EMEA Base Oil Price Report 22.02.22
The base oil industry, along with other petroleum product markets, entered into what may be considered, the “perfect storm.” This may be true in both a literal, and also a descriptive sense. Given that base oil markets were already constrained by refinery cutbacks due to the global Covid-19 pandemic, and the subsequent lack of feedstocks due to lower production of distillate fuels, the recent freezing weather in the U.S. has affected output and production from a number of critical refineries, many of which were producing base oils.
With majors currently trying to rebalance global inventories in various regions this additional pressure maybe all that was required to tip the market over the edge. In the sense that availabilities are now becoming ever tighter, and with a number of refineries in Europe and Far East looking at major turnarounds over the next few months, the base oil market is facing insurmountable supply problems that may destabilize and derail any potential post-COVID recovery.
Basically, there is currently not enough base oil to cover even the reduced demand. In the few locations where there is availability of base oils, these availabilities are either in the wrong place or are in insufficient quantities to cover requirements.
Refiners are unable to build stock reserves in anticipation of planned maintenance due to heavy demand from existing and new customers, many of whom are looking at all alternatives when it comes to supplies, particularly for the heavier API Group I grades which have become extremely rare from almost any and all sources. At the same time Group II is experiencing limited spot availability, with whatever material is available, soaked up by blenders who cannot lay hands on sufficient quantities of Group I grades. API Group III is basically short, with producers of these grades unable to keep up with demand. Producing refineries are running at maximum rates to supply an ever increasing demand for the limited quantities available.
Inevitably, prices keep on rising with some sellers instigating regular monthly, or even bi-monthly, increases, some of which have been measured in the hundreds of dollars rather than single or double digit increases.
Factors impacting base oil supply include limited production due to refinery run cutbacks in 2020, the COVID situation over the last 12 months, the lack of feedstock for production of base oils, the particularly heavy turnarounds planned for the first six months of this year and now the severe weather situation in North America – which, apart from holding back operations, may have caused more permanent, or semi-permanent damage that may take months to repair, and get production of mainstay base oil grades back to existing levels. There are holes appearing in the supply chain that cannot easily be plugged, and hence the global base oil industry is facing some major challenges.
To add to the raft of problems facing the oil industry at this time, crude oil values have climbed to new highs. Some of the major producers, such as Saudi Arabia and Russia, are maintaining lower production rates and limiting supplies of crude oil to markets that are reviving, following the COVID pandemic.
Dated deliveries of Brent crude moved higher over the past couple of weeks to now sit at a level of $63.45 per barrel, $3 higher than last reported. This price is for April front month. West Texas Intermediate crude followed the upward curve, recording at $59.80 per barrel, with prices now joining dated Brent for April front month settlement.
ICE LS Gas Oil prices are higher, up by more than $30 per metric ton, to post at $520/t for March front month.
Prices were obtained from late London ICE trading on Feb. 22.
Europe
Group I European export prices moved higher, and are continuing to rise in response to exceptional demand and lack of availabilities. Prices remain substantially above domestic levels, and with plant maintenance starting to kick in, the market is set for a tumultuous next few months. With two refineries in Poland and one in Hungary going into turnaround, and planned maintenance starting in France, Spain and Italy, the market can only get shorter before these units complete all the work undertaken. Around 50% of European production of Group I base oil will be taken down at some time during the first six months of this year.
Some majors are looking to rebalance inventories in other parts of the world, in Singapore for example, where a major refinery has not yet restarted. The situation in North America may bring hasty changes to logistics and plans for European coverage of ongoing global supplies, and any “spare” European production of Group I grades may start to move to U.S. locations to potentially cover for lost local production, at least in the short to medium term.
Prices firmed by $30/t-$75/t over the past weeks, with the heavier neutrals less available and more in demand. SN150 prices are now ramped up, with FOB numbers at $800/t-$850/t. SN500 moved upwards to $875/t-$920/t. Bright stock, exceptionally hard to find in large quantities, and an offer heard last week contained a price of around $1,075/t. The bright stock price range is now therefore assessed at $1,065/t-$1,100/t.
Some sellers were keen to offer smaller availabilities to export markets such as West Africa and Middle East Gulf in flexi-bags, since higher numbers can be attained for these quantities. Lots of up to 3,000 tons of a mix of Group I grades were offered at a premium of around $50/t to the mid points of the prices above for quantities delivered in flexies.
The above Group I export prices refer to cargo sized – minimum 2,000 tons – parcels of Group I base oils, FOB from mainland European supply points, always subject to availability.
Regional or domestic prices remain lower than export levels, although sellers were keen to discuss higher levels for March. Some of the increments may bring local prices into line with export numbers. With current prices some $35/t-$65 lower than export offers, sellers may not have to push hard the gain acceptance to higher levels, starting from March 1. Some suppliers indicated that they want to re-establish a premium over export prices for domestic supplies of Group I base oils, but this is unlikely since buyers are unwilling at this time to even look at incurring higher costs for March.
