EMEA Weekly Base Oil Report
Availabilities continue to mount in some sectors of the base oil market within the European, Middle Eastern and African regions, with API Group I and Group III within Europe leading the way in this context.
Group II supply and demand looks fairly balanced at this time, with no indicators this will change before year-end, and possibly not until after new production comes on stream in Rotterdam during the second quarter of 2019. Even after this start-up, the market may not alter drastically from the supply side, due to a downturn in the number of import cargoes necessary to cover an ever expanding part of the market.
Crude had another negative week, with prices falling by $2 per metric ton to $3 per barrel across the various marker crudes throughout the regions. Dated deliveries of Brent crude has fallen to $71.05 per barrel currently, in respect of January front month settlement. West Texas Intermediate crude has also dropped to $60.90 per barrel, still for December front month. During the week both crudes showed lower levels than today, with dated deliveries of Brent crude marginally remaining above $70 per barrel.
ICE LS Gas Oil trended lower to stand at $670 per metric ton still just for November front month, some $10/t down on last week’s level.
Prices were established from late London ICE trading on Monday, Nov. 5.
Base oil prices still remain critical in the sense that the premium for these products versus distillate fuels is almost negligible. Producers want to see healthy positive premiums for base stocks due to higher processing and refining costs. With wider availability for many base oils, the picture appears bleak from a producer’s side. That’s because the year-end traditionally spells out lower pricing due to inventory clear outs, which many refiners and re-sellers will try to achieve before the end of December.
Europe
European Group I export prices for spot business are stable to weak, with sellers trying to maintain current price levels, but mostly in vain. Some are trying to move material on a prompt basis rather than wait until December, whilst others are prepared to hold back maintaining their prices in offers in spite of buyers’ counters. That may ultimately erode numbers to the extent that sellers will have to discount severely to guarantee sales. Still, many traditional export destinations for European supplies such as West Africa are being covered from alternative sources such as U.S. Gulf Coast and U.S. East Coast. Prices are therefore trending lower this week, showing inherent weaker numbers, as buyer’s counters eat into offered levels. Light solvent neutrals are assessed between $665/t-$685/t, with SN500 and SN600 coming lower to between $675/t-$690/t. Bright stock, whilst also showing slightly weaker, remains in relatively higher demand due to a number of buying pockets, limited production and supplies of this grade. Bright stock now trades between $875/t-$900/t.
The only respite for base oil producers is that again raw material costs may have dropped this week, alleviating the situation where sellers incur a loss in moving material. The above price levels refer to large cargo sized parcels of Group I base oils FOB out of mainland European supply points, always subject to availability.
Group I domestic and local prices within Europe in respect of Group I base oils are also under pressure. Sellers are holding on to monthly negotiated prices and trying not to get into conversations with their buyers, which will evolve into prices moving lower. With export sales at a low, availabilities of Group I grades increased. With buying options abounding, buyers are moving around, picking up discounted deals wherever they can, without breaking contract volume commitments. Some buyers mentioned this week that with a general move to Group II base stocks happening they are looking to establish contracts for supplies of bright stock for next year. They reckon that should the quantum leap to Group II start from next year, they will still require quantities of bright stock to be able to meet blending of specific grades. They are advised by some sellers that they will not enter into bright stock-only contracts on a smaller scale, and insist that buyers should take quantities of Group I neutrals to balance the supply sheet.
The differential between local prices and export numbers is maintained this week. That’s due to both sets of numbers moving lower and is reckoned to show domestic prices being around €45/t-€100/t higher than export levels. The lower end of this spread pertains to bright stock, whereas the differential between export and domestic prices is smaller than for solvent neutrals.
Group II prices are maintained as last reported, with the market having witnessed varying approaches ranging from one supplier to another. The bottom line is that prices across the board, from one supplier to another, moved closer together with few suppliers now outside the main fold. The range of approvals for Group II grades can still be an issue for the European market, with full ACEA and European OEM approvals not available for some of the grades being imported. These grades, whilst not technically inferior, do not carry all the approvals necessary for some finished lubricants and hence are being sold around the markets at lower prices. These products are now targeted at export markets such as those in African locations and other areas where Group II grades are used as feedstock to produce grades such as transformer and electrical oils.
Prices remain unchanged this week, with FCA and truck/barge delivered prices for the light vis grades, 100N, 150N and 220N, between $895/t-$945/t (€785/t-€825). The heavier vis 500N and 600N grades are between $965/t-$1010/t (€845/t-€880).
