EMEA Base Oil Price Report 03.05.2022
A number of shortages are starting to emerge from war in Ukraine. Agriculture seems hardest hit, with supplies of vegetable oils, cereals and some fruits all in danger of shortages through the summer months and into the winter. Fuel is in short supply, as are all petroleum products, including base oils.
The plight of the lubricant trade in Ukraine is plain for all to see as blenders still operating face constraints on supplies of base stocks and additives. There are also reports of difficulties for crude oil deliveries in the Black Sea region, a large part of which has come under Russian control. Further shortages and lack of basic materials are forecast to start happening over the next few months.
Crude oil prices have hovered around the $100 mark over the past two weeks. Analysts forecast that values are unlikely to fall as long as the fighting continues. Analysts also predict a balanced supply and demand outlook as demand for natural gas and heating oil should wane during the next five to six months.
Dated Brent crude oil is noted at $103.80 per barrel, now for July front month settlement. West Texas Intermediate fell almost $10 over the past two weeks to $101.80/ bbl, now for June front month.
Low-sulfur gasoil has headed in the opposite direction, perhaps on the back of demand increasing for transportation fuels including diesel. Although crude has slipped somewhat, gas oil levels rose some $100 to $1,213 per metric ton, still for May front month. These prices were obtained from London ICE trading late May 2.
Europe
European Group l export prices are exceptionally difficult to report, with zero deals being reported over the last two weeks. Many movements of base oils are merely producers moving quantities to affiliated companies in export markets and the prices accorded to these movements are not representative of a true third party market.
Supplies of Group l base oils are exceptionally tight, with most producers around Europe looking after their own domestic users rather than offering quantities of material for export.
The crazy thing is that for the first time in most players’ experience, domestic prices are actually pitched lower than any export offers, which may have been heard in the market. There have been instances of some material being offered into the Turkish market from Greek suppliers, although these quantities are relatively small, but are the only ‘export’ transactions being reported.
There are a number of reasons for the dearth of Group l grades, the first being the knock-on effects of the Russian invasion of Ukraine, which for whatever reason has almost halted the supplies of Russian export barrels coming out through the Baltic and Black seas. There are some reported shipping fixtures and inquiries for material to load ex Svetly and Liepaja, suggesting that the only barrels coming out of Russia are through Lukoil. Material from Rosneft and Gazprom appears to have simply stopped.
Whether this is because of logistical issues such as rail services being diverted, whether these products have been declared strategic supplies that should be directed to military use only, or whether refineries within Russia are producing increased quantities of fuels rather than base oils, is not at all clear. Another factor is said to be that Russian domestic markets are showing increasing demand.
Another reason behind the shortages is the number of planned maintenance turnarounds that have been planned for almost all Group l refineries around Europe. Some turnarounds are more protracted than others, with the base oil unit at Livorno refinery rumored to have ceased production on a permanent basis.
Prices are impossible to pinpoint, and the numbers in this report merely reflect levels that could be quoted in the market should product become available from any of the Group l sites
Solvent neutral 150 values rose to between $1,455 per ton and $1,525/t, while SN500 is at $1,635/t-$1,675/t, both on an FOB basis. Bright stock is unavailable in any quantity for export sales and so are hypothetically priced at $1,825/t-$1,900/t.
Producers are being bombarded with enquiries for export quantities, but the answer remains the same: No availabilities.
Prices for sales within Europe have taken a strange turn and are now below those of the hypothetical export numbers – by €20/t-€40/t – due to actual prices being recorded in the markets from May 1. These levels were agreed between sellers and buyers without too much negotiation since sellers announced their prices based on a cost plus basis, and issued these numbers to regular buyers who had little choice other than to accept if they wanted limited supplies of Group l grades.
Group II base oil prices around Europe are being impacted by the lack of availabilities. This situation has added to the raw material cost increases with demand growing at a time when there are fewer imports arriving from the U.S and no indications of material moving from Asia-Pacific to European ports. There are no reported spot trades since all available barrels are going into regular or contracted buyers, who are being told that no extra availabilities are possible and that some suppliers are contemplating allocations should the situation become critical.
Some domestic production is being necessarily diverted away from Europe to developing markets such as South Africa, and this may open European doors for supplies coming in from a Red Sea source, adding to a number of cargoes which have arrived into the European market from that source previously.
