EMEA Base Oil Price Report 25.01.22
The world is on tenterhooks as Russian troops amass at the border of Ukraine without so far declaring any intentions as to their reason to be there, other than to provoke western nations into rebukes and warnings of any invasion of Ukraine.
The uncertainty of future events is weighing heavily on trade and commerce across the region and is involving other nations such as the United States, China, the European Union and the United Kingdom. Representations were voiced and continue to be made to Putin and his government.
This incursion has obvious effects on all physical markets, base oils being only a small part of the whole equation, but no one appears to understand or even know as to the effects this military action could have on Russian exports in the future. There could be short and longer term implications for base oil supplies from Russian refineries which could have a knock-on effect on many export destinations such as West Africa, South America and even the U.S., itself, all of whom have been or are in process of importing Russian produced base stocks at this time.
This international crisis in Ukraine comes on top of the COVID-19 situation, with the Omicron variant still rampant across the regions. Some authorities are commenting that this variant may have peaked, and that infection rates and numbers are starting to fall. This may be the only piece of good news to report this week.
Overall most European, Middle Eastern and African base oil markets appeared softer during January, with API Group I and Group II prices coming under subtle pressure from buyers. Group III appears to remain stronger, both from demand and from a relatively tight supply scene, which continues to exert pressure by at least maintaining prices at current levels.
Crude prices reacted to world events by hardening across the board with new recent highs being seen during the last few days of trading. Dated deliveries of Brent crude escalated to a posting of $86.10 per barrel, rising by around $4.50 over the price last reported two weeks ago. This price remains for March front month. West Texas Intermediate crude maintains the crack, with a level of $83.10 per barrel now also for March front month settlement.
Meanwhile European ICE LS Gas Oil has risen by almost $50 per metric ton over the last two weeks to a new high not seen for more than 10 years. This product now shows at a level of $758.00/t, now for February front month.
Prices were obtained from late London ICE trading on Jan. 24.
Crude and petroleum product price increases can only mean one thing for base oils – the prices for feedstocks are rising and eventually will bring pressure to any prices which are close to break even. Many sources say that even Group I prices are sufficiently robust as to be able to withstand rising raw material costs at least in the short term.
European Group I export prices have come under pressure yet again over the past couple of weeks, with demand flagging from December levels.
SN150 prices are trimmed with FOB price levels softer and assessed at $755/t-$770/t, with SN500 prices are showing lower with numbers now lying in a range at $905/t-$925/t.
Bright stock FOB prices are also weaker, with demand dipping for this grade. FOB prices are found in a range at $1,175/t-$1,225/t.
Domestic markets in Europe are slowly emerging from the year end downturn, although COVID has severely dented operations across Europe. The forecast of a resurgent market has yet to make an appearances. All eyes are on the Ukraine scene at the moment, with blending operation in that country continuing for the moment. Contingency plans have been prepared in the event of hostilities breaking out.
Demand is poor throughout the regional base oil markets, with many players commenting that many of their large end-users, such as vehicle manufacturers and large engineering projects, were cancelled or postponed until later in the year.
Prices remain at around €100/t-€145/t higher than export levels with the differential between export and domestic levels remaining unchanged, although both sets of prices are lower than last reported.
European Group II base oil prices appear a little softer this week, with demand appearing to have slackened through the first part of January. This may just be a temporary blip following the holiday period at the end of the year, but there are rumors around of sellers starting to consider a round of increases due to higher feedstock prices, which are now starting to filter through new production.
Group II prices in offers are seen to be relatively steady, although the high levels in the ranges are adjusted slightly this week. Levels are now assessed at $1,225/t-$1,265/t (€1,085/t-€1,130) for the three light vis grades (100N, 150N and 220N), but the higher 600 N vis grade faltered a little and has fallen back to $1,455/t-$1,500/t (€1,285/t-€1,325).
Prices are for a range of Group II base oils, including European and U.S. grades, in addition to smaller imports from Middle East and Asia-Pacific.