In Group III markets prices are stable to weak, with just a hint of the historical oversupply situation rearing its head. This notional situation is bringing a wave of doubt to the European scene where buyers sense they can achieve lower prices by negotiating with different suppliers of partly-approved grades, and then using these price levels to compete with fully approved suppliers, who are also struggling to maintain the higher prices achieved of late. However, demand is healthy for these grades, and quantities brought on to the markets were taken up by buyers without too much coercion.
For the partly-approved grades, FCA euro prices remain stable this week, between €760/t-€770/t ( $880/t-$890) in respect of 4 centiStoke grades, with 6 cSt material at €770/t-€780/t ($895/t-$905) and 8 cSt material between €780/t-€785/t ($900/t-$910).
Fully approved Group III base stocks holding ACEA and European OEM approvals are also unchanged at levels between €820/t-€860/t in respect of 4 centiStoke grades, with 6 cSt material between €845/t-€895/t, and 8 cSt at around €825/t-€855/t, these prices being on the basis of levels FCA Antwerp-Rotterdam-Amsterdam.
The prices above do not reflect prices for material which is delivered in bulk cargoes to larger users. Prices in respect of these trades may be considerably lower than FCA levels above.
Baltic and Black Sea
Baltic trading is slow at the moment perhaps due to the proximity of Baltic prices to those found around mainland Europe. Normally, Baltic levels are pitched lower than mainstream European prices, reflecting the freight costs of moving these products to the main markets and also the overall lower specifications in respect of the Baltic material. Buyers believe that Russian export prices for Baltic supplies are pitched too high, and will have to be discounted before spot prompt sales can be effected. The traditional outlets for large parcels of Baltic material are also not open for trade at this time due to lower cost Group I grades moving into markets such as West Africa. Alternative sources such as U.S. Gulf Coast and U.S. East Coast have taken over where the Baltic markets left off, and have largely excluded Baltic trades from taking place.
Contract trades into Antwerp-Rotterdam-Amsterdam, Scandinavia and the United Kingdom are still active, although this trading is limited. That’s because many of the supplies into the U.K. and northwestern Europe are based on spot trades, which have to be competitive on prices and quality. With plentiful avails of mainstream supplies of Group I in northwestern Europe and the Mediterranean, these options are deemed more favorable. Some intra-Baltic movements of material coming from Poland are being delivered into Latvia, which may be more competitively priced than Russian export levels. These movements may present opportunities to load larger cargoes, incorporating various grades which could save on one-port loading for large export cargoes.
With no news of prices being decreased this week, FOB prices are maintained at $625/t-$650/t in respect of quantities of SN150, with SN500 between $645/t-$675/t. SN900 FOB prices based on CIF offers into Nigeria are indicated at around $695/t, with bright stock ex southern Baltic between $845/t-$865/t FOB.
Turkish trade still plays a major role in Black Sea activity, although this role has been somewhat subdued over the last few months due to the economic downturn in Turkey. That affected factors such as the exchange rate between Turkish lira and the U.S. dollar. Although this situation started to correct itself, there is still some way to go. With many local Turkish blenders dependent over the last few months on purchasing base oils locally from Izmir refinery, in local currency, this proved exceptionally expensive.
Some players changed tack and elected to start looking at Mediterranean and other Black Sea cargoes. Although these incidents are not back to historical levels, there are signs that trade is again starting between Mediterranean and importers in Gebze, Turkey and Derince.
Prices in respect of these offers have not yet been disclosed. They can be assessed based on European FOB prices and are estimated to be in the ballpark of $690/t-$710/t in respect of quantities of SN150, with SN500 at around $720/t-$740/t. Small quantities of bright stock may also be included in supplies from Spain and Italy, which is reckoned to be landed into Gebze, Turkey, at around $910/t-$935/t.
There may also be opportunities for delivery of Group III material from Mediterranean and Middle East Gulf sources, due to Russian weather logistics preventing supplies coming out by barge.
Kavkaz, Russia, remains quiet but it is rumored that some supplies destined for this outlet are being re-routed to other Black Sea receivers in Bulgaria and Ukraine, although this has not been ultimately confirmed by either buyers or sellers. Talks continue from United Arab Emirates sources regarding another supply from the STS operation at Kavkaz, Russia, being planned for later this month. Prices purely indicate on basis of STS at around $575/t in respect of SN500, with SN150 around $560/t.
Middle East Gulf
Red Sea reports only a few enquiries for tonnage to move Yanbu-sourced base oils to the west coast of Southern India.
