EMEA Base Oil Price Report
BY RAY MASSON
Base oil prices are coming under pressure from a variety of factors that differ depending on category. API Group I prices are being squeezed by demand reductions that may be part of a seasonal cycle or signs of economic downturns in major markets such as Germany, Italy and Spain.
Group II prices are relatively stable, with one major producer trying to impose increases for October, although this move is being met with resistance from buyers saying they have ample choice in the Group II market and will change suppliers if needs be.
Group III prices are weakening due to the number of supply options available in the market and the competitive nature of this segment. Buyers are spoilt for choice of grades with and without full ranges of finished lubricant approvals.
It seems clear by now that the drone attacks in Saudi Arabia have not had any real effects on crude markets, and that supplies of Saudi sourced crudes are finding their way into refineries as normal. Whether this will change over time is unknown, but that has been no word of allocations or force majeure.
Crude prices eased the past week, with dated deliveries of Brent crude falling $3 to $61.00 per barrel for November front month settlement. West Texas Intermediate slid to $55.20/bbl, also for November front month. ICE LS gas oil fell back to $592.00 per metric ton for October front month. These prices were obtained from London ICE trading late Monday.
Europe
Group I export prices in Europe appear to be weakening as sellers lower offered prices in order to move stocks held in storage. Demand is weak, with a limited number of export markets open to the European arbitrage at this time. Traditional outlets in West Africa and South America are being tapped by suppliers taking material out of the United States Gulf Coast, whilst only one large export cargo to the Caribs has been indentified moving out of a number of Mediterranean supply points.
Maintenance turnarounds are having little effect on the overall availability of Group I grades, and sellers are trying to line up sales for October as early as possible.
Prices are possibly $10/t-$20/t lower this week, particularly in the case of bright stock, which could be described as long on supply. Prices for solvent neutral 150 are assessed between $565 per ton and $590/t, while SN500 is at $575/t-$595/t, both on an FOB basis. Bright stock values definitely moved lower to $650/t-$675/t.
The Egyptian General Petroleum Corp. tender for the fourth quarter has been awarded for smaller quantities than recent quarters. This will only exacerbate the length of the bright stock supply situation within Europe since other sources such as Red Sea suppliers are now competing for this tender.
The prices above refer to large cargo-sized parcels of Group I sold ex mainland European supply points, always subject to availability.
Values for Group I sales within Europe are also coming under pressure, with suppliers complaining that demand has not approached normal levels following the holiday period. Prices are adjusted lower this week, but the differential between domestic Group I levels and export pricing is unchanged, with intra-regional sales now €85/t-€100/t above export levels.
European Group II prices remain stable but an inherent weaker sentiment is creeping into this part of the base oil market. This against a backdrop where one major producers has tried to push prices higher for October sales, possibly unsuccessfully, but nevertheless with prices firming in other parts of the world perhaps they can be excused for trying to lift the European levels at the same time.
However European Group II prices are much higher than Group I and are still regarded as the highest around all the global markets, these factors not being lost on buyers of these grades throughout Europe. Demand is weaker than forecast and this is also tempering any suggestions that prices are about to rise.
Group II prices are therefore maintained with FCA levels at $700/t-$815/t (€625/t-€730) for light-viscosity grades and 500 neutral and 600N at $720/t-$825/t (€640/t-€740). These prices cover grades with and without finished lubricant approvals.
Group III prices are under pressure from the sheer number of competitors vying for position in the European arena, which promises potential for enormous Group III growth over the next 10 to 15 years. Material produced locally is competing with imports from the Far East and the Middle East Gulf, and there is a sense that the segment is headed for oversupply.
Prices for partly approved oils are assessed a bit lower this week, at €645/t-€690/t for 4 centiStoke grades and €650/t-€700/t for 6 and 8 cSt, on an FCA basis ex hubs in Northwestern Europe. Fully-approved grades are mostly higher, although it must be stressed that in some cases net values can be almost aligned with partly-approved oils. Prices dipped this week to €785/t-€850/t for 4 cSt, €820/t-€910/t for 6 cSt and €790/t-€865/t for 8 cSt, FCA Antwerp-Rotterdam-Amsterdam.
Baltic and Black Seas
Baltic avails appear to be improving with more plentiful supplies of material perhaps due to Russian domestic and East European markets starting to decline with the seasonal downturn expected. Thus Baltic distributors and resellers are able to bid at the same price levels as previously, when their offers were turned down by Russian refiners, in favor of better margin trades in the local markets. Now they are being greeted back into the fold and are able to take material through the Baltic terminals which can compete for export destinations such as West Africa and also for European mainland, the United Kingdom and Scandinavia.
The enquiry for Nigeria is still in negotiations with no further news on total quantities or the timing for this cargo to load.
One cargo of around 5,500 tons is moving into Antwerp-Rotterdam-Amsterdam from Kaliningrad and the U.K. enquiries for material to load for arrival into the U.K. prior to the Brexit date of 31 October are in progress.
Prices are slightly weaker with distributors and resellers able to adjust prices lower whilst maintaining acceptable margins with FOB numbers in respect of SN150 now between $470/t-$495/t, and with SN500 between $475/t-$510/t. Bright stock ex Gdansk is also assessed lower, in-line with the European oversupply of this grade, and is now gauged to lie between $660/t-$675/t FOB.
Black Sea reports suggest that there will be another one or perhaps two cargoes loaded from the Kavkaz, Russia, STS facility. In addition there will also be other Russian exports out of Temyruk going into Turkish ports. Prices in respect of Kavkaz, Russia, and other Russian exports remain at extremely low levels at around $455/t for SN500 with SN150 suggested as low as at $435/t.
