The COVID-19 pandemic is once again tightening its grip on many markets – with Europe and the Americas seeing the biggest increases in caseloads and East Asia appearing the only region in recovery.
Base oil markets have not escaped the impacts, as demand for finished lubricants is suffering broadly. Europe and the Middle East have been badly affected, with new waves of infections developing in countries such as Spain, France, Germany and the United Kingdom.
The impact on base oils has been uneven. Supply of API Group I grades has remained tight as demand from export markets climbs. A lack of availability for heavy Group I grades has driven some buyers to switch to Group II oils, causing a mini-spike in demand in there. The Group II segment would not be described as tight, but some grades are becoming scarcer, and some prices have begun to rise.
Group III demand had rebounded from the low point during maximum lockdowns but now face the possibility of another downturn.
Crude oil prices fluctuated the past two weeks, as dated deliveries of Brent crude at one point dipped below $38 per barrel. By Monday prices climbed back to nearly $42.25/bbl for November front month settlement. The crack between Brent and West Texas Intermediate remained small, as the latter rose to $40.45/bbl, still for October front month.
Gas oil price levels have barely changed the past two weeks, as weaker demand kept them from following crude upward. ICE LS gas oil is currently priced at $329 per metric ton, now moving to October front month settlement.
These prices were obtained from London ICE trading late Monday.
Europe
European Group I export prices have moved higher for the few deals completed. Sellers wanting to exact every possible cent from available barrels have imposed markups. Export availabilities are extremely tight, and buyers are finding it extremely difficult to cover requirements. Consequently, prices are rising.
FOB prices for Group I grades are all higher, with solvent neutral 150 between $480 per ton and $520/t. SN500 has firmed considerably to $495/t-$540/t. Bright stock is extremely scarce in large quantities with only one offer heard for this grade at a price reputed to be around $600/t-$620/t. As noted these prices are much closer to Group II levels, which has prompted some exporters to consider supplying Group II grades as a substitute for some of the heavier Group I material.
The above levels refer to cargo-sized parcels of at least 2,000 tons of Group I base oils, sold on an FOB basis ex mainland European supply points, always subject to availability.
There is something of an enigma with prices for Group I sales within Europe, since with demand being suppressed due to the coronavirus situation in major markets, offtake of product has declined during the first half of September whilst at the same time sellers have been trying to raise prices, maintaining the differential between domestic numbers and notional levels attached to hypothetical export sales. Prices are firmer, but with buyers’ resistance increases have been held to between $5/t-$10/t. Sellers were trying for $30/t-$50/t, increases similar to exports.
With the suggestion that regional demand is faltering, some producers may be tempted back to the export markets, although with supplies being tight, this is not always a possibility.
The differential between domestic and export numbers is reduced even with the small number of export deals with the delta between the two sets of prices being assessed at €45/t-€95/t.
There are suggestions that Group II availability may have started to contract, although sources contacted this week were quick to point out that demand is starting to contract easing suggestions that this market could follow Group I into becoming shorter. The latest signs are that availabilities are in place to meet current demand, and with some to spare, therefore it is not foreseen that this market will shorten further in supply and availability terms.
There are reports of a number of blending operations taking supplies of Group II material as a substitute for non-available Group I base stocks. Operators comment that whilst prices may be higher there are benefits to be gained in using less or different additive packs, with superior specifications and quality attached to Group II grades.
Even against the backdrop of a possibility of declining demand, prices have moved upwards with increases effective at the beginning of September and further increases being announced from Oct. 1.
Group II prices are now assessed at levels $770/t-$800/t (€650/t-€680/t) for 150 neutral and 220N, with 500N and 600N at $820/t-$855/t (€695/t-€725/t).
These prices are for a wide range of Group II base oils, including grades from the United States and Europe with full slates of finished lubricant approvals, along with oils from the Middle East, East Asia and the U.S. with no approvals or only partial slates.
Group III prices are stable for the moment with a recent history of good and rising demand for these base oils, however there may be a lull in sales due to the effects of a second wave of coronavirus hitting major markets within Europe. How long this potential downturn will last is unknown, all depending on how successful countries can be in controlling the incidence of further outbreaks of the pandemic.