The U.S. administration granted a delay in the imposition of sanctions for crude to be delivered to a number of receiving countries, including India. It is unclear whether this grace period also applies to other exports such as base oils, with clarity sought on the matter. Iranian exports continue, with a single Iranian flagged vessel again used to take cargo to Mumbai. What is not clear is that with vessel owners being reluctant to operate charters in Iranian waters due to the U.S. restrictions – which would be placed on owners and vessels should this be identified – is there leeway for these owners to operate within this grace period? No Western ship owners who trade in and out of the U.S., or with U.S. entities, will risk being blackballed by U.S. authorities should they operate in Iranian waters.
The consensus from talking to ship owners and local representatives in the United Arab Emirates was that the risk was not worth taking and that few if any foreign flagged vessels would operate to lift Iranian cargoes of base oils. With very few Iranian flagged vessels sized and appropriate for the carrying of base oils, trading may be very difficult to conduct, other than by importing and re-exporting through U.A.E.
Offers from the U.S. Gulf Coast and U.S. East Coast may change the dynamics of the supply of Group I base oils into U.A.E. and the west coast of India with material on offer for delivery in December and January. The positive for a January supply could be that the cargo would be on the high seas on Dec. 31, and thus not from part of stock valued in-tank at that time, saving inventory costs and taxes.
Price indications for SN500/600/650 from the various sources is assessed at around $735/t CIF/CFR U.A.E.
Group III base oils sourcing from Middle East Gulf will have notional FOB rates appraised at the same levels as last week, although some sources reported that producers were keen to edge prices upwards. This may be curtailed by the large quantities of material which are being made available around the global markets for this type of base oil.
Notional FOB levels are maintained between $815/t-$850/t FOB Al Ruwais and Sitra in respect of 4 centiStoke, 6 cSt and 8 cSt partly-approved base oils moving into the western markets. Fully approved material marketed by Neste, which is holding full U.S. and European approvals from Sitra refinery, remains at a netback between $865/t-$895/t in respect of 4 cSt, 6 cSt, and 8 cSt material which moves to European, U.S. and other western markets. Eight cSt material exported to eastern destinations may produce lower netbacks due to significantly lower local selling prices.
The numbers above refer to notional FOB levels established on a netback basis using published freight rates, taking into account advised local selling prices, plus notifications of bulk CIF/CFR cargo prices from various sources.
Group II base oils involved in break-bulk operations in U.A.E. where smaller parcels are sold locally on basis FCA or delivered by truck or flexi are again deemed to have prices rising this week. This is perhaps in response to source prices firming.
Levels for fully approved light grades 100N/150N/220N are estimated to be higher by around $10/t and are priced between $1085/t-$1030/t, with 500N/600N between $1155/t-$1195/t. These prices refer to Middle East Gulf delivering small quantities of less than 25,000 tons per load, but often with a total quantity of up to 300 tons per offtake. Prices may vary with destination and distance from hub supplies.
Africa
Trade between North Africa and the Mediterranean reports a large purchase of bright stock going into Egypt, both for local blending use and also supplies under the nationalized company Egyptian General Petroleum Corp.’s requirement under the current contract. Requirements are also under appraisal for supplies of Group I grades, including bright stock to move into Mohammedia in Morocco, and at the same time there are rumors of a large Libyan requirement, which may be covered again from a Greek source.
West African markets are steady amidst reports of more U.S. cargo, which has been purchased for Nigerian receivers. The 12,000 ton parcel out of Pascagoula, Mississippi, has already loaded and will arrive into Lagos around Nov. 20 to 25. This Group I cargo will consist of heavier grades mainly, with a large quantity of bright stock aboard. Nigerian markets are alive and awake to the fact that year-end is approaching, with traders and receivers with all eyes on all potential markets to see where year-end “bargains” may become available. Enquiries were made of suppliers in the Baltic, northwestern Europe and Mediterranean, as well as U.S. Gulf Coast and U.S. East Coast sources.
The latest cargo numbers are not yet disclosed from the U.S. East Coast source, but making informed assessments, Nigerian price levels are indicated between $675/t-$700/t in respect of the light solvent neutrals SN150-SN180, SN500/600/650 between $695/t-$720/t and bright stock at around $885/t-$920/t. SN900 from Baltic, as an offer indication only is expected to be around $730/t-$755/t CIF/CFR.
These prices are in respect of large parcels in excess of 10,000 tons total of Group I base oils delivered CFR or CIF into Apapa port, Nigeria.
Re-refined light Group I+ material with high VI, excellent Noack volatility and color is on offer into Nigeria in flexies, this material being of high specification due to the quality and type of re-claimed oils which are used in the re-refining process. Prices for these products have been heard at around $595/t CIF Lagos port.
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