EMEA Base Oil Price Report

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Base oil prices around the Europe, Middle East and Africa regions are softer this week, as the new Omicron COVID-19 variant starts to impact on markets across the globe. Many countries are facing renewed restrictions on the movement of people and goods with some recommending only necessary travel and essential services and others going into or considering temporary lockdowns to stem the spread of the new variant.

Base oil demand is usually slower around this time of year, with many operations starting to run down towards the holiday period around Christmas and New Year when many blenders will either close or move to short-time working for two weeks into January 2022.

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The overall effect is that the markets are sluggish with many buyers sitting on the fence, waiting to see where prices are going, since crude and feedstock levels have also dropped from their recent peaks during November. The outlook is that base oil prices will continue to drift lower over the next few months, due to adequate supplies and availabilities of all grades, and weaker demand caused by the ongoing pandemic.

API Group I has been the most affected by the drift in prices, although Group II has started to react to slower demand and has receded a few points during the fist half of December. Some say this was to be expected since Group II prices climbed to their highest during the mid part of this year, thus having more scope to fall back when the time came for adjustment. Group III base stocks have steadied and are described as stable at this point in time. Group III prices have not shown any of the vulnerability of Group l, nor the recent weaknesses seen in the API Group II camp.

OPEC agreed to increase production from a number of key supply regions, thus creating a price structure which is lower than recent highs, but where crude has now arrived a level which has been stable over the past three weeks. Should this stable market continue, then crude producers and receivers should remain content going into 2022, but there remains the threat posed by the COVID variants, and resulting curbs on commercial ad business activities.

Dated deliveries of Brent crude remains at an almost identical level to the previous report two weeks ago now posting at $74.30 per barrel, only 20 cents lower than last. This level is now in respect of February front month. Simultaneously West Texas Intermediate crude has also stabilized around $70.80 per barrel, only marginally higher than last reported, this number remains in respect of January front month.

Oddly, ICE LS Gas Oil has strengthened against a backdrop of declining demand for transportation fuels, although the European heating season is in full swing. With shortages in the gas markets, heavier reliance may come to bear on distillate fuels. This petroleum product records now at a level of $648 per metric ton, this level now being in respect of January front month. This level is seen to be around $25/t higher than last.

Prices were obtained from late London ICE trading on 12th December 2021.

Europe

Group I European export prices came under renewed pressure in the face of slowing demand and plentiful availability for all grades. Some traders are looking to negotiate discounted deals for receivers in markets such as Nigeria, and other parts of West Africa.

Sellers are reluctant to start discounting, although some have been pushed due to rising stocks and inventory levels. However, a fire and explosion during maintenance at a major Italian refinery in Livorno last week may have an effect on availabilities of Group I oils around the Mediterranean in the next few weeks. However, apparently, stocks remain adequate, with current loadings of base oils continuing at the moment. Further inquiries will be made towards the end of the turnaround.  

SN150 prices softened again this week and are marked lower by around $20/t-$30/t since the last report. FOB price levels are now assessed at $755/t-$780/t.

Even SN500, traditionally proved to be in greater demand, succumbed to a degree of erosion and is taken down a range at $1,055/t-$1,095/t. 

There may be further scope for negotiated discounting for larger quantities of solvent neutrals, as there may also be for bright stock parcels. This grade still sells at a relatively high premium to SN500, while there have been calls to ensure that this product maintains a competitive edge against alternative heavier neutrals.

Bright stock prices are seen and heard lower in offers last week, with demand wavering a little for large parcels of this grade. FOB prices are in a range at $1,165/t-$1,195/t.

European domestic markets are starting to wind down with few buyers looking to take significant quantities of product into tank prior to the year end. Prices established at the beginning of December appear to have held up, although sources have confirmed that they are looking for lower numbers for January.

The market is weak for sellers who are trying to move inventory out of storage prior to the New Year. This is proving more difficult than normal, with COVID’s effects creating problems for blenders and suppliers moving product between different countries across international borders, where rules and regulations are different in each locality. With markets in Austria and Germany showing signs of stress, other main markets may start to follow as the COVID variant gains traction across Europe.

The differential between export and domestic price levels widened since domestic prices appear to have held up better than export numbers. The differential is now assessed at €100-€145/t, with domestic numbers remaining higher.

Group II base oil price levels came under pressure in the main from a predictable seasonality decline in demand. Prices established at the end of November for December lifting were marked down from the previous levels established in October. Some sellers have played the weaker prices as expected since they quote: “Group II prices rose during Q2 of 2021 to record levels, which may have been unsustainable in the longer term, given that crude and feedstock prices have also decreased.” That said, Group II prices rose, while crude and feedstocks were at much lower levels than today.