Availabilities in the meantime are good, with both regional producers and importers showing good stock levels with replacement inventories continually being topped up. For example cargoes are moving to hubs in Amsterdam-Rotterdam-Antwerp from production centers in Spain and the Middle East Gulf.
Prices for Group III oils with partial approvals are assessed at €700/t-€710/t for 6 and 8 centiStoke grades and at €690/t-€700/t for 3 and 4 cSt. These prices refer to supplies sold on an FCA basis ex Northwestern Europe hubs.
Prices for Group III base oils holding the full range of European OEM approvals will range between €740/t-€760/t for 4 cSt and €765/t-€785/t for 6 and 8 cSt.
Baltic and Black Sea
Baltic base oil business remains in the doldrums, with traders and distributors reporting that no supplies emanate from Russian refineries at this time. Whether this will change into the winter remains an unknown factor. Russian refiners still opt to place available material into either local markets or other alternative destinations such as China and Ukraine, where demand is positive and where better margins are returned.
With the dearth of supplies of Group I base oils throughout Europe and export markets, it was pointed out that prices have risen and will possibly continue to rise on the back of limited availability. This may provide the opportunity for traders to pay higher prices, thus attracting supplies to the Baltic terminals.
Material is flowing from producers’ terminals in the Baltic, meeting contractual arrangements in Antwerp-Rotterdam-Amsterdam and the United Kingdom.
Nigerian buyers are still seeking coverage for a large quantity of API Group I base oils to move to Apapa, but this was stymied by the lack of availabilities in mainland Europe and the lack of any significant Russian barrels moving through the Baltic terminals.
Notional FOB prices rose, but in light of few cargoes coming out of the Baltic ports prices, are assessed higher at $420/t-$455/t for the two main grades, SN150 and SN500.
SN150, SN500 and small quantities of bright stock out of Gdansk are indicated in line with mainstream European prices at $465/t-$525/t for the neutrals, with bright stock at $565/t-$595/t FOB.
Turkish sources report limited quantities of Group I base oils for sale from Izmir refinery, but the reason for restrictions on availabilities was not identified yet. Teething troubles may have existed after start-up, with material not attaining required specification levels. Rumors are that prices are exceptionally attractive, which may suggest that discounting is taking place to move these barrels from the re-established production.
Having announced no availabilities for September a couple of weeks back, Mediterranean sellers confirmed one cargo of 3,000 tons of Group I grades moving from Livorno into Gebze, Turkey. This cargo was loaded at the beginning of September, hence the full effects of the latest price rises may not have impacted this parcel. This may be the last cargo for some time, as the refinery at Livorno goes into turnaround. Coverage will be limited to local Italian markets and contracted supplies elsewhere.
Indications for the cargo above are $528/t for SN150, with SN500 at $538/t basis CIF Gebze, Turkey.
No reported plans for loading further cargoes out of Kavkaz, Russia, were heard at this time. Singapore receivers are believed to be in the market for contract barrels, and this may load towards the end of September or early October.
Indications for Kavkaz, Russia, STS prices may have been pushed higher with levels assessed at around $395/t-$425/t for SN500, with quantities of SN150 at around $385/t-$400/t.
Group II and Group III base oils out of storage in Gebze, Turkey, have prices moving higher to levels at €750/t-€825/t for the low and high vis Group II grades, with partly-approved Group III base oils also higher to levels at €725/t-€755/t. Fully approved Group III material is available ex-tank at levels at €775/t-€820/t.
Middle East
Red Sea news is that a producer in Yanbu’al Bahr may go into turnaround during October, although this is not expected to cause any disruption to supplies of Group I and Group II base oils coming out of that plant. One cargo loaded at the beginning of this month, with 15,000 tons of mixed grades for receivers in west coast India.
Another two cargoes will load later this month for contract supplies into Pakistan, India and United Arab Emirates, and also another parcel of more than 4,000 tons, out of Jeddah and Yanbu, will be supplied to receivers in Sudan. With no further news on bright stock cargoes moving out of Yanbu for the Egyptian General Petroleum Corp. supply into Egypt, it is assumed that this supply was put on hold until the country and its economy emerges from the COVID-19 emergency.
Following reports of the COVID-19 infections being at a high in India and Iran, reports from the U.A.E. confirmed that restrictions were put into place to safeguard local inhabitants and that these precautions appear to have been relatively successful in containing the virus.
The eventual loading of the large cargo of Group I grades out of the U.S. Gulf Coast is confirmed, this cargo being delayed in loading due to the hurricane situation in the U.S. Gulf. Arrival is planned for around the end of September into India and thereafter to receivers in the U.A.E.
The cargo of 3,000 tons of SN500+, which was identified in the last report, was wrongly notified as being base oil. In fact, this parcel was a cargo of 3,000 tons of rubber process oil, a regular supply out of Iran for receivers in west coast India. Other news from local sources is that other base oils loaded out of Iranian ports, and have been discharged into shore storage in Sharjah port. Whether this material will be used locally in the U.A.E. or perhaps re-exported to Indian buyers is unclear.
The cargo out of Iran for Syrian receivers appears to have been a red herring, and appears to have disappeared off the radar. This was an odd shipping movement, with supplies of Group I base oils continually transported to Syria overland by truck from northern Iranian refineries.
Latest indications for Iranian SN500+ are $500/t-$525/t CFR the U.A.E., with perhaps another $35/t-$45/t being added, taking account of freight to the west coast of India, with SN150 indicated at $490/t-$515/t.
Group III cargoes are few at the moment, with only a couple loaded out of Al Ruwais and Sitra, the former being a replenishment cargo for European distributors. Meanwhile, the second parcel out of Bahrain Petroleum Co. in Sitra is believed to be for topping-up local distribution storage in the U.A.E.
Netbacks for Group III base oils from Al Ruwais and Sitra are maintained in this report after re-assessing levels last time around. Levels are measured at $650/t-$710/t for the range of 4 centiStoke, 6 cSt and 8 cSt partly-approved Group III base oils. Fully approved base oils, marketed globally by Neste, are assessed with grades assessed to netback at $730/t-$785/t for the 4 cSt, 6 cSt and 8 cSt Group III base oils.
Notional FOB prices on a netback basis are based on prices derived and informally assessed from regional selling levels, less marketing, handling and estimated freight costs.
Group II base stocks sold by distributors ex-tank in the U.A.E. have prices raised, giving FCA indications at $685/t-$765/t for the light vis grades 100N/150N/ 220N, with heavier 500N/600N at $720/t-$800/t. Prices relate to various quantities and contract terms and conditions. There are reports of prices in relation to Group II base oils sold ex-tank the U.A.E., which are reported at levels $100/t less than indications contained in this report. No hard evidence can be obtained to substantiate these levels.
Partly-approved Group III base oils ex-hubs in the U.A.E., sold by Adnoc and Bapco, the base oils are delivered into tank in the U.A.E. out of Al Ruwais and Sitra. The prices were revised and now heard at $630/t-$695/t for the range of 4 centiStoke, 6 cSt and 8 cSt grades.
Africa
South African shipping sources reported that a 14,000 tons cargo from a major will load out of Antwerp-Rotterdam-Amsterdam and the United Kingdom for ultimate discharge into Durban. This vessel will also supply Group I base oils into Guinea and Cote d’Ivoire en route to South Africa.
West Africa reports that in addition to the cargoes discharging into Conakry and Abidjan, a separate parcel will be arranged to supply into Tema in Ghana. This cargo will consist of three Group I grades, maxing out the vessel at 4,800 tons, just a little under the usual contract supply of 5,000 tons. This supply is for the coverage of the term contract in Ghana.
Nigerian buyers are looking to raise local selling prices to enable traders to price up supplies of possible cargoes from U.S. and/or European sources. Reports remain of problems with buyers’ banks being able to obtain sufficient amounts of dollars to be able to open letters of credit locally in Lagos.
The inquiry for 17,000 tons of Group I grades remains uncovered from European and Baltic supply sources.
Prices for replacement stocks of Group I base oils offered into Nigeria are reacting to higher FOB numbers from sources, and as such levels are assessed higher. CFR and CIF offers are assessed higher at $625/t-$660/t for SN150, SN500 at $675/t-$700/t, and still no reported offer prices for either bright stock or SN900, due to current non-availability of these grades.
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.