The European Group III market retains maintains positive sentiments. Reports from sellers and buyers indicate that demand for Group III grades is firm, with forward sales confirmed though to the end March of this year.
There are some reported fears of a shortfall in additives with at least a couple of the major suppliers, Lubrizol and Infineum, indicating that they may impose an allocation program for customers, limiting the quantities of additives available over the next couple of months. The reasons behind this shortfall are not immediately known and could be down to a number of factors. A shortage of additives could have a negative effect on the offtake of Group III base oils, although it would be a temporary glitch.
Prices for the range of partly approved Group III base oils remain strong and are assessed at €1,485/t-€1,585/t, levels adjusted higher at the lower end of the range and lower at the high point. Six cSt and 8 cSt grades are at €1,580/t-€1,600/t, with 4 cSt base oils at €1,485/t-€1,500/t. The range includes supplies of Russian Tatneft 4 cSt material offered into European markets. Although the quality of this material is excellent, availability can sometimes be a question mark from time to time. Prices are for FCA supplies from Antwerp-Rotterdam-Amsterdam and northwestern Europe hubs.
Group III base oils which currently hold full European OEM approvals are priced slightly higher, although the pricing gap between partly-approved oils and fully-approved grades has narrowed considerably over the last few months, with those suppliers holding fully-approved status having to compete to hold market share against alternative supplies.
Fully approved 4 centiStoke grades are set in a range at €1,545/t-€1,595/t, with 6 cSt and 8 cSt oils at €1,620/t-€1,725/t.
Baltic and Black Seas
Reports from the Baltic Sea indicate that a number of export cargoes are being progressed in addition to the short-sea trades going into Antwerp-Rotterdam-Amsterdam and the east coast of the United Kingdom. One large cargo, which may have only just completed loading out of Kaliningrad and Riga, will sail for Apapa, carrying around 9,000 tons of Russian export API Group I grades. Another interesting cargo will also load from the same two Baltic ports with a similar sized parcel for receivers in Tampa, Florida. A further cargo is following up a December load for receivers in La Plata, this parcel is loading out of Riga during the first few days of February.
A parcel out of Riga and Gdansk is currently loading for a two-port discharge into Rotterdam and the east coast of the U.K. The total quantity on board is expected to be around 6,000 tons, but the exact split for either discharge port is not disclosed.
Baltic prices remain competitive but any fallout from a Ukrainian incursion or hostilities – which may involve deep and lasting sanctions on Russian interests – have not been made clear as yet. There is every chance that exports of all or any Russian refinery output, including base oils, could ultimately be affected by subsequent actions taken by Western alliance nations.
Baltic Sea FOB prices for Russian exports are reviewed this week, based on actual landed prices for various cargoes from the region. SN150 is assessed lower this week, and is placed at $730/t-$755 per metric ton with SN500 indicated in offers at $825/t-$895/t. Quantities of SN900 are estimated to be around $975/t.
Black Sea news reports suggest that few Mediterranean or Russian base oil cargoes are finding their way into Turkish ports such as Gebze, Turkey, Derince and Aliaga. This may indicate that there are real economic problems to meet such transactions, while at the same time no news was gleaned as to quantities coming out of the Tupras Izmir refinery.
Turkey’s currency problems escalated over the last few weeks and months, with inflation and devaluation having a dire effect on standards and the Turkish economy. The banking system is in total disarray, with everyday transactions being denied and held back.
The Turkish lira has fallen by more than 15% against the U.S. dollar during January alone, causing financial hardship to ordinary working people in the country.
There are still offers from suppliers in Greece and Italy being made to Turkish buyers, but from reports from local sources, no responses to offers are forthcoming. Sellers comment that they are making offers as competitive as possible, but are not even receiving counters from buyers.
Offers from Greek and Italian suppliers are indicated CIF Turkey at $715/t for quantities of SN150, with SN500/600 at $955/t.
