Europe

European API Group I solvent neutrals have risen by another $10/t-$15/t this week, with light grades recovering ground at $465/t-$480/t FOB. The heavier neutrals SN500 and SN600 are $485/t-$500/t, with one offer for 3,000 tons of SN500 at $518/t.

Bright stock remains active, with a number of enquiries, even from West Africa receivers, who in some cases appear to have found ways around the lack of foreign currency. This grade has not responded as strongly as the neutrals, with some venturing that the differential between bright stock and SN500 was too great. Prices are generally $895/t-$920/t.

Some sellers have suggested that the European export markets could be going short as a result of refinery closures, but so far there have been few signs of this, even with Shells Group I Pernis plant in the Netherlands and Kuwait Petroleum Corp.s Rotterdam plant closing.

Levels above are in respect of large parcels of Group I grades being offered and made available FOB mainstream producers in mainland Europe.

Domestic Group I market prices have been reported as rising in line with export levels, with suppliers hiking ex tank prices on a spot and contract basis by 10/t-20/t. Demand is positive from most regions around Europe with better weather heralding higher offtakes of finished lubricants, particularly in the automotive sectors. Industrial and process oils are also seeing a boost, since with inventories having remained low through the winter and early spring, buyers are starting to replenish stocks, taking account that prices are not going to remain low and are starting to climb back to levels not seen since last year.

Although not rocketing, local levels are progressing steadily, having advanced by 40/t-55/t since the rock-bottom levels of February. Local ex tank sales are still 60/t-85/t higher than export levels.

Group II grades are reportedly increasing substantially across the board, reflecting source increases from producers in the U.S. and Far East. Prices have been revised again in many cases with levels moving ahead by 10/t-20/t depending on grade, viscosity and approvals.

Prices in respect of premium light grades from 70N through 220N have increased to $525/t-$585/t, with heavier vis 500N and 600N between $655/t and $710/t (in U.S. dollar terms) on ex tank basis. A 50/t-120/t premium may be applied where products are redelivered to satellite storage facilities or are sold on a delivered basis. The exchange rate between the dollar and the euro is also adding pressure to increase levels.

European Group III pricing appears to remain impermeable, even with increasing Group I and Group II prices. Levels for the two main grades remain static, but buyers may start to press for lower numbers since many believe the market is long and getting longer. Producers are not looking to rock the boat and possibly encourage buyers to start shopping around.

A sizeable part of Group III base oils supply is sold in large parcels to major users, whilst at the other end of the spectrum, distributors also make a substantial contribution in volume terms – selling to smaller users and blending operators by truck. This polarized situation appears to insulate the Group III market from incessant price alterations. Levels for 4 centiStoke and 6 cSt are still 830/t-860/t ex-tank Antwerp-Rotterdam-Amsterdam.

Baltic and Black Sea

Baltic exports of Russian base stocks continue to show strong sales, with an increasing number of medium-sized cargoes finding their way into Antwerp-Rotterdam-Amsterdam. These parcels of between 3,000-5,000 tons of SN150 and SN500 may be replacing tonnage from refinery closures which have necessarily pushed some buyers to look at alternative arrangements for supplies of Group I base oils. Some larger deep-sea export parcels have been allocated through traders to West Africa receivers, with some players in Nigeria having found solutions to the shortage of foreign currency.

Prices have risen by another $5/t-$10/t in respect of the two main grades, SN150 and SN500, making exports of base oil once again acceptable to Russian producers. FOB levels for SN150 and SN500 grades are now $450/t-$470/t, and $480/t-$495/t, respectively. SN900 prices have also moved upwards, offered in parcels of between 4,000-5,000 tons at around $665/t basis FOB for large bulk parcels. Smaller quantities of SN900 for sale in flexies are priced higher at around $690/t FCA.

Turkish buyers are reportedly affected by new base oil import regulations and are shying away from the market. The current regulations were implemented some four months ago, and there have been slight modifications to some of the processes, but not to the basic rules. Buyers are seeing prices starting to firm and are keen to lay hands on stocks which may carry higher prices in a few weeks. Some optimistic buyers said that with OPEC in disarray, base oil prices in the Black Sea and the Mediterranean will start to recede. Most in the industry, however, disagree.

