The economic effects of the war in Ukraine are becoming plain to see, and it may be said that no country or economy is escaping the impacts – be it a tightening of supplies of wheat and vegetable oil or more weight to the momentum of inflation.
Base oil markets have also seen mounting pressure on availabilities of some grades, and prices of some grades continue to rise even as crude oil and feedstock values level off. Most producers are shifting away from maximizing base oil production in favor of increasing the output of distillates, particularly diesel, where margins have reached their highest levels for a number of years.
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A number of nations have declared outright embargoes on any Russian energy product, whilst others are pushing to achieve this goal before the end of 2022.
Crude oil prices have stabilized around $110 per barrel over the past couple of weeks, with a number of producers offering crude and petroleum products to fill the void created by the cessation of purchases from Russian sources.
Prices for dated deliveries of Brent crude rallied during the past few days to $111.30/bbl, now for July front month settlement. The crack between dated Brent and West Texas Intermediate narrowed again this week WTI reached $110.50/bbl, still for June settlement.
Low-sulfur gas oil has also been on a rollercoaster of a pricing ride, with no clear direction. Gas oil prices are listing at $1,080 per metric ton, almost $200 lower than last reported. The price is for June front month. These prices were obtained from London ICE trading May 16.
There is no market for API Group I exports from Europe since there are very few sellers with material that could be construed as export sized. Two sources with product in tank are asking prices that would make a transaction largely unworkable for receivers.
Again the market is seeing large slugs of Group I grades moving intra-affiliate, for example with material moving from Rotterdam into a hub on Spain’s Mediterranean coast, and further afield, into South Africa and Singapore.
These cargoes cannot be described as export sales, since affiliate pricing will be attached to these movements.
Prices are almost impossible to report, hence export numbers attributed to Group I base oils are purely hypothetical at this time, and can only reflect levels that may be offered should product become available from any of the Group I producers that are currently in, or about to begin maintenance shutdowns.
Your columnist is showing price hikes of $25 per ton from the levels last reported, but these levels are indications only, not pertaining to any completed deals. Solvent neutral 150 prices are pitched between $1,475/t and $1,550/t, while SN500 are at $1,670/t-$1,695/t, both on an FOB basis. As with other grades, bright stock is unavailable for export sales but pegged here at $1,850/t-$1,925/t.
Prices for Group I sales within Europe have moved ahead of the hypothetical export levels thanks mostly to markups applied from May 1. Some of those increases ranged between $150 and $200 per ton, as sellers claimed to still be playing catch-up with crude costs. Buyers have tried arguing that finished product prices are becoming to steep for consumers to accept, and that rising base oil and additive numbers are going to price finished lubes out of the market.
Blenders are quoting several auto manufacturers that take large quantities of finished lubricants for factory fill and are appealing for a pause from monthly – sometimes weekly – hikes.
Crude and feedstock costs may be stabilizing, but shortages are developing for feedstock used to make base oils. Refiners are looking to maximize fuels production as margins and demand are both strong.
The differential between intra-regional Group I sales and hypothetical exports is assessed at €25/t-€55/t, with the former once again being higher.
European Group II base oil prices are starting to become scarcer, with fewer imports coming from United States sources and the predicted inflow of material from Asia-Pacific producers not yet happening. Some say that shipping difficulties have hindered these potential imports, but Asia-Pacific have reached a balance between supply and demand, so they are no longer long.
There are few instances of “spot” business where incumbent buyers take all available quantities, leaving none for other potential customers. Suppliers are not looking for new business, and buyers are starting to complain about higher prices being demanded for Group II grades.
Not all of European output remains within the home boundaries, as exports to affiliated companies are taking a large part of the European production. Markets in South Africa and the Middle East Gulf are receiving some of this stream.
Prices rose at the start of May and are now reassessed at $1,795/t-$1,845/t (€1,700/t-€1,747/t) for 100 neutral, 150N and 220N, while 600N is at $1,995/t-$2,055/t (€1,890/t-€1,947/t). The numbers have been raised $25/t-$30/t from those reported at the beginning of the month, when increases were still to be announced.
These prices apply to a range of Group II base oils from Europe, the U.S. and potential imports from Middle East.
European Group III prices have “stuttered,” in the words of a number of buyers who have been able to negotiate lower prices than those offered from May 1. These “discounts” do not nearly offsetting increases applied since March, but may indicate that sellers were pushing the market too hard and have relented a bit.
In offering quarterly prices, some sellers have reserved the right to adjust prices should fundamentals radically change during the specified period. Many buyers in this situation have prices that are valid until the end of June and then may be reassessed for the third quarter.