Prices are pushed higher from May 1 and are now assessed at $1,775/t-$1,825/t (€1,690/t-€1,738/t) for 100 neutral, 150N and 220N and at $1,975/t-$2,025//t (€1,872/t-€1,930/t) for 600N.
These prices apply to a range of Group II base oils from Europe, the United States and potential imports from the Middle East.
European Group III prices are maintained at just above previous levels this week, since the last assessments made one week ago were based on offered levels for sales in May and June. The rider on these prices was in many cases that should fundamentals change radically during the ensuing period between price settlement and end of May, then sellers in some cases have reserved to right to adjust numbers should raw material costs change significantly. There does not appear to be a need to re-address prices at this stage, hence numbers will stand as agreed one week back.
Large parcels of European Group III continue to move out of the Mediterranean, the Baltic and the United Kingdom, with cargoes supplying hubs in Northwestern Europe and also to farther destinations such as the West Coast of India. Cargoes are also arriving from the United Arab Emirates, Bahrain and Malaysia to make up the complement of suppliers serving the European market.
Markets are snug at this time with the loss of Tatneft’s 4 centistoke barrels, which were traditionally moving into buyers in Eastern Europe. Replacement sources are being sought by many of the blenders who used the Russian export material, with mixed levels of success.
Prices for Group III oils without full slates of finished lubricant approvals are unchanged at €1,910/t-€1,960/t for 6 and 8 cSt and €1,885/t-€1,925/t for 4 cSt, all on an FCA basis ex Amsterdam-Rotterdam-Antwerp and Northwestern Europe.
Grades with full slates of approvals are also unchanged at €1,985/t-€2,010/t for 4 cSt and €2,065/t-€2.095/t for 6 and 8 cSt.
Baltic and Black Seas
Baltic throughput sales have faltered, with little or no Russian base oils making it across Latvian and Lithuanian borders to reach storage tanks in locations such as Riga, Liepaja and Klaipeda. Russian export barrels are moving from Rosneft and Gazprom refineries, and the reasoning behind this dearth of base oil has yet to become clear. There are rumors that the rail system was commandeered to move men and material to Russian front lines in or close to Ukraine. There are other postulations, which include the edict that base oils are to be used solely within Russia, since they are not a major source of funds due to lower values than fuels gas and Urals crude. There may be elements of all these scenarios at play, but one thing is for sure, little product is moving through the Baltic and even less is moving out of the Black Sea.
Kaliningrad remains active, with base oils transiting through Svetly terminal, and a number of shipping fixtures and enquiries are evidence of export activity. However, it was suggested that these movements are all contracted supplies that have to be honored under supply agreements. A number of early May cargoes are loading out of Riga, but suggestions are that these parcels are from stocks that have been in tank for some time and are now being disposed of to maintain cash flow and move material on a timely basis.
One large cargo of 10,000 tons will load out of Riga towards the end of this week to move material to Apapa in Nigeria, while another regular cargo loaded last week for the east coast of the United Kingdom. A further contracted parcel already moved to Dordrecht.
FOB levels are assessed higher, with SN 150 at $1,385/t-$1,455/t. SN 500 is indicated at $1,575/t-$1,620/t. Indications pertaining to any availabilities of SN 900 would come in at around $1,625/t-$1,685/t.
In the Black Sea region the Turkish lubricant market is experiencing a really tough time. Local blenders are struggling to procure Group l base oils because only sporadic supplies are available from Izmir refinery, which repeatedly experiences downtime and lost production for days at a time.
Mediterranean suppliers are few and far between, with only the Greeks able to offer small parcels of Group I grades on an irregular basis. The Turkish economy goes from disaster to disaster, with inflation rampant across the country, affecting cost of living escalations on an unprecedented scale.
Cargoes from Greece with SN 150 and SN 500 and 600 on board will be priced higher than the last offering. On an FOB basis they will be priced around $1,525/t for the SN 150, with the SN 500 and 600 at $1,685/t. However, there is no confirmation of availabilities at this stage.
Imported Group ll grades sold FCA remain in the price brackets assigned to these grades from the last report. These prices were reviewed following the arrival of replenishment cargoes during the first half of April. Prices are maintained at €1,795/t-€1,845/t for the three lower vis products, with 600N falling at €1,955/t-€1,980/t. Group lll base oils sold on the same FCA basis are priced above €2,075/t-€2,100/t for partly approved grades, with fully approved Group lll grades from Spain at around €2,155/t-€2,185/t. Few buyers are looking to take large quantities of these grades because some blenders have expressed concerns that the Turkish market cannot afford finished lubricant prices with these constituents.