Mediterranean produced Group I base oil cargoes appear to have made a comeback into Turkey, with a couple of Greek offers accepted by buyers. There may be some further requirements for imported Group I cargoes to go into Turkey since the local refinery at Izmir has ceased production in the meantime. The Turkish situation is anything but positive with the economy torn between low interest rates as proposed by the President and realistic rates as suggested by the Central Bank. If the low interest rates are adopted the economy could implode, bringing back many problems for exchange rates against major currencies such as the dollar. In an otherwise dull market anyway, this could tip the country into a massive decline which would not be easy or fast to escape from.
Mediterranean Group I offers have prices indicated at $569/t in respect of SN150 with SN500 at $575/t. SN600 has been heard at $587/t, along with smaller parcels of bright stock at around $730/t CIF.
Quantities of Group II and Group III base oils are being made available on an ex-tank basis in Turkey, with smaller cargoes arriving with Group III base oils from Spanish producers. There are also a number of resellers touting Group II avails with some of these acting as distributors for major producers, but also others who are taking material in flexies from suppliers and traders in Far East.
Prices in respect of Group lt avails ex-tank are around $790- $825/t, with partly-approved Group III grades advised to be in a range between $785/t-$845/t depending on payment terms and quantities purchased.
Middle East Gulf
Red Sea reports confirm that the Jordanian requirement for around 3,000 tons+ of Group I base oils delivered into Aqaba, has been covered by the Saudi Arabian producer.. Another large parcel of 15,500 tons + will be loaded this week for discharge into the west coast of India. There will also be a follow-up cargo of a similar size loading for various receivers in United Arab Emirates, the west coast of and the east coast of India, again on a prompt basis. There are also two separate smaller cargo enquiries for supplies into Egypt which may suggest coverage of the EGPC contract.
Group I trade in Middle East Gulf still contains pricing reports for Iranian SN500 and SN150, although no reported cargo movements have come to light through normal channels. Sources in U.A.E. still maintain that base oils are still being moved out of southern Iranian ports using small vessels delivering these quantities into local U.A.E. receivers. Prices in respect of these supplies of Iranian SN500+ are suggested at a level of around $525/t FOB. There are rumors that Iran is short of SN150 base oils and would normally look to import material to supplement local supplies. This action may be difficult, although there has been interest to take material through U.A.E. which may be supplied from Black Sea sources.
Coincidentally an offer for a Russian Group I cargo ex Kavkaz, Russia, for receivers in U.A.E. is heard at around $548/t in respect of SN500 and $528/t for smaller quantities of SN150.
Group III FOB numbers ex Al Ruwais and Sitra ports are re-assessed this week, with prices starting to dip as a result of the erosion taking place in destination markets such as China and India.
Assessed FOB price levels are lower and are assessed between $680/t-$720/t in respect of the three Group III viscosity grades of partly-approved base oils. 8 cSt grades going into India and Far East locations will produce lower contribution levels by around $100/t due to lower local selling prices. These ranges of partly-approved Group III base oils are being sold FOB through Adnoc, and both FOB and CIF by Bapco.
The range of ‘Nexbase’ Group III base oil simultaneously loading ex Sitra refinery in Bahrain, which is marketed by Neste, will produce higher netbacks due to these oils achieving higher selling prices due to Nexbase holding the full range of European OEM approvals. Notional FOB or netback levels are adjusted and assessed between $780/t-$885/t in respect of 4 centiStoke, 6 cSt, and 8 cSt grades which may be delivered into othe global markets.
Nominal FOB prices on a netback basis are based on prices derived from regional selling levels, less marketing, handling and freight costs.
Prices in respect of Group II base oils going into Middle East Gulf are altered for the imported material sourced from U.S.Far East, Saudi Arabia and Europe. With Far East prices rising by some $10/t this week, and with one major importer trying to push levels higher for October, resale price levels FCA ex U.A.E. hub storage are now considered to be in ranges between $785/t-$890/t in respect of the light vis grades 100N/150N/ 220N with 500N/600N between $795/t-$910/t.
Africa
North African markets report that the EGPC tender for Q4 has been awarded and shipping enquiries suggest that some of the coverage may issue from Red Sea sources. This is not yet confirmed and traders may still be involved. There are no reports regarding the start-up for the Egyptian refinery which has been closed for some two years, although market sources close to this project have indicated that some progress will be made during October.
South African sources confirm that the large cargo of mixed Group l, Group II, and Group III base oils is loading this week and will arrive into Durban during early November with a total quantity of 12,000 tons of base oil. Loading out of two Mediterranean ports, this cargo will include the supply into Tema in Ghana for 5,000 tons of Group I grades.
A further cargo loading out of an Italian Mediterranean port is being assessed for some 7,000 tons of Group I base oils to be delivered into West Africa It is considered that this parcel will go into Nigeria. There are no further reports of cargoes coming out of the USG for Nigeria, although with another Baltic enquiry on the table, the cargo out of the Mediterranean may be a substitute for the Baltic supply. The first of the three large cargoes of base oils loaded from Baltic, USG and Antwerp-Rotterdam-Amsterdam should be arriving into Apapa during the next week.
Prices assessed for Group I base oils are maintained this week, although the smaller 4,000 tons cargo is largely ignored for purposes of reporting market prices, due to rumors and heresay that the selling prices in respect of this smaller parcel are around the same as for larger cargoes. Prices remain at current levels for material going into Nigeria with Group I levels between $695/t-$720/t in respect of SN150, SN500 between $695/t-$720/t, and bright stock between $875/t-$910/t. SN900 is indicated at $715/t-$725/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.