EMEA Base Oil Price Report
As the Covid-19 coronavirus spreads, base oil markets are anxiously awaiting some form of respite. Markets are slowing in many areas with demand for finished lubricants expected to fall further over the coming months.
Crude prices have retreated to new lows following alarm bells ringing for major economies like China and Japan. Dated deliveries of Brent crude had almost crashed through the $50 mark, but responded on Monday to post at $51.70 per barrel for May front month. West Texas Intermediate crude has also fallen and is now at $46.75/bbl, still for April front month.
ICE LS Gas Oil has dropped drastically to a new level of $456 per metric ton for March front month settlement, around $33/t lower than last reported. These prices were obtained from London ICE trading late Monday.
Europe
European Group I export prices are hanging on to current levels, but the pressure is building with the collapse of crude and petroleum product prices. Buyers are suggesting that prices should reflect the lower demand and also the lower fundamentals, maybe pressuring sellers to offer slightly lower numbers this week. Until more general price movements are sustained, prices are maintained at the moment.
Levels for solvent neutral 150 are now established between $565/t-$590/t with SN500 at $575/t-$600/t. Bright stock is stable and remains at $655/t-$685/t. These levels refer to cargo-sized parcels of at least 2,000 tons, sold on an FOB basis from European supply points, always subject to availability.
Regional European Group I prices are reported as stable, with few signs of any lower prices being shown for March. If markets start showing lower prices this may affect levels for next month, but at the moment stability is the name of the game. Some buyers have requested that lower prices be considered for material to be collected or delivered during March. Sellers appear to be sticking to their guns at the moment, and have confirmed the same price levels as for February.
Producers are commenting that the lower crude and feedstock prices have not yet filtered down to output, therefore it may be some time before the effects of lower fundamentals are felt in the marketplace. They also add the comment that the lower raw material costs may only be a temporary blip, and that crude prices may start to firm on the back of lower inventories around the globe.
The price differential between domestic prices and those applying to exports remains unchanged this week with the differential assessed at €85/t-€110/t.
With the Group II quota limits being reached very soon, there are fears that there could be the formation of a two-tier market, with some smaller buyers having to pay higher prices reflecting the import duty element which can be as much as $35/t. Larger buyers who are contracted with major suppliers will possibly not pay higher prices, since these suppliers wish to protect market share at all costs, and will continue to compete with market prices, taking account of any duty out of margins.
The establishment of a “second” higher prices market will be punitive to smaller buyers who are reliant on quantities of imported Group II grades which come into the EU in flexies from countries which do not enjoy free-trade status. Inevitably, some have already commented that finished lubricant prices will have to rise to take account of the increase for base oil.
There appears to be a rise in offers for material coming from South Korea where the traditional markets into China and Japan have been badly affected by the Covid-19 spread. FCA levels for the moment are maintained, although some lower offer prices have been heard but not confirmed. Assessments are at $755/t-$800/t (€690/t-€755/t) for the two lighter viscosity grades (150 neutral and 220N), with higher viscosity grades (500N and 600N) at $790/t-$825/t (€730/t-€755/t).
These prices apply to Group II oils with full slates of finished lubricant approvals as well as those with partial slates or no approvals.
Group III European markets are once again being exposed to what could develop into a potential oversupply scenario with quantities being offered from sources in the Far East. Sellers are trying to find alternative outlets to replace existing markets which simply are not there at the moment due to the virus situation. With no duty tariff applicable to Group III base stocks, the European markets are wide open to surplus production, and ultimately this may cause prices to slide, although this has not happened as yet.
Prices are maintained this week with partly approved Group III base oils in a range at €715/t-€725/t for 4 centiStoke grades, with 6 cSt and 8 cSt base oils between €720/t-€730/t. Prices refer to FCA supplies ex Northwestern European hubs.
Prices for European OEM fully approved Group III base oils are reassessed at €760/t-€825/t for 4 centiStoke base oils, with 6 cSt grades at €800/t-€855/t and 8 cSt oils at €775/t-€860/t.
Baltic and Black Seas
Baltic traders have confirmed that another large parcel of Russian export grades was booked and will load for receivers in Apapa, Nigeria. The cargo of around 15,000 tons appears to have loaded out of Kaliningrad, which has no draft restrictions to load a large vessel.
This is the previous large enquiry, confirmed as firm towards the end of last week. Due to a relatively tight market, prices seemed to hold at higher levels, although some offers showed lower levels that may start to come into the Baltic market if supplies start to lengthen. Sellers are still confident that prices will hold up since availabilities are only showing for April loading from resellers and distributors, with no prompt barrels available on a spot basis.
The enquiry for Angola is still out in the shipping markets, although this week may bring news that this was either confirmed or cancelled.
Cargoes were nominated to load for Antwerp-Rotterdam-Amsterdam and the United Kingdom out of the Baltic, with a mixture of contracted supplies and spot deals arranged some time back in January.
Prices in the Baltic remain unaltered this week, although there are some signs that this market may follow the main European drift if the virus situation bites into regional demand. SN150 is around $525/t-$545/t with SN500 also in the same range. SN150, SN500 and bright stock loading out of Gdansk are indicated between $565/t-$595/t in respect of the neutrals, with bright stock between $645/t-$670/t FOB, slightly lower at the top end of the ranges.
