EMEA Base Oil Price Report 09.02.22
Ongoing tensions over Russia’s military build-up on Ukraine’s borders continue to disrupt supply of goods and raw materials going into Ukraine, but local sources indicate that a number of lubricant blenders throughout the country are still obtaining base oils and additives and producing lubes to meet domestic requirements.
Of course no Russian export barrels are moving into the Ukrainian market at this time, although other sources in areas such as Iran, Saudi Arabia and Europe have offered to step up.
Meanwhile, the Omicron strain of COVID-19 appears to be regaining ground in spite of a huge roll-out of vaccines across Europe and beyond. How this latest surge will affect trade and commercial operations is not yet known, but various countries are re-imposing restrictions on movements of people and other activities, so the potential remains for impacts on markets.
Crude oil prices have firmed further on concerns that Russia will invade Ukraine, with marker crudes climbing as much as $8 per barrel from the last report. Breaking through resistance at $90, both dated deliveries of Brent crude and West Texas Intermediate crude are at new recent highs. Brent crude reached $93.20 per barrel Monday for April front month settlements, while WTI rose to $91.85/bbl, still for March front month settlement.
European ICE low-sulfur gas oil has rocketed up almost $100 per metric ton over the last two weeks to $853/t, still in the last few days of February front month. These prices were obtained from London ICE trading late Feb. 7.
Base oil prices generally are yet to react to the higher crude and feedstock numbers, although some upward adjustments were made to regional prices around Europe from Feb. 1. Some suppliers have made “temporary” adjustments to API Group I and Group II prices, vowing to review the situation at the end of the month. Mark-ups imposed thus far are on the order of €40 to €50 per ton above January levels.
Europe
European Group I export prices may start to come under pressure from feedstock cost increases, although there have been relatively few deals done for traditional export markets. Most of the trades over the last couple of weeks have been completed using Russian export grades, with one very large parcel being brought into West Africa from the USG, obviating the need to rely on European sources where there may be problems in supplying large quantities of up to 20,000 tons per cargo. Many of the cargoes loading are majors re-adjusting stock levels between refineries and supply hubs.
SN150 prices are held steady this week with few deals being reported. FOB price levels are maintained and remain assessed between $755/t-$770/t, and with SN500 prices also being unchanged, numbers are in a range between $905/t-$925/t.
Bright stock FOB prices also mark time, with FOB prices stable in a range between $1175/t-$1225/t.
Sources have suggested that should crude and feedstock prices remain or climb further from current levels, then prices for Group I base oil can be expected to rise on a ‘pro rata’ percentage basis. This could mean increases of between $250/t-$400/t, but there are those around the market who suggest that since prices are starting at relatively high levels, the scope for large increases may be limited.
As mentioned already domestic markets around Europe have seen prices rising with the potential for further ‘price adjustments’ to come. Business is still sluggish with players commenting that the spring seasonal boost may not happen as usual this year, with many blenders buying on a need-to-cover basis only, without buying large quantities and holding significant forward inventories.
This is rather strange given that the market is moving in only one direction at the moment, and that prices are expected to be higher in the near future. Some buyers may be tempted to look at purchasing larger quantities than normal, although there are few signs of this action taking place right now.
European markets have all eyes trained on Ukraine’s borders, with views varying about potential impacts to the market. Some contend that crude costs should fall if the situation de-escalates and others warning that crude could spike upward should Russian cross the border.
Prices have been raised by around €40/t-€50/t, therefore with little reported activity on the export front, the differential between the two markets has been expanded, with the differential now being assessed between €120/t-€150/t, domestic price being the higher.
European Group II base oil prices have stopped the downward slide and there are talks of some suppliers applying price increases to January price levels. There is considerable resistance to these moves, although rationally buyers are aware that raw material costs have significantly increased, and that these costs will have to be passed on. Refiners say that current production costs have risen by around 90% since Q4 of last year, and that these increases will have to be applied to new production. Some say that the writing is on the wall, and that large increases to selling prices are to be expected in coming months, should feedstock prices remain high.
Group II prices are seen to be firmer, with levels now being assessed between $1240/t-$1275/t (€1095/t-€1138) in respect of the three light vis grades (100N, 150N and 220N), with the higher vis grade (600N) looking firmer than last reported, now being placed in a range between $1470/t-$1520/t (€1295/t-€1340).
Prices are in respect of a range of Group II base oils, including European and U.S. grades, in addition to imports from Middle East and AsiaPac.
