Following supportive attendances at two base oil conferences in London last week, many announcements were made by participating companies regarding plans for future development of base oil projects, some extensive, and others less demanding on investment and capital expenditure.
Among the notices were dates for U.S. Group III production coming on-stream toward the end of this year and also the estimated dates for the start-up of Group II at the PK Orlen refinery at Gdansk, Poland.
The second of these announcements will be important for the European Group II market, bringing an additional output of 430,000 metric tons annually to the existing scene.
In discussions with various parties associated with this project, it became clear that an underlying anticipation was that the Group II market within Europe was forecast to grow exponentially over the next few years, allowing ingress into the market for a new supplier.
This course of action may be to the detriment of Group I use and supplies, but with many of the current Group I facilities in Europe being somewhat dated, it may only be a question