Group II grades imported by agents and distributors and resold on an FCA basis dipped over the last month, and are now priced at €1,225/t-€1,275/t for the three lower vis products, with 600N at €1,410/t-€1,445/t. Group III base oils resold on the same ex-tank basis have FCA levels remaining at €1,550/t-€1,675/t for partly approved grades with fully approved Group III grades at €1,595/t-€1,665/t.
Red Sea activity appears to have declined from the large number of exports into the west coast of India and United Arab Emirates. Instead, a smaller cargo of around 3,500 tons is reported to be considered for import into Durban. This is a first time operation and may suggest the introduction of Group II base oils from Yanbu breaking into a new market. One other large parcel is addressed going, into the west coast of India and Pakistan.
Middle East Gulf sources confirmed that a large Iranian Group I cargo loaded for discharge in Hazira, on the west coast of India. No shipping references or logs are available for this cargo, but with U.A.E. sources informing this report that 8,000 tons of SN500 loaded, it is assumed that the deal was completed.
The inquiry to load 5,000 tons of base oils from Hamriyah for receivers in Apapa was cancelled. Indian receivers are showing interest to take this parcel, which is now known to be Iranian product with a certificate of origin from the U.A.E.
Middle East Gulf activity in U.A.E. is rather muted, with only a small number of Group I base oils arriving from sellers in Thailand and Singapore. No further Russian offers materialized as of yet.
Group III base oil exports from a production site at Al Ruwais do not appear to have been affected by the drone attack last week, which was accorded to Yemeni Houti rebels.
Exports from Al Ruwais, Sitra and Ras Laffan continue unabated, with cargoes loading from Al Ruwais for mainland China and Mumbai anchorage.
Netbacks relating to Group III base oils exported from Al Ruwais and Sitra are raised slightly this week due to regional selling prices rising slowly over December and January. Netbacks are assessed at $1,900/t-$1,950/t for 4 centiStoke, 6 cSt and 8 cSt partly-approved Group III base oils.
Fully-approved grades from Sitra refinery in Bahrain, sold by Neste, but soon to be marketed by Chevron, will achieve higher netbacks due to higher selling prices. These grades will netback higher at $1,925-$1,975/t for the range of Group III grades.
Notional netback levels are based on prices derived and informally assessed from regional selling levels, less marketing, handling and estimated freight costs.
There has been some talk around the market that Chevron may not continue indefinitely with the arrangements for third party supplies coming out of Sitra refinery, but will concentrate on the Porvoo refinery and use product from that source for own label in-house blending. This source is in addition to current production of Group III grades from Chevron’s Richmond refinery in California in the U.S. This information has not been corroborated or confirmed by Chevron, Neste or Bapco.
Group II base oils imported into Middle East Gulf are resold on an FCA ex-tank and also on a delivered basis. Grades have prices discounted with new levels at $1,425-$1,535/t for light vis grades, with heavier 500N and 600N at $1,515-$1,545/t. Group II base oils resold in Middle East Gulf are sourced from South Korea, Saudi Arabia and the U.S.
With a number of European and now Red Sea cargoes destined for South Africa, it may be that trade in the southern African states is starting to pick up after the COVID-19 situation, which limited much activity over the past three months. Group l, Group II and Group III base stocks are imported through Durban port, although not all this product remains in South Africa, because a large part of the hinterland in neighboring states is served through this hub.
West African sources indicated that a number of traders are now participating in the Nigerian market with some “newcomers” joining forces in joint ventures to service this region.
A cargo was nominated to load out of Antwerp and Rotterdam, with a relatively small parcel of some 4,500 tons of Group I base oils. This cargo will discharge into Apapa in Lagos around the end of February.
Another large cargo is loading out of two Baltic ports for Apapa, with 9,000 tons of Russian Group I export barrels making up the parcel.
Prices for Group I base oils delivered into Apapa are revised, with new information on actual offered prices reported from Nigerian sources.
CIF/CFR Apapa price levels are re-assessed, with indication levels at $935/t-$950/t for quantities of SN150, larger quantities of SN500 offered at $1,050/t-$1,065/t with SN900 priced at $1125/t.
Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly at email@example.com.