In spite of COVID restrictions dampening buying activity, this remains a sellers’ market where buyers are effectively bound by current contract arrangements.
Many long-term contracts are index linked and are based on export price formulae, so this situation has caused many operations to pay higher levels than would otherwise be the case for spot purchases. The facts are that there are few avails for spot deals, and hence buyers are rather tied to existing arrangements.
Those looking around for alternative sources for Group I base oils have found few, if any, acceptable alternatives to their long term suppliers.
The differential between export and domestic pricing is maintained, but on the pretext that prices will be generally higher from March 1, the indication being that both export and domestic price levels may come into line. At the moment the differential is assessed at €35/t-€55/t, export levels being higher.
Group II prices are predicted to rise further, possibly due in no small way to the supply vacuum created by the severe weather in North America and the cessation of production and supply of all base oils at many prime sources. This of course includes production of Group II base stocks that will have to be supplemented from other supply points in the meantime. With the European market already showing signs of a further tightening in availabilities, and a limited number of possible supply sources, this could lead to shortages in markets across Europe and Middle East Gulf.
Apart from the North American situation, markets throughout Europe have seen demand rising for Group II grades. This could be a result of the dearth of Group I grades and Group II being sought as an alternative, or he increasing demand may be weighted towards higher ACEA – European Automobile Manufacturers Association – requirements for finished lubricants, with new legislation being reviewed towards the fourth quarter of this year.
Some blenders are looking to use more Group II grades due to non-availability of both Group I and Group III base stocks, and have been reviewing formulations with additive suppliers and original equipment manufacturers to move to an optimum blend scenario.
Prices are raised to new levels this week, and may be also reviewed again from March 1, with levels now being assessed at $905/t-$965/t (€740/t-€805) for the three lighter vis grades of 100N, 150N and 220N, with higher vis grade 600N at $975/t-$1,040/t ( €810/t-€865 ).
Prices are for a wide range of Group II base oils, including European, and U.S. fully approved grades, but also unapproved or partly-approved grades from Middle East, Far East and U.S.
European Group III markets are exceptionally tight with the looming turnarounds for two large producers and suppliers of fully-approved Group III grades just around the corner. These sources announced that coverage of supply will be covered from stocks built up prior to the curtailing of production. Already these suppliers are administrating allocation programs to current contracted buyers, and this limitation to supplies is set to continue at least until post turnarounds. There are no spot avails of fully-approved Group III base oils anywhere around Europe.
Demand is sure to increase for Group III, although it is not easy to see where further supplies of these grades would emanate from, since all current suppliers are at full tilt in supplying whatever they can make available from production. This year could see further conversions from partly-approved Group III base to oils to fully-approved status. The suggestion that these oils could then be sold at a premium will possibly not apply since there has been a leveling out of differentials with the supply situation becoming tight for both classifications of Group III base oil.
Prices are firmer with no spot availabilities for March and even into April. Offer levels are heard at €855/t-€925/t for the range of partly-approved Group III base oils. Levels are assessed at €875/t-€925/t for the 6 centiStoke and 8 cSt grades, with 3 cSt and 4 cSt at €850/t-€910/t. Prices are for FCA supplies from northwestern European hubs.
Group III base oils that currently hold full European OEM approvals are now priced at €925/t-€1,000/t for 4 cSt base oils, with 6 cSt and 8 cSt grades at €980/t-€1,175/t.
Prices remain firm, with limited supplies and little spot availabilities, with March offer levels at €800/t-€855/t for the range of partly-approved Group III base oils. Levels are assessed at €830/t-€855/t for the 6 cSt and 8 cSt grades, with 3 cSt and 4 cSt at €800/t-€820/t. Prices are for FCA supplies from northwestern European hubs.
Group III base oils that currently hold full European OEM approvals are now priced at €865/t-€900/t for 4 cSt base oils, with 6 cSt and 8 cSt grades at €880/t-€910/t.
Baltic and Black Seas
Baltic supplies of Russian export grades improved over the first few weeks of 2021, with distributors targeting distant export markets such as Singapore and the United States, where prices can be higher. The traditional export markets – such as Antwerp-Rotterdam-Amsterdam, Scandinavia and the U.K. – appear to have been replaced, to an extent, by these long-haul cargoes, which have tended not to be large slugs but smaller parcels of around 3,000-6,000 tons
The major Russian supplier working out of the Baltic and Black Seas elected to send a large parcel of around 12,000 tons from Kaliningrad to Gebze, Turkey, instead of loading this quantity from the STS facility in the Black Sea at Kavkaz, Russia. Suggestions are that the river system into the Black Sea may be iced over, hence the logistical turnaround. Also, another factor could be the decreased quantities of Group I grades coming out of the Volgograd refinery due to the current expansion of a Group II unit.