Group III markets around Europe are busy, even against the backdrop of the Ukrainian situation. Prices are strong with reports from sellers that numbers wil start to rise from March 1, Most of this sector comprises of forward sales, where prices have been agreed some weeks, or even months in advance, hence prices can only be adjusted for sales not yet agreed. .
The shortfall in some additives is starting to have an effect on this market, with some blenders commenting that they cannot access full quantities of required additive packs, thus hindering production of some finished products. The reasons behind this shortfall are still not immediately clear with a shortage of raw materials being put forward as one suggestion. Others are blaming Covid and supply chain interruptions as the main cause.
Prices in respect of the range of partly approved Group III base oils remain firm and are maintained at levels reported last time around. Numbers are assessed between €1485/t-€1585/t. 6 cSt and 8 cSt grades are placed between €1580/t-€1600/t, with 4 centiStoke base oils between €1485/t-€1500/t. The prices in the 4 centiStoke range include Tatneft 4 centiStoke material being offered into European markets. Prices are in respect of FCA supplies ex Antwerp-Rotterdam-Amsterdam/northwesternE hubs.
Group III base oils which currently hold full European OEM approvals are priced slightly higher, although significant premiums once attached to these oils no longer applies in many cases, with the differential between partly-approved oils and fully-approved grades having narrowed considerably with suppliers holding fully-approved status having to compete against alternative partly-approved suppliers.
Fully approved 4 centiStoke grades are in a range between €1545/t-€1595/t, with 6 cSt and 8 cSt oils between €1620/t-€1725/t.
Baltic and Black Seas
Baltic Sea suppliers appear to have ample stocks of Russian export barrels of Group I base oils, and since one of the main importing nations is Ukraine, Russian refineries may have more products available to ship through Baltic traders. However, indications are that supplies of Russian API Group I base oils are still getting through Ukrainian blenders, although how long this practice will continue is unknown.
There are a number of inquiries for export cargoes talked about, including one large 9,000-ton parcel for Nigeria that would load out of two ports – Kaliningrad and Riga. In addition, other parcels for Antwerp-Rotterdam-Amsterdam, the east coast of the United Kingdom and also another cargo are being planned for La Plata, this one following up other two parcels that loaded during December and January.
While not strictly a Baltic cargo, there is a parcel of 4,000 tons of rerefined base oils moving from a Danish port to Tampa, Florida. The arbitrage is still open for Baltic and northwest European cargoes to move in this direction, whilst other different movements are taking place such as a Baltic cargo loading out of Liepaja and discharging into Gebze, Turkey. The economics of such a movement must make sense, although difficult to fathom.
Baltic prices remain keen but the Russian-Ukrainian scenario hangs over future trades out of the Baltic, since international sanctions on Russian exports of petroleum products including base oils could have a decimating effects of trade out of this region. Some receivers in Antwerp-Rotterdam-Amsterdam and the United Kingdom are known to be taking precautionary measure to cover any shortfall of supplies should the Baltic become affected by sanctions.
Baltic Sea FOB prices for Russian exports are reassessed this week. Some suppliers are trying to move prices slightly higher, taking account of moves from refiners to push refinery gate levels higher as a result of rising crude and feedstock costs. SN150 is assessed firmer, placed at $745 per metric ton to $775/t, with SN500 indicated at $850/t-$895/t. Quantities of SN900 are estimated at around $975/t.
Black Sea reports a small 2,000-ton parcel loaded out of Kavkaz, Russia, for Constanza in Romania. It is not certain if this parcel was loaded on an FOB basis at Kavkaz, Russia, port, or if the STS facility has been reused.
Other reports reveal the state of the economy in Turkey. One headline gives an inflation rate of 48% and the Turkish lira taking more damage, with further devaluation against the U.S. dollar. These figures are causing extensive damage to the economy in Turkey, limiting the amount of trade that can be routed through this country. The government still insists on keeping interest rates low, pushing inflation ever higher. The main items fueling inflation are said to be energy and food costs.
A number of small cargoes from outside Turkey are still finding their way into ports such as Gebze, Turkey, and Gemlik, but few imports of Mediterranean Group I base oils are reported. The imports are Group II from Saudi Arabia, Group III from Spain and Group I from the Baltic. These are smaller parcels that can be financed through the banking system.
