The coronavirus situation across the Europe, Middle East and Africa regions continues to be a real concern, although there are reports that the new Omicron variant results in a less serious form of the disease than previous strains, enabling business and commercial enterprises to remain open. However, with limitations on travel and the movement of people and some goods, there could still be a period of instability and turmoil going into the first part of 2022.

Downward pressure on base oil numbers was building as crude oil prices retreated and base oil demand waned, but a recent run-up in crude oil prices could pressure base oil prices upward.

Dated Brent crude levels firmed over the last few days, which appears to be unusual given the closures of many exchanges for the holiday season. This crude now posts at $77.95 per bbl, $3.50 higher than last reported. This level is in respect of February front month. WTI crude oil has also risen by more than $4 now showing at $75/bbl, narrowing the crack between the two marker crudes once again, this price level now being for February front month.

ICE low sulfur gas oil strengthened marginally, reflecting the crude rises. With a cold weather snap affecting many European countries, this fuel is expected to remain firm for the next couple of months. With curbs on aviation travel, and therefore kerosene demand, some refiners may look to trim distillate production, which could lead once again to a shortage of feedstock for base oil production. 

Low sulfur gas oil lists now at $670/t, for January front month, around $22/t higher than two weeks ago.

Prices were obtained from late London ICE trading on Dec. 27.

Europe

European Group l export prices remain steady and do not appear to have moved much since last reported. This stability comes amidst slow demand over the festive season, many deals having been completed during the latter part of November and early December, and it is envisaged that not many transactions will take place this week, or even next week.

Some loadings are still taking place, with a number of parties keen to have cargoes on the high seas at year end, thus avoiding higher inventory stocks and subsequent tax liabilities.

SN 150 prices remain unchanged this week with FOB price levels still assessed at $755/t-$780/t, with SN 500 prices also maintained in a range at $1,055-$1,095 pmt. 

Bright stock FOB prices are in a range at $1,165/t-$1,195/t.

Domestic markets throughout Europe and exceptionally quiet with most blenders having struck prices for January during the second half of December. Thos prices are almost invariably in line with those for December with many operators worried regarding the COVID situation and the possibilities for further lockdowns and restrictions to trade. Some sources expressed a desire to have lower numbers for January, but this appears to have been resisted by sellers, with all parties reaching some form of agreement for the fist part of the year. 

Markets in many main European countries have been put in a difficult situation due to strict regulations applied at the government level, with the Netherlands, Italy and Spain following a higher incidence trend of COVID infections. The United Kingdom, Austria and Germany are having huge problems with staff shortages due to isolation and quarantine, following national rules and regulations.

Prices remained stable, with the differential between export and domestic levels maintained. The differential remains assessed at €100/t-€145/t, domestic numbers being higher.

European Group ll base oil prices are seen to be slightly weaker than last reported, with buyer pressure applied in negotiations for January prices. The downward slide is not dramatic, however, with numbers marginally trimmed by some $5/t-$10/t. These price changes are seen as seasonal adjustments that reflect slightly lower demand for late December and early January.

COVID infection rates are also bearing down on base oil usage, with finished lubricant demand dropping off as fewer people travel, and many industries are limiting production output.

Last week there were rumors of a number of cargoes coming into Europe from Asia-Pacific and Middle East, where all sources share FTAs with the European Union, thus avoiding any price penalties under the current duty restrictions on the importation of Group ll base oils. It was heard said that imports are making up the shortfall in local supplies versus rising demand for Group ll grades across Europe. Whether this is actually the case or whether these lower priced imports are merely opportunistic remains to be evaluated during the course of next year.

Group ll prices are seen marginally lower for January with levels at $1,240/t-$1,285/t (€1,100-€1,140) for the three light vis grades (100N, 150N and 220N) with the higher vis grades (600N) at $1,540/t-$1,575/t (€1,365-€1,400).

Prices are for a range of Group ll base oils, including European and U.S. fully approved grades, and also some small imports from Middle East and Asia-Pacific.

European Group lll markets maintain their stability with prices steady going into January. Forecast demand for next year was revised upwards, with estimates of growing uptake on the use of Group lll base stocks in many blended lubricants. Sources indicated last week that plans for supply of Group lll were well advanced for 2022 and that increased volumes could come to the European market from new and existing supply sources in the Far East.

Prices for partly approved Group lll base oils are maintained, 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-€1,560/t. The low end of this range pertains to Russian 4 cSt material, which is sold at attractive prices into local Russian and Eastern European markets. Other prices are for FCA supplies from Antwerp-Rotterdam-Amsterdam hubs.

Group lll base oils holding full European original equipment manufacturer approvals, such as Volkswagen, are placed higher. Fully approved 4 cSt grades are in a price range at €1,665/t-€1,700/t, with 6 cSt and 8 cSt oils at €1,695/t-€1,725/t.

Baltic and Black Seas

Baltic trade still seems to be buoyant although the activity is perhaps limited to a number of cargo loadings. Commercial dealings will have halted for the next couple of weeks with the Russian Orthodox celebrations following on from the European New Year holidays. There have been a number of reported cargoes leaving the Baltic during December and others planned for early January. Of these a couple of decent sized parcels were allocated to receivers in the east coast of the United Kingdom, with another large cargo of 10,000 tons of Russian export barrels loading around mid-January for Nigeria.