Resellers and distributors are trying to source more Russian export barrels, somewhat unsuccessfully so far, with Russian refiners all set for a start to the turnaround season. There are probably some four refineries that will lose some production between now and the middle of the year, keeping the supply situation in the Baltic relatively tight.
One other Antwerp-Rotterdam-Amsterdam cargo moved into Dordrecht from other Baltic distributors during the first few days of this month. Additionally, it is noted that a medium sized cargo was bought from Gdansk for receivers in Gebze, Turkey. This parcel was comprised of some 2,500 tons of API Group material that is considered to be a cargo of bright stock that may not have been available from the usual sources in the Mediterranean.
FOB prices have risen for material loading out of the Baltic, although the small number of spot cargoes has dwindled.
Levels are assessed at higher numbers, with SN150 at around $720/t-$750 per metric ton, SN500 around $810/t-$825/t with min 95 VI bright stock at $1025/t. Blended SN900, if available, is priced around $865/t.
The Kavkaz, Russia, STS facility In the Black Sea has been quiet, perhaps due to weather constraints, or reduced output from the southern refinery, where a new Group II plant is being commissioned.
STS prices have moved higher, with levels established around $770/t-$810/t for SN500, with SN150 at around $680/t-$720/t.
Group I grades from the Italy and Greece going into the Turkish market have risen sharply due mainly to the lack of competition from the local refinery at Izmir. Traders have been supplying more cargoes from Mediterranean sources since the Tupras refinery has been down for maintenance, and will only restart at the end of February.
The supplier increased local prices by some $80/t-$90/t, bringing the SN100 to $900/t, SN150 to around $865/t, with SN500 at $915/t, while bright stock rose to $1,000/t. These prices are net FCA, with a loading fee of $16/t to be added.
Group I base oil prices from the Mediterranean are maintained at around $855/t for SN150, with SN500 slightly higher at around $910/t.
Prices for Group II and Group III base oils sales FCA Marmara ports are higher and are now placed at €825/t-€865/t for the low vis Group II grades, with the higher vis 600N at €925/t-€955/t.
Group III grades are assessed at €925/t-€1,095/t for 4 centiStoke material, with 6 cSt grades at €945/t-€1,175/t, and 8 cSt material at €940/t-€1,160/t. The ranges for ex tank prices vary tremendously depending on supplier and the specification.
Middle East
Red Sea reports fewer large cargoes loading out of Yanbu and Jeddah, perhaps as a result of the turnaround that is soon to be completed at Yanbu. This may have curtailed the export of Group I and Group II base oils from the Kingdom.
Middle East Gulf reports suggest that some minimal Iranian trades have been completed, supplying some blenders in United Arab Emirates with heavy neutrals. Other buyers in the U.A.E. avoided using Iranian supplies, either on a quality basis or more prevalently, for political reasons. Iranian prices are assessed to be around $845/t, basis CFR Mumbai anchorage, this number yielding an FOB level at around $795/t-$810/t, depending on cargo size and freight rates.
Group III base oils from Al Ruwais in the U.A.E. and Sitra in Bahrain have notional netbacks assessed higher. The increases are aligned and compared to higher selling prices in export destinations in Europe, India, China and the U.S.
Netbacks are indicated at around $895/t-$920/t for 4 centiStoke, 6 cSt and 8 cSt partly-approved Group III base oils. The range of fully-approved grades from Bahrain will yield higher netbacks due to the pricing differential in export markets. These grades may netback at $975/t-$1,125/t for the 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 FCA U.A.E. storage are raised from March 1 and are in ranges at $945/t-$965/t for light vis grades 100N, 150N and 220N, with heavier 500N and 600N grades at $1,070/t-$1,100/t.
The wide range takes account of various base oils supplied from different sources such as Far East and Red Sea, and which have been delivered into U.A.E. in both bulk and in flexies, with varying contract terms and selling conditions.
Africa
The large South African cargo has completed loading out of Rotterdam and the United Kingdom with shipping sources indicated arrival into Durban with 12,000 tons of various base oil grades with estimated time of arrival around March 25-31.
West African trades appear to have slowed, with reports that Nigerian buyers are querying new higher prices, which are necessarily offered to cover new higher FOB numbers and freight rates. They obviously require the product to cover blending operations in the country, but with the higher prices comes higher selling levels for finished lubes. This is proving difficult in a market that has seen prices for base oils rise by more than 130% over the last six months.
The Greek cargo is on the high seas and should discharge in Apapa around mid-March. Sellers are eager to point out that this cargo was negotiated some couple of months back when prices were much lower, and that current offers are probably in the region of $150/t-$200/t higher.
CFR/CIF levels for Group I base oils landing into Apapa in Lagos are now placed at $895/t for SN150, with SN500 at $965/t and higher specification SN900 with viscosity index min 95 at around $995/t. Bright stock is unavailable.
However, cargoes loading forward from today’s date will have offers of around $975/t for SN150, SN500 at around $1,045/t, SN900 at around $1,085/t and bright stock, if available, at around $1,225/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.