The COVID situation is obviously also having an effect on this segment of the market, with demand for finished lubricants dipping to the lowest level for some years. This decline is, and was predictable, as is a recovery when the virus situation starts to improve, as it surely will in time.

Cargoes from beyond the European regions continue to enter the market, with supplies arriving from the United States and also from Saudi Arabia noted this week.

Group II prices are seen marginally weaker through December, with levels at $1,250/t-$1,295/t (€1,110/t-€1,150) for the three light vis grades (100N, 150N and 220N) with the higher vis grades (600N) at $1,550/t-$1,585/t (€1,375/t-€1,407).

Prices are for a range of Group II base oils, including European and U.S. fully approved grades, but also some small imports from the Middle East.

European Group III markets remain stable, with prices maintained in most regions around Europe. Demand declined somewhat during December, although many sources say that this would be a natural event given the time of year and the relatively lower levels in production of finished lubes for supply during December. Blenders contacted last week were mainly bullish regarding the outlook for 2022, although some guarded comments were noted about the COVID situation and the longer term forecast for next year.

Prices staying where they are means that Group III base oils are at an all time high premium to Group II grades. This could mean that in the short term producers and manufacturers of finished lubricants could opt to use more Group II than Group III, given there are areas over overlap where either product can be employed in a blend. This may eventually force the hands of some suppliers to look at making their Group III base oils more attractive by discounting, but this is not happening presently. 

Prices for partly approved Group III base oils remain unchanged and are assessed at €1,445/t-€1,605/t. The 6 centiStoke and 8 cSt grades are in a range at €1,575/t-€1,605/t, with 4 cSt base oils at €1,445/t-€1,560/t. The low end of this range pertains to Russian exports of 4 cSt material, which is sold at keen prices into local Russian and Eastern European markets. Other prices are for FCA supplies from Antwerp-Rotterdam-Amsterdam hubs.

Group III base oils holding full European original equipment manufacturer approvals – such as Volkswagen – emanating from Cartagena, Fawley and Porvoo are placed slightly higher, although this differential is not so definitive as was once the case, with differentials narrowing. Fully approved 4 cSt grades are placed in ranges at €1,665/t/t-€1,700/t, with 6 cSt and 8 cSt oils assessed at €1,695/t/t-€1,725/t.

Baltic and Black Seas

After a rather hectic spell at the end of November and the early days of December, Baltic trade appears to have calmed down, perhaps reflecting the season and time of year. Two large cargoes of Russian export barrels loaded around the end of November, with both cargoes destined for Nigerian receivers.

The first was 10,500 tons, which loaded out of Kaliningrad, and thereafter topped off with a quantity of rerefined base oils from Kalundborg. The various quantities are not known, but estimates are that the vessel will have loaded around 2,000 tons of rerefined SN150, with a high viscosity index. The second cargo loaded 12,500 tons out of Riga. Both cargoes should arrive into Apapa shortly into the New Year.

Other regional cargoes loaded out of the Baltic for Antwerp-Rotterdam-Amsterdam and the east coast of the United Kingdom. Although current loadings slowed, open arbitrages are being tested, with options to load for La Plata in Argentina and an East Mediterranean cargo that could either go into Haifa or Gebze, Turkey.

Baltic prices remain competitive against mainstream European supplies, even after the recent discounts in prices from mainland suppliers.

Baltic FOB prices levels are realigned maintaining the differential between Russian exports versus mainland European prices. Prices for SN150 are considered to be at $725/t-$765 per metric ton with SN500 at $975-$1,015/t. Quantities of SN900, where available, are estimated at around $1,045/t.

It is not yet clear if the fire at Livorno refinery will affect trades between that Group I source and Turkish buyers, who had been negotiating cargoes from both Greece and Italy. There has been at least one Greek cargo from Aghio into Izmit, with another contemplated from Baltic suppliers out of Kaliningrad, discharging in Gebze, Turkey.

Local sources in Istanbul confirmed that the local refinery at Izmir appears to be continuing to produce Group I base oils, selling into the local market. In addition to selling in local currency in trucks, quantities of SN150 and SN500 were set aside for export sales. There has been no news or shipping inquiries for these quantities, perhaps indicating that the local market is soaking up all availabilities from Tupras. Turkey continues to experience economic woes, with the lira further declining against the dollar.

Mediterranean offers were indicated CIF Turkey for SN150 at around $855/t, with SN500/600 at around $1,120/t. Bright stock was also offered into Gebze, Turkey, from Livorno, although it is not yet clear if current supplies can be loaded, due to the fire during maintenance at the refinery.

Prices for imported Group II grades resold on an FCA basis are re-assessed at €1,275/t-€1,325/t for the three lower vis products, with 600N at €1,625/t-€1,675/t. Group III base oils resold on the same basis have FCA levels maintained at €1,550-€1,675/t for partly approved grades, with fully approved Group III grades at €1,745-€1,765/t.