Middle East
Red Sea news confirms that the cargoes identified previously are all being delivered, those being parcels of Group l base oils going into Jordan and Egypt, and another large cargo two-port discharging in Mumbai and Singapore. The East African cargo into Dar-es-Salaam with 8,000 tons of Group l base oils loaded during the last week of April and has sailed for the discharge port.
The only Iranian cargo movements identified this week have been a couple of parcels of RPO going into Hazira and Mumbai. No other base oils were seen moving out of the southern Iranian ports. Local sources comment that most of Iran’s base oil production is utilized on the domestic market, with little available quantities for export sales. There are still suggestions that Iranian base oils find their way into United Arab Emirates storage in Hamriyah and Ras al Khaimah, but these small quantities are only used for local blending in the U.A.E.
A number of Group l cargoes are coming into the U.A.E. from Singapore and Rayong in Thailand. These cargoes comprise of quantities of with quantities of Group l base stocks. However, there is also a large U.S. cargo that will discharge in the U.A.E. and also Mumbai anchorage. This loaded some time back. With U.S. Gulf Coast suppliers now dry of Group l products, it is doubtful whether further supplies from that source will make their way into Middle East Gulf receivers, at least in the short term.
Following the flurry of activity and a number of cargoes dispatched from the region, Group lll exports are quieter this week. European, Indian and Chinese cargoes are already loaded and en route to their designated ports. Large cargoes are now loading out of Ras Laffan in Qatar for affiliates within the Shell system.
Netbacks for Group lll base oils loading out of Al Ruwais and Sitra are maintained, having adjusted numbers after replenishment cargoes sailed for Europe and the U.S. during April. Netbacks remain assessed at $2,195/t-$2,265/t for the range of 4 centiStoke, 6 cSt and 8 cSt partly-approved Group lll base oils.
The deal between Chevron and Neste for Chevron to take over the Nexbase grades from Sitra refinery in Bahrain has been finalized. Netbacks for the Nexbase grades are maintained at $2,195/t-$2,275/t for the range of Group lll grades.
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 sold FCA from storage in the Middle East Gulf, supplied from Far East and Red Sea producers, are being resold ex-tank, or sometimes on a delivered basis within the Middle East Gulf region. These base oils find their way into locations such as Qatar and Kuwait. Prices remain as per last report at $1,785/t-$1,835/t for the light vis grades, with 500N and 600N at $1,925/t-$1,960/t.
Africa
South African shipping news contains information regarding further composite cargoes of Group l, Group ll and Group lll base oils loading out of Fawley in the U.K. and Rotterdam. These parcels will discharge mostly in Durban, although some quantities on board are marked for Kenya, discharging in Mombasa.
The large cargo which loaded out of two ports in the U.S. Gulf, Houston and Port Arthur, will call first at Abidjan in Cote d’Ivoire, and then proceed to Apapa in Nigeria to discharge the balance of the cargo. No more news has emanated regarding the Eastern Mediterranean shipping enquiry for a 10,000-ton quantity of Group l base oils. This shipping enquiry remains something of a mystery.
Sources for procuring large Group l cargoes are drying up, with Baltic availabilities now remote and the news this week that suppliers in the U.S. Gulf Coast and U.S. Atlantic Coast are also experiencing a dearth of availabilities. With mainland Europe totally dry and bereft of any availabilities for some time to come, it is becoming difficult to source suitable cargoes of Group l grades to supply receivers in Nigeria. There is real concern that this export market could face supply problems over the next few months.
Prices are updated this week, taking into account offers that may be forthcoming in the future, as long as quantities are made available to supply the Nigerian market.
CIF/CFR prices will probably be offered at the following levels for any further supplies going into Apapa. Levels will be around $1,595/t-$1,645/t for quantities of SN 150, SN 500 prices will be offered at around $1,695/t-$1,745/t, and SN 900 will be priced at $1,795/t-$1,855/t, with any available bright stock perhaps at $2,150/t-$2,250/t, but realistically, there are no possibilities for large slugs of bright stock anywhere around the system at this time.
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.