Large parcels of Group III base stocks with full slates of European finished lubricant approvals are moving to distribution hubs and to receivers in areas such as Turkey, although these cargoes are much smaller than previously, perhaps due to limitations on finance and also lower demand.
Markets are comfortable from a supply-demand viewpoint, and the lack of 4 centiStoke grades that had been coming from Russia into Eastern Europe and other markets appears to have caused less disruption than anticipated. Whether buyers found replacements is not yet clear, since many were heard to be drawing down on their own stocks and that of distributors, rather than looking for alternative suppliers.
Prices for Group III oils with partial slates of approvals are unchanged after negotiations between buyers and distributors. Values for 6 and 8 cSt grades are at €1,910/t-€1,935/t, while 4 cSt is at €1,885/t-€1,925/t, all on an FCA basis, ex Amsterdam-Rotterdam-Antwerp and Northwestern Europe.
Values for fully approved Group III oils are also unchanged at €1,985/t-€2,010/t for 4 cSt and €2,065/t-€2,095/t for 6 and 8 cSt. There have been cases where fully-approved Group III base stocks have competed with partly-approved products, in some cases where partly-approved products have claimed to be Group III+ quality.
Baltic and Black Seas
With the exception of Svelty port in Kaliningrad, very few cargoes have been identified coming out of the Baltic ports for northwest Europe and the east coast of the United Kingdom. A couple of smaller movements occurred, but these appear to have been conducted where the shipper or charterer has direct control over the shore storage in Liepaja and may be drawing down stocks left in storage without replenishment volumes coming in across the border from Russian refineries.
Out of Svetly a large cargo loaded for receivers in Singapore. This is considered to be contracted business that was running for some time. There are other shipping enquiries around, which suggest that some material was getting through to storage in Ventspils, with two parcels identified, one possibly moving into Aliaga in Turkey, and the other earmarked for Israeli receivers in Haifa. Ventspils is not a regular base oil port, so these parcels may have been attached to trains carrying gas oil.
However, from Riga a couple of other cargoes are being worked, the first is a large slug of some 7,000 tons for receivers in Gebze, and the second of 5,000 tons is for Nigerian buyers in Apapa. The news is that Nigerian buyers are not keen to take Russian barrels, but faced with no other alternative, this attitude may have changed.
Russian exports have certainly been reduced. Whether this is as a result of a lack of material coming out of refineries run by Gazprom and Rosneft, or whether receivers’ and end-user attitudes to using Russian material hardened during the past few weeks is not clear. It may be a combination of both, but the lack of Baltic base oil is mostly felt in the European Group l markets, where product is now exceptionally tight.
Where base oil exports have been identified, FOB levels have been assessed with SN 150 at $1,425/t-$1,495/t. SN 500 is indicated at $1,595/t-$1,645/t. Indications relating to any availabilities of SN 900 would be around $1,655/t-$1,695/t.
Black Sea regions are seeing and feeling the full effects of the Ukraine invasion by Russia, with many Russian naval vessels active in the northern sector of the Black Sea and also the Sea of Azov around Mariupol.
In Turkey – one of the main Black Sea markets for base oils – the situation is not improving, with financial and economic constraints adding to the difficulties posed by the nearby war. Blenders are searching base oil markets, looking for possible supplies of Group l base stocks to tide them over until availabilities and prices return to more manageable levels. Offers from Greek suppliers have proved too high for buyers to consider at this time. Although the local refinery at Izmir is supplying Group l base oils at this time, the reliability of this source can be variable at best, with frequent downtime and interruptions to the availability of Tupras base oils. The positive aspects of this supply are that smaller quantities can be bought in truckloads and can be paid for in Turkish liras.
There is also new that Tupras have cancelled a tender for the supply of around 6,000 tons of Group l grades, which would have been based on the basis of FOB Aliaga. The base oils would have been bridged by truck to storage to allow loading for a deep-sea location. The material will now presumably be sold in the local market.
With the Eni base oil unit down at least until June, Mediterranean suppliers are few, with only the Greeks able to offer parcels of Group l grades. However, any offers from Greece are exceptionally high, even by current standards, with index linked prices and added premia for any offer of material from this source.
Numbers heard last week, if to be believed, are as follows. Base oils are priced around $1,725/t for SN 150, with the SN 500 and 600 at $1,825/t FOB. These levels are not doable from a Turkish standpoint and cannot be considered for the Turkish base oil market.