Middle East

Red Sea indicates a raft of trades with export cargoes fro Yanbu and Jeddah proposed for interesting new destinations. There are reports of cargoes moving to the U.S. Gulf Coast and Singapore and one parcel of up to 12,000 tons offered to receivers in Luanda, Angola, with part-cargo going into Apapa. The supply into Luanda may have come about as a result of the closure of Group I facilities in Portugal, where traditionally supplies of base oils would have originated. The supply into Nigeria is fascinating because it is assumed that this would be a direct sale from Luberef, not involving any international traders, although local Nigerian traders may be involved in the purchase.

Additionally cargoes are moving as usual into the west coast of India and a Group II parcel is allocated into northwestern France, where supplies of light base oils are required following the cessation of production of Group I SN150 some time back.

Middle East Gulf regional reports carry no notifications of any Iranian base oil cargoes moving out of the area, although one shipping inquiry has raised the possibility of a 6,000 tons parcel of base oils shipping from a United Arab Emirates port to Apapa in Nigeria. This is an unlikely trade due to many reasons, the main one being getting a vessel to perform this voyage, which would incur considerable costs due to high freight rates. The FOB prices would have to figure around $825/t for SN150 and SN500 at around $920/t. Perhaps not impossible, but unlikely. The lack of heavier grades than SN500, assuming that this parcel is Iranian material, would be another obstacle to this trade.  

Buyers in Middle East Gulf saw offers from traders in the U.S. for the supply of Group I grades into United Arab Emirates ports; however, it would appear that the cargoes are bound for the west coast of India, where receivers are prepared to pay higher prices. Receivers in the U.A.E. are still looking for supplies of Group I base oils for arrival in the early New Year, with offers from Baltic and Black Sea traders forming the core of offers. 

Group III exports from Al Ruwais, Sitra and Ras Laffan continue, with a large 8,000 tons cargo from Al Ruwais shipped to a mainland Chinese port, while a smaller parcel of 4,500 tons is to move from Sitra to Mumbai later this month. Larger quantities of gas-to-liquid Group III+ base oils are moving out of Qatar to China, Europe and the United States for Shell affiliates in those regions.

Netbacks for Group III base oils exported from Al Ruwais and Sitra are maintained, with local selling prices in various regions stabilizing during this month. 

Levels are assessed at $1,895-$1,940/t for 4 centiStoke, 6 cSt and 8 cSt partly-approved Group III base oils. Fully-approved grades from Sitra refinery in Bahrain are still being sold by Neste, with the transfer of the business following the takeover of the Neste marketing operation within the next six months. These grades effectively should netback higher, at $1,925-$1,975/t for the full range of Group III grades.

Notional netback levels are based on prices derived and informally assessed from regional selling levels, less marketing, handling and estimated freight costs.

Group II imports into Middle East Gulf are resold on both an FCA ex-tank and also on a delivered basis, have prices assessed slightly lower this week, at $1,525-$1,635/t for light vis grades, with heavier 500N and 600N at $1,815-$1,835/t. Group II base oils resold in Middle East Gulf are sourced from various locations, such as South Korea, Saudi Arabia and the U.S. Chinese producers are attempting to break into this market, but to date no products were delivered from those sources.

Africa

South African sources indicated a further cargo to load later this month out of Rotterdam and Fawley for Durban and also Dar-es-Salaam. This is in addition to the confirmed cargo from Rotterdam sailing with around 7,500 tons of base oils to Durban.

In addition to the Luanda enquiry for Angola in West Africa, the Nigerian market appears to have come alive with cargoes which will be on the high seas at year-end, thus not contributing to inventory and stocks until the New Year.

Two further parcels moved out of the Baltic, the larger of the two being the 12,500 tons parcel from Riga, whilst the other cargo of 10,500 tons of Russian export barrels and also a quantity of rerefined base oils from Denmark already loaded and is en route to Lagos.

News on the possibility of the supply of 6,000 tons of Iranian origin base oils from an U.A.E. port to receivers in Apapa is eagerly awaited, and more information should become available prior to the next Lube Report.

Prices for API Group I base oils delivered into Apapa are tweaked a little lower this week, due to the lower FOB numbers that may have been offered out of Baltic supply sources. With two large cargoes successfully traded into Nigeria, the implications are that slight incentives on prices may have been affected to complete the deals.

Levels are indicated at $1,025/t for quantities of SN150. Larger quantities of SN500 are put at $1,120/t, with SN900 priced at around $1,175/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.

Lubes’n’Greases shall not be liable for commercial decisions based on the contents of this report.

Archived base oil price reports can be found through this link: https://www.lubesngreases.com/category/base-stocks/other/base-oil-pricing-report/

Historic and current base oil pricing data are available for purchase in Excel format.

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