There are other interesting movements, with one cargo sailing for La Plata in Argentina, while another is loading 5,000 tons for an Israeli receiver. A final parcel of 9,000 tons in total will load in Kaliningrad for a two port discharge in the United Arab Emirates and Singapore. These latter cargoes prove that there are arbitrages open for Baltic suppliers who are willing to open up to new trading routes and receivers. 

Baltic prices obviously maintain a competitive edge versus mainstream European supplies with FOB prices maintained for this week. Prices for SN150 are assessed at $725/t-$765 per metric ton with SN500 at $975-$1,015/t. Quantities of SN900 were made available are placed at around $1,045/t.

Cargoes have re-started into Turkey from Greece and Italy with relatively large parcels, some of 5,000 to 6,000 tons, moving from Livorno and Aghio going into Derince port. The obvious questions are posed as to how the Turkish banking system is responding to laying hands on dollars after a further record fall in the lira against the U.S. dollar. An even more pressing query is how the local refinery at Izmir, run by Tupras, is managing to buy stocks of crude oil to produce fuels and base oils for the local market. It also is imagined that local prices will have gone sky high, with rampant inflation wrecking the Turkish economy.

Mediterranean offers were heard indicated CIF Turkey for SN150 at around $845/t with SN500 and 600 at around $1,110/t. Bright stock may have been offered into Gebze, Turkey, or Derince from Livorno, though prices are not available for this grade. 

Prices for imported Group II grades resold on an FCA basis by traders are maintained, and are 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 remaining at €1,550/t-€1,675/t for partly approved grades with fully approved Group III grades at €1,745/t-€1,765/t.

Middle East

There has been no confirmation of the Red Sea cargo proposed for Nigeria, and the assumption is that either the economics were difficult or the process for transactions in Nigeria may have become unnecessarily complex. The other explanation may have been the lack of suitable tonnage to make the voyage. 

Large cargoes, one of 18,000 tons from Yanbu and Jeddah, are moving as usual into the west coast of India, with another smaller cargo offered to receivers in Singapore.

In the Middle East Gulf there are no reports of any Iranian base oil cargoes moving, although there is a cargo of rubber process oil that may be shipped out of Ras al Khaimah in the U.A.E. to buyers in South Korea. This material can only have been produced in Iran and would have been shipped into storage in the U.A.E. The shipping inquiry to move 5,000 tons of base oils from Hamriyah to Apapa remains open, but this is an unlikely trade due to many reasons.

Buyers in Middle East Gulf have again seen offers from traders in the U.S. for part-cargo supplies of Group I grades with a cargo of 10,000-20,0000 tons considered for a two port discharge in the U.A.E. and the west coast of India. Receivers in the U.A.E. are considering an offer from Baltic suppliers for Russian Group I base oils for arrival in the early New Year. 

Group III exports from Al Ruwais, Sitra and Ras Laffan continue, with a 6,500 ton cargo from Al Ruwais shipped to another mainland Chinese port, while a huge quantity of gas-to-liquid Group III+ base oils is to load out of Ras Laffan for Houston. Also, Group III material out of Sitra refinery will provide a 4,500 ton parcel going into Mumbai.

Netbacks for Group III base oils exported from both Al Ruwais and Sitra remain unchanged this week with regional local selling prices in various regions stable and steady at this time. 

Levels remain 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, still being sold by Neste, will come under the Chevron banner within the next six months. Due to higher achievable selling prices, the grades will 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 having been imported into storage in the Middle East Gulf are resold on both an FCA ex-tank and also on a delivered basis. These grades have prices maintained, at $1,525-$1,635/t for the light vis grades, with heavier 500N and 600N at $1,815-$1,835/t. Group II base oils resold in Middle East Gulf are supplied from various sources such as South Korea, Saudi Arabia and the United States.

Africa

South African shipping agency sources confirmed a 9,000 cargo to load later this month out of Rotterdam and Fawley for Durban with final discharge into Dar-es-Salaam.

A planned cargo out of the Baltic is to load 10,000 tons of Russian export barrels during the first week of January, while a European major is supplying two cargoes of base oils into West Africa. The first is a large 12,000 ton parcel of Group I grades loaded out of Rotterdam and Fawley, in the U.K. This cargo is bound for receivers in Apapa. Another smaller cargo will load from Fawley refinery to service the requirements under the Ghana tender. The cargo will discharge around 4,000 tons of three Group I grades, loading in early January.

As noted a shipping enquiry for the possibility to supply 5,000 tons of Iranian origin base oils from Hamriyah in United Arab Emirates to receivers in Apapa is still on the table, although the longer this deal remains open suggests that it is less likely to go ahead.

Prices for API Group I base oils delivered into Apapa remain unchanged. With news of the FOB prices from the imminent Baltic cargo eagerly awaited for the next report. CIF/CFR Apapa price levels remain 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.

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