Imported Group ll grades sold FCA are still priced as previously. Buyers comment that they cannot accept higher numbers because finished lubricants cannot be sold at the resultant prices. Prices ex-tank are maintained at €1,795/t-€1,845/t for the three lower vis products, with 600N falling at €1,955/t-€1,980/t. Group lll base oils sold on the same FCA basis, being partly approved, are priced above €2,075/t-€2,100/t. Fully approved Group lll grades from Spain are pitched around €2,155/t-€2,185/t. A small replenishment cargo of 900 tons was dispatched from Cartagena to Gemlik.
Following the Dar-es-Salaam supply at the end of April, Red Sea traffic shows another 12,000-ton parcel moving from Yanbu and Jeddah to Mumbai and thence to Singapore. There will be some Group l base oil in this cargo, but there may also be a quantity of Group ll grades out of Yanbu. Another large cargo is interesting in terms of routing, with the loaded quantity being bound for three ports – one on the west coast of India, another in Sudan, and the final port is nominated as Alexandria. A vessel would not normally be chartered to move in these directions, with the Mumbai discharge rather puzzling.
A cargo loaded out of Hamriyah, discharging in Hazira in WC India. The 3,000 tons of product will be Group l base oils, which must be of Iranian origin, with the United Arab Emirates port used for transshipment. No other base oils were identified or reported moving out of the southern Iranian ports. Local sources suggest that most of Iran’s base oil production is going into the domestic market, with little available quantities for export sales, although there has been talk of Iranian material being substituted for Russian export barrels. Exactly how this would work is only guesswork at this stage. The cargo to Hazira reinforces the rumors that Iranian base oils are finding their way in U.A.E. storage in Hamriyah and Ras al Khaimah, but instead of being used locally, it would appear that the parcel for India was moved out in bulk.
Group l cargoes are programmed to arrive into the U.A.E. from Singapore and Rayong in Thailand. These are smaller parcels of 2,000-3,000 tons, although a European cargo from a major will take Group l and Group ll base oils into the U.A.E., and while en route will deliver a quantity of Group lll base oils into Yanbu.
Following the flurry of activity and a number of cargoes dispatched from the region, Group lll exports show a parcel of 5,000-7,000 tons of Group lll and a smaller quantity of chemicals loading out of Al Ruwais for Pakistani receivers in Karachi.
Netbacks for Group lll base oils loading out of Al Ruwais in the U.A.E. and Sitra in Bahrain remain unchanged this week following adjustments made to numbers after cargoes sailed for Europe and the U.S. during April. Netbacks remain assessed at $2,195/t-$2,265/t, for the range of 4 centiStoke, 6 cst and 8 cst partly-approved Group lll base oils.
Netback levels are based on prices derived and informally assessed from regional selling levels, less marketing, handling and estimated freight costs.
Group ll base oils that are sold on an FCA basis in the U.A.E. are supplied from European, U.S, Far Eastern and Red Sea producers. These grades are resold ex-tank, or sometimes on a delivered basis within the Middle East Gulf region. These base oils find their way into locations such as Qatar and Kuwait. Prices are maintained as per last report and are found at $1,785/t-$1,835/t for the light vis grades, with 500N and 600N at $1,925/t-$1,960/t.
West African reports contain news that receivers in Nigeria are becoming increasingly concerned regarding the lack of offers for large cargoes of Group l base oils. Traders are being open with buyers, commenting that at this time they are having problems accessing, and finding availabilities of suitable base oils to be able to offer for delivery during June and July. Baltic options are off the table, although there is news of one 5,000-ton parcel being worked for Apapa around mid-May. One trader denied that this parcel will exist, stating that Nigerian buyers are somewhat circumspect when it comes to purchasing Russian export barrels.
However if these barrels do exist, there are not many other options open for supply into Nigeria, unless a major steps in to offload large quantities of Group l base stocks either from the U.S. or more likely, from Europe. It would be unlikely for the major to be directly involved with supply and delivery into Nigeria, with the protocols and the procedures rather different from regular trading. The major may however sell FOB to a trader who could then affect the delivery to Apapa.
Prices remain unchanged in the absence of any new offers for the Nigerian market.
CIF/CFR prices may be offered at the following levels for any further cargoes going into Apapa. Levels will be around $1,595/t-$1,645/t for quantities of SN 150, SN 500 will be priced at around $1,695/t-$1,745/t and SN 900 will be at $1,795/t-$1,855/t.
Any available bright stock could perhaps be priced at $2,150/t-$2,250/t, but realistically, there are no possibilities for large cargo-sized quantities of bright stock from any feasible source.
Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly at firstname.lastname@example.org.
Lubes’n’Greases shall not be liable for commercial decisions based on the contents of this report.
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