,000 tons to be loaded towards the end of November. This has still to be confirmed.
There are still offers on the table from suppliers in Greece and Italy, with offers heard with CIF price indications at around $895/t CIF for SN 150, with SN 500 indicated at $1,140/t. These levels are slightly higher than previous offers, perhaps reflecting the trend for some Group l producers to push prices a little higher.
Group ll base oil prices that have been imported and are offered and sold on an ex-tank basis are maintained, while Group lll prices have moved firmer. Prices for Group ll base oils are put at €1,420/t-€1,455/t for the low vis Group ll grades, with higher vis 600N at €1,775/t-€1,825/t.
Further quantities of imported Group lll oils were delivered into Gebze, with prices higher than for previous cargoes. This is turn will mean that FCA levels will rise.
Group lll ex-tank sales are now estimated at €1,740/t-€1,765/t for partly-approved and fully-approved 4 cSt material, with 6 cSt and 8 cSt grades at €1,755/t-€1,780/t.
Middle East
Following the large quantity of Group l and Group ll base oil that moved out of Yanbu and Jeddah during October, Red Sea reports only a couple of significant cargoes. One smaller parcel of 3,000 tons shipped to Aqaba in Jordan and another larger cargo of some 11,000 tons has gone into the western coast of India. The Nigerian enquiry appears to have been dropped, whether the freight costs were against this movement is not known.
Another Iranian cargo was noted moving on the same route as was noted in the last report. This cargo is smaller, with 3,000 tons of SN500 moving from one of the southern Iranian ports to Hazira in west coast India. The origin of the cargo shipped out of the United Arab Emirates for the same port, noted in the last report, was definitively identified as Iranian SN 500 and SN 150, according to specifications and loading data.
Group lll producers in Al Ruwais have a number of cargoes loading during November, totaling around 25,000 tons of Group lll base stocks. These parcels will load for China India, and a larger than normal cargo of up to 9,000 tons will load for discharge into northwest Europe and/or Dordrecht. This cargo is in addition to the previous parcel loaded in early September.
Netbacks for Group lll base oils exported from Al Ruwais and Sitra are raised this week, with local selling prices in Europe and India climbing higher. Producers in Bahrain and Abu Dhabi have taken notice of higher raw materials costs. The extent of the increases is not yet known, although suggestions have circulated that increases could be “significant.” The end-markets will have to be able to absorb these increases, some of which were exceptionally large, such as the U.S. increments advised during October.
Netbacks for Group lll base oils exported from the Middle East Gulf are reassessed at $1,875/t-$1,925/t for 4 cSt, 6 cSt and 8 cSt partly-approved Group lll base oils. Currently, Group lll base oils from Sitra refinery holding full European OEM approvals will netback higher at $1,900/t-$1,950/t for 4 cSt, 6 cSt, and 8 cSt Group lll base oils. Whether this brand will continue following the Chevron takeover of the Neste business remains unknown, It is understood that all approvals will be passed over to the new incumbent supplier, although the trade name of the product will be changed.
Notional netback levels are based on prices derived and informally assessed from regional selling levels, less marketing, handling and estimated freight costs.
Group ll base oils imported into Middle East Gulf hubs from various sources in the U.S., Asia-Pacific, Saudi Arabia and Europe – which are resold on an FCA and also a delivered basis – have prices remaining at $1,555/t-$1,665/t for the light vis grades 100N, 150N and 220N, with heavier vis 500N and 600N grades at $1,850/t-$1,885/t.
Africa
The cargo inquiry for 10,000 tons of various Group l base oils to be shipped from Yanbu and Jeddah in Saudi Arabia for western Africa appears to have been dropped. Comments received imply that the shipping costs and also finding suitable tonnage to perform this voyage would have been difficult. The route is not a recognized voyage, and for a vessel loading in Red Sea to discharge in western Africa, it would be difficult to avoid ballasting from the discharge port to another load port, which may have to be a European destination.
Western Africa and Nigeria in particular remains in limbo, with decisions regarding new cargoes still awaited by the principal traders active in this market. With the one cargo being worked out of the southern Baltic and Hamburg, this may be the first to break the deadlock. Nigerian receivers are coming to terms with the fact that the Group l market may have reached a nadir point, and that the market may put pressure on prices to rise again not too far into the future. Offers and indications of $950/t for SN 150, $1,050/t for SN 500 and $1,100/t for SN 900 remain on the table for consideration.
CFR/CIF levels for Group l base oils landing into Apapa remain unchanged, since the FOB prices attached to the Baltic loading, plus freight and margins, would indicate levels around the numbers put forward in the last report.
Prices remain indicated at $1,050/t for small quantities of SN 150 and SN 500 is put at around $1,150/t, and SN 900 at around $1,200/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.