Little news is heard from the Tupras refinery in Izmir, although local reports are that there is still availability of Group I base oils to be loaded in trucks and paid for in local currency. No further export cargoes were notified.
Offers still come in from suppliers in Greece and Italy to Turkish buyers with indications CIF Turkey at $725/t for quantities of SN150, with SN500 and 600 at $975/t. These prices were tweaked slightly higher, but there are still no signs of buying interest from the traders and blenders in Turkey.
Group II grades imported by agents and sold through distributors on an FCA basis fell during January, but are now priced higher, with landed prices increased for Group II and Group III supplies. Group II grades are priced at €1,255/t-€1,295/t for the three lower vis products, with 600N at €1,425/t-€1,460/t. Group III base oils resold on the same ex-tank basis have FCA levels pushed higher to €1,565/t-€1,685/t for partly approved grades, with fully approved Group III grades at €1,620/t-€1,675/t.
Middle East
Red Sea reports are that it would appear that deliveries of bright stock may have resumed into Alexandria in Egypt. This supply disappeared for a number of months during 2021, but the Egyptian General Petroleum Corp. tender may have been reinstated for a number of 3,000-ton parcels of bright stock out of Yanbu. Larger cargoes are to load for the west coast of India, the United Arab Emirates and Pakistan. Another slightly larger parcel going into Durban is being looked at from shipping inquiries. An interesting shipping enquiry is out on the market for 7,000-8,000 tons of Group I base oil to load from Yanbu and discharge into West African port(s), but excluding Nigeria. Receivers in Senegal, Guinea and Cote d’Ivoire may be the targets for this supply.
The Middle East Gulf reports few cargoes from Europe or the United States, with Saudi Arabia and smaller parcels from Thailand and Singapore making up the imports of Group I coming into Middle East Gulf ports in the United Arab Emirates. There was no further news of any Iranian cargoes of base oil moving out of the Gulf to either the west coast of India or Pakistan. Middle East Gulf base oil activity is relatively dull, with only a small number of Group I base oils arriving from sellers in Thailand and Singapore.
Exports from Al Ruwais, Sitra and Ras Laffan continue, with a 6,000-ton cargo of gas-to-liquid Group III+ loaded out of Ras Laffan in Qatar for discharge into Shell storage in the U.S. Gulf. Other cargoes from Al Ruwais and Sitra make up the other exports from Middle East Gulf sources for receivers in China, Pakistan and west coast India through Mumbai anchorage.
Netbacks for Group III base oils exported from Al Ruwais and Sitra are maintained after rising prices were indentified at the end of last year and into January. Having adjusted netbacks in the last report, no further material changes have taken place as yet. Netbacks are therefore assessed at $1,900/t-$1,950/t, for the range of 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/t-$1,975 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.
Group II base oils imported into the Middle East Gulf are resold on an FCA ex-tank and/or on a delivered basis within the Middle East Gulf. Prices are maintained as per last, with levels at $1,425/t-$1,535/t for the light vis grades, with heavier 500N and 600N at $1,515/t-$1,545/t. Group II base oils resold in the Middle East Gulf are sourced from South Korea, Saudi Arabia, Singapore and the U.S.
Africa
Two large cargoes will discharge a total of 28,000 tons of various base oils into Durban, following loading out of Rotterdam and Fawley. One of these vessels will also proceed to Mombasa, with a part-cargo after discharging the main part of the parcel in Durban.
Nigerian receivers are keen to purchase large quantities of base oils on a prompt basis, perhaps recognizing that the market may soon respond to rising crude and feedstock prices. That will ultimately push up the FOB prices of Group I base oils. Also, freight costs are rising due to higher bunker costs, and these overheads will be passed on by way of CIF/CFR prices
One large 18,000-ton cargo was procured from two load ports in the U.S. Gulf Coast and will proceed to discharge into two Nigerian ports, assumed to be Apapa and possibly Forcados. The two port discharge may be due to the large size of the parcel requiring additional storage to accommodate the total quantity. Another prompt cargo will proceed from the Baltic to Apapa, with 9,000 tons of Russian export barrels. These are in addition to the cargo nominated in the last report, out of Antwerp and Rotterdam, with some 4,500 tons of Group I base oils.
CIF/CFR Nigerian ports prices are maintained as per the last report, since these levels were re-assessed with indication levels at $935/t-$950/t for quantities of SN150, and larger quantities of SN500 are offered at $1,050/t-$1,065/t, with SN900 priced at $1,125/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.