A further Kavkaz, Russia, STS cargo is arranged for loading during the first half of March. At this stage the destination remains unclear, although it is possible that this is a follow-on cargo for receivers in United Arab Emirates. The balance may be delivered into Singapore, but news is that that market has lost much of its impetus, and the cargo may be surplus to requirements right now. More information is sought on the possible outcome.
STS prices in respect of Russian export grades are assessed at around $460/t-$475/t in respect of SN500, with smaller parcels of SN150 at around $460/t. Offers of Russian export barrels to Turkish buyers in Gebze, Turkey and Derince are indicated at around $530/t in respect of SN500, with SN150 at $520/t CIF.
Mediterranean offers from Greek sellers are assessed at $620/t in respect of SN150 with SN500 at $625/t basis CIF Derince. SN600 is indicated at around $630/t.
Within Turkey, Group II and Group III base oils are offered on an ex-tank basis and prices are maintained with selling levels indicated between $795/t-$825/t in respect of the low and high vis Group II grades, with partly-approved Group III base oils between $810/t-$845/t.
Middle East Gulf
Red Sea shipping reports show a number of large cargoes of Group I and Group II base oils loading out of Yanbu and Jeddah for receivers in Pakistan, Fujairah and Sharjah. There are also reports of two large cargoes for Indian buyers, one cargo going into Mumbai anchorage and another discharging in Chennai.
The part-cargo from Kavkaz, Russia, in the Black Sea will discharge during the second half of March on arrival into Hamriyah. Price in respect of SN500 is indicated at around $548/t CIF U.A.E.
With the arbitrage firmly closed for Group I supplies from Europe going into U.A.E., receivers are dependent on Black Sea barrels and also a dribble of supplies coming out of Iran. Local sources in U.A.E. confirm that small vessels are bringing SN500 and SN150 from Iranian ports, and discharging into shore tanks in Sharjah and Ras al Khaima. Prices are put at around $565/t in respect of SN500, CFR U.A.E., and some material was transshipped to the west coast of Indian ports.
Additional Group I base oils are supplied from Saudi Arabia into Jebel Ali, Fujairah and Sharjah on a regular contract basis.
The turnaround at Al Ruwais refinery is underway to replace catalyst in the cracker. Group III and Group II base oil availability is not affected since adequate stocks are retained to service export markets. The extent of the effects of the coronavirus on sales of Group III base oils from the U.A.E. and Bahrain has not been fully assessed as yet, and may only be reflected after some time. China is obviously a significant market for both Adnoc and Bapco, and the economic slowdown in that region will have a marked effect on sales of Group III base oils.
Group III base oil exports from Middle East Gulf sources in Al Ruwais and Sitra have notional FOB prices maintained. FOB levels are assessed between $630/t-$675/t in respect of partly-approved range of Group III base oils selling into Europe, U.S., India and the Far East. Eight cSt grades that are sold into Indian and Far Eastern locations will have lower FOB prices due to local selling prices being discounted in those regions.
“Nexbase” branded Group III base oils which are exported from Sitra refinery in Bahrain, and marketed by Neste, will have higher FOB rates, with notional netbacks between $745/t-$810/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.
Group II base oils are delivered in large quantities on a bulk basis to distributors in U.A.E. The range of grades is then resold to smaller receivers and blending operators throughout the Middle East Gulf regions, and these Group II grades have selling price levels indicated on an FCA basis out of U.A.E. hub storage between $785/t-$920/t in respect of the light vis grades 100N/150N/ 220N, and 500N/600N between $810/t-$925/t. These prices are based on FOB numbers from Far East, Red Sea and U.S. Gulf, plus freight, storage and handling, and distributor overheads and margin.
Africa
Cross-Mediterranean and intra-Mediterranean traffic from European hubs into North African ports are expanding again, with cargoes assigned for Mohammedia from Italy and Spain, and supplies of bright stock from the Red Sea into Alexandria in Egypt. The announcement of new supply contract for the second quarter is due this week, with the incumbent supplier expected to retain the business. European suppliers and traders are not too keen on this trade at the moment, since it involves a large quantity and sale of bright stock alone. Also, Israeli buyers are looking for all three types of base oil, with Group I offered from Italy, along with Group II and Group III from Spain
Nigerian buyers are back in the market looking for future cargoes of Group I base oils from either traders sourcing from the Baltic or alternative sellers moving Group I cargoes from the U.S. Gulf or U.S. Atlantic Coast. With a further parcel confirmed from the Baltic, buyers are now holding back on making further decisions for Group I cargoes. They expect that with crude and feedstock prices falling, a chance may exist that base oil numbers will start to weaken as a result of poorer demand and lower raw material costs. Nigerian receivers are sitting on the fence, trying to judge their timing for the next round of cargoes.
Prices in respect of API Group I base oils imported through Apapa are maintained this week with CFR/CIF levels indicated between $645/t-$660/t in respect of SN150, SN500 is placed between $650/t-$665/t, with bright stock between $745/t-$760/t. Blended SN900 is maintained between $670/t-$685/t.
Prices are in respect of cargoes of minimum 10,000 tons being delivered into Apapa port in 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.