Group I grades loading ex STS facilities at Port Kavkaz, Russia, are being offered delivered into northwest Turkish ports on CIF basis at $535/t-$550/t for SN500, with smaller quantities of SN150 at $498/t-$520/t. In addition, a couple of larger-than-normal Group I parcels from Greece have been reported for discharge into Derince, Turkey. Prices are now estimated to land at $545/t-$585/t in respect of Group I solvent neutrals basis CIF.

Middle East Gulf

Middle East Gulf regions are reportedly busy, with further exports of Iranian base oils noted this week. Three parcels of 5,000-6,000 tons loading out of Bandar Bushehr are sold into the west coast of India and Pakistan with further offers for May being considered. Prices have moved forwards and are reported to have climbed back to FOB levels for SN500 at around $475/t. These prices remain very competitive, with Iranian sellers determined to reintroduce these grades into markets that were lost during sanctions.

There has also been an announcement that one Iranian refiner is producing a new upgraded base oil called SN500 Empowered which will carry a minimum viscosity index of 90, color of around 1, and pour point of minus 6. This higher-spec material will be a welcome addition to the portfolio coming out of Iran and will be available for delivery during May. Prices are not yet released.

More routine Group I traffic emanating from Red Sea ports is being loaded on a contracted basis into Oman and United Arab Emirates. Prices are estimated at $575/t-$600/t in respect of the Group I solvent neutrals, with bright stock at $980/t-$1000/t basis CIF.

There are also reported enquiries for smaller parcels of base stocks loading out of Black Sea and Mediterranean for Middle East Gulf receivers. These are small parcels of 1,500-2,000 tons of possibly heavier material, such as SN900 ex Black Sea and bright stock from Mediterranean suppliers.

Group II prices have moved upwards in offers for receivers in Middle East Gulf. May arrivals have been pushed upwards by $15/t-$25/t from suppliers in Far East with comments that no counters would be considered for these parcels due to Far East markets apparently starting to tighten on avails. There are two offers from U.S. producers through traders, with prices that are suggested to be more attractive for receivers, but are not confirmed.

Prices in offers are reportedly $545/t CIF/CFR in respect of the light vis grades and $658/t for a heavy vis grade. These are large increases against prices seen over the past few weeks, and may suggest a firming market.

Africa

Mediterranean-sourced Group I material is reportedly moving into Morocco, Egypt, Lebanon and Israel, at $545/t-$595/t in respect of the solvent neutral grades with bright stock in relatively small quantities at $995/t-$1025/t basis delivered CIF North African and Eastern Mediterranean ports.

West African base oil business is still going through a tough spell with the problems in Nigeria still not totally solved. Some sellers are prepared to risk selling into this part of the world without the guarantees on payment through letters of credit, and cargoes are moving – one from the Baltic and another from northwestern Europe.

An exchange platform is offering some buyers in Nigeria the option to trade without opening letters of credit. If this can be established, it could form a new and exciting method of transacting base oil business, leaving out the involvement of traditional and expensive banking facilities.

New developments at U.K.-based INSCX Exchange also include the launch of margin trading facilities geared to base oil trading from May 2016. Traders will no longer need to use letters of credit to secure purchases. By posting a percentage margin, the exchange will pay cash versus contract while accepting deferred payment from the buyer. Traders can also offload cargoes through the exchange to their own approved customers. The rollout of margin trade follows from the exchanges launch of a liquidity fund. Initially, $50 million will be earmarked for liquidity trade in base oils in Europe, the Middle East and Africa.

This will not be limited to West Africa trade, since parties elsewhere have already availed themselves of the liquidity fund to purchase forward on a fixed-price basis without index-linked prices.

Group I prices for the two cargoes moving from Baltic and northwestern Europe are assessed in line with other current offers which, unfortunately for receivers, are having to be continually price-revised due to delays in being able to sail these parcels from FOB locations. Levels this week in relation to Group I solvent neutrals are $565-$595/t with SN900 at $764/t-$788/t basis CIF/CFR. Bright stock, which will be included in the northwestern European-sourced cargo, is expected to land at $995/t-$1020/t.

Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly atpumacrown@email.com.