EMEA Base Oil Price Report
Base oil markets have returned to full steam after the seasonal break, and buyers and sellers are trying to fathom just where prices and availabilities lie.
A few pieces are missing from the overall puzzle, however, as Orthodox Christmas celebrations took place in Russia and Greece last week, possibly denting activities in some markets.
The scene for API Group I oils is shifting, since availability of all grades is perhaps more prolific than forecast. That and the retreat of feedstock prices are making it difficult for Group I sellers to push for price hikes. Some are sticking with increased offer prices, while others are adopting flexible stances.
Group II markets are on the fence, trying to find protocols for the new quota system that applies imports of viscosity grades between 150 neutral and 600N. The European Union’s 3.7 percent duty on oil products will be applied after the first 200,000 tons of each six-month period. The market is waiting to see how importers respond to the surcharge.
Group III markets are being spooked by rumors that supply could tighten because of maintenance turnarounds scheduled simultaneously at multiple refineries and forecasts for significant upticks in demand.
Heightened tensions between the United States and Iran had put upward pressure on crude oil prices, but news of high inventories helped keep them in check. Dated deliveries of Brent crude retreated to $64.85 per barrel for March front month settlement, some $4 lower than a week ago. West Texas Intermediate dropped below the $60 mark to $58.80/bbl, still for February front month. ICE LS Gas Oil slid around $35 to $586 per metric ton, now for February front month. These prices were obtained from London ICE trading late Monday.
Europe
Prices for European Group I exports appear not to have changed during the past week, perhaps because of improved availability. Solvent neutral 150 is being offered between $545 per ton and $580/t, while SN500 is at $555/t-$580/t. Bright stock is gauged to be at $615/t-$650/t. A couple of buyers recently displayed statistics indicating that values have been practically flat for nearly a year.
These prices apply to cargo-sized parcels of at least 2,000 tons sold on an FOB basis ex mainland European supply points, always subject to availability.
Prices for Group I sales within Europe are following a similar pattern. Values have been increased for some spot sales, but contract prices seem to be holding at December levels. Impacts from a fire at a refinery in Northwestern Europe will probably be short-lived. The price differential between sales within the region and exports is unchanged, with exports €45/t-€65/t lower.
Some sources contend that Group II supply is already starting to tighten under the new quota system, though an outright shortage does not exist. When applied, the import duty amounts to $30/t, and some buyers who purchase smaller quantities of imports in flexitanks are concerned that sellers may stop supplying if forced to incur such costs. A two-tier market could develop if small purchasers are forced to pay premiums.
Prices are unchanged at $745/t-$790/t (€675/t-€740) for 150N and 220N and $785/t-$825/t (€715/t-€750) for SN500 and SN600. These values apply to oils with full slates of finished lubricant approvals and to those with partial slates or no approvals.
Group III markets around Europe are at a crossroads that could lead to further oversupply or tighter demand. It appears to be coincidence that four main Group III suppliers will undergo maintenance shutdowns within a two-month period.
One large European supplier is providing a 10,000-ton cargo to the West Coast of India, possibly to stand in for a Far East plant closed for maintenance. At same time, punters are predicting that Group III demand will be increasing because of requirements for a number of finished lubricants.
Prices for Group III oils with partial slates of approvals are unchanged at €650/t-€725/t for 4 centiStoke grades and €665/t-€740/t for 6 and 8 cSt, basis FCA supplies ex Northwestern European hubs. Prices fully approved grades are also unchanged at €740/t-€810/t for 4 cSt, €770/t-€840/t for 6 cSt and €755/t-€820/t for 8 cSt.
Baltic and Black Seas
Baltic trade has been brisk despite the Orthodox Christmas holiday. A number of cargoes loaded out of Kaliningrad, Russia, for Antwerp-Rotterdam-Amsterdam and other destinations. One vessel loaded out of the Baltic was chartered to discharge in Turkey, an unusual route that may suggest ice impinging on transport along rivers to the Black Sea. A cargo was loaded out of Riga, Latvia, for resale on the east coast of the United Kingdom.
A 13,000-ton parcel was loaded out of two Baltic ports and then topped off at an Atlantic Mediterranean supply source before proceeding to Lagos, Nigeria. The Russian barrels may have been assembled specifically for this cargo and may have carried a one-off tariff.
Baltic prices for Russian export grades are unchanged at $465/t-$490/t for SN150 and $470/t-$498/t for SN500, basis FOB. Bright stock ex Gdansk remains at $620/t-$650/t, FOB.
Black Sea reports describe a large STS cargo loading out of Kavkaz, Russia, for receivers in Greece and Singapore. It loaded over the weekend and includes 9,000 to 10,000 tons for the Far East, the balance found for Greek receivers.
STS prices for Russian export grades remain very competitive at around $455/t for SN500 and $435/t for SN150.
Offers for Russian supplies out of Azov may be interrupted for the moment and buyers left to turn to supplies out of Kaliningrad in the Baltic. Prices are expected to have remained in the same ballpark as those for barrels which would have been delivered out of Azov, and are indicated at $496/t for SN500 and $488/t for SN150, both on an CIF basis Gebze, Turkey.
Offers from Mediterranean sources in Greece moved increased but still are less than output from the refinery in Izmir, Turkey, though there was news late Monday that values for the latter would be revised this week. The rollercoaster pricing from this local source takes some understanding, since the operator raised prices at a time when it was trying to move inventory.
Offered prices for Mediterranean Group I are at $583/t for SN150 and $598/t for SN500, basis CIF Gebze or Derince, Turkey. SN600 is indicated at around $607/t and bright stock at $676/t.
Group II and Group III grades ex-tank Turkish ports are being priced at $710/t-$760/t for Group II grades and $799/t-$835/t for Group III grades with partial slates of approvals.
Middle East Gulf
Red Sea reports say bright stock cargoes continued to be loaded out of Yanbu’al Bahr and Jeddah, Saudi Arabia to cover the Egyptian General Petroleum Corp. tender in Alexandria. Larger cargoes have loaded for the West Coast of India and United Arab Emirates. Some 35,000 tons of Group I and Group II base oils were shipped during the last few days of December, and 40,000 tons more are loading now for shipment this month to Mumbai and Hamriyah, U.A.E.
Middle East Gulf news centers around Iran and the situation following the assassination of Qasem Soleimani, the Iranian revenge attacks and the eventual downing of a Ukrainian flight by Iranian defence controllers. Without delving into the politics of the region and the subsequent fallout from these acts, the consequences could have immeasurable effects on the Iranian base oil industry. Depending on the attitude of the Iranian population there could be regime change with Iran, which would completely alter the supply dynamics for supplies of base oils within the region.
Additional U.S. sanctions will ramp up the pressure on Iranian exports of crude and petroleum products, with base oils being a small, but not insignificant part of the whole. Already charter rates for vessels have escalated which will affect cargoes of Group I and Group II base stocks out of Saudi Arabia which are discharging in Middle East Gulf, whilst exports of Group III from Bahrain, U.A.E. and Qatar will be also be affected .
FOB or FCA prices in respect of premium Iranian SN500 are nigh impossible to define at this time, since there are few leads to any exported material being seen or even heard by sources in the region. At this time is decided to refrain from publishing any references to Iranian prices for base oils.
Group I offers are back on the table for receivers in U.A.E. sourcing either from U.S. Gulf Coast or USAC supply points. Prices are being indicated at $622/t CIF U.A.E. ports for SN500, with SN150 around $612/t. These levels have been marked up perhaps due to increased shipping costs. Bright stock is also indicated substantially higher at $689/t CIF.
Exports of Group III base oils ex Al Ruwais, U.A.E., and Sitra, Bahrain, have notional FOB prices reassessed on the basis of higher shipping costs due to IMO 2020 and the Iranian situation. FOB levels have dipped due to lower contribution levels, assuming that selling prices within regional markets remain competitive. FOB levels are nominally assessed between $620/t-$665/t partly approved grades selling into Europe, the U.S., India and the Far East. Eight cSt grades sold into Indian and Far Eastern locations will produce weaker FOB prices due to local selling prices being lower in those regions from prices achievable in Western markets.
Fully approved Group III grades ex Sitra refinery should provide higher notional netbacks due to these base oils being sold at premium prices, through holding the full range of European OEM approvals. However, notional netbacks for these premium base oils are also estimated lower because of the higher shipping costs and are now deemed to be between $740/t-$825/t in respect of the three main Group III grades, 4 centiStoke, 6 cSt, and 8 cSt.
Notional FOB prices on a netback basis are based on prices derived and informally assessed from regional selling levels, less marketing, handling and freight costs.
Middle East Gulf regional Group II prices are also nudged higher, since vessel operators have indicated higher freight rates due to increased fuel costs and also rising insurance premiums. With increasing costs of shipping being imposed on base oils being moved into the region, prices are subsequently adjusted upwards, on the basis that suppliers would want to maintain margins.
Prices are assessed firmer with levels on basis of FCA ex U.A.E. hub storage now at $775/t-$910/t for 100N, 150N and 220N, with 500N and 600N at $795/t-$935/t.
Africa
North Africa is showing a number of cargoes of Group I and Group III base oils moving from Sicily in the first instance, and a Spanish Mediterranean port for the second supply. There are reports of a three grade cargo of Group I base stocks supplied from Livorno into Tarragona in Spain and Mohammedia in Morocco.
No further official reports have been gleaned regarding the restart of the El Mex refinery in Alexandria which was once again to produce Group I base stocks. Severe problems were incurred, and although comments cannot be taken as an official statement, local sources have informed this report that the refinery will not re-open in the foreseeable future.
South African shipping sources have announced that a further large cargo of base oils will leave European ports and will discharge in Durban during March. This follows the cargo carried on the vessel which supplied the quantity of Group I base oils to Tema to cover the Ghana contract, and then sailed to Durban with the balance cargo of 8,000 tons of product on board.
Group I base oils going into West Africa have been loaded out of the Baltic as identified around the end of the year. Another cargo was thought possible to be loaded out of the U.S. Gulf Coast, but in fact this supply was sourced from USAC as an alternative. 11,000 tons of Group I grades have loaded out of the East coast and the cargo has now sailed to Nigeria for arrival around mid January.
Smaller cargoes for discharge into Guinea and Cote d’Ivoire are being sized up at the moment, although it is considered improbable that the normal supply covering the Ghana contract into Tema could be loaded on the same vessel, since the pattern appears to be where the vessel loading for South Africa services the Tema supply as part-cargo. This is unlikely since draft restrictions in Cote d’Ivoire and Guinea may limit vessel size. There are shipping enquiries on the market for vessel to either load Antwerp-Rotterdam-Amsterdam or Mediterranean to move a quantity close to the Tema requirement.
Nigeria news this week is an announcement that NNPC will enter the lubricants market as a branded reseller although no intimation as to base oil and additive supplies are declared. Whether NNPC will blend independently or embark on a toll blending cooperation has not been made clear, although it may be possible that the national oil company will have a local commercial relationship with an established importer of base oils to draw down from stocks which will be supplied from international sources.
With two further cargoes moving into Apapa for Nigerian receivers, feedback on latest prices has been maintained with only a possibility of higher freight costs playing a part in the economics of supply into this market.
Prices in respect of Group I base oils continue to be maintained for material arriving into Apapa port , with CIF/CFR levels indicated between $630/t-$645/t in respect of SN150, SN500 between $640/t-$655/t, and bright stock between $720/t-$745/t. Blended SN900 is indicated at $650/t-$675/t.
Prices are in respect of cargoes of minimum 10,000 tons being delivered into Apapa port, Lagos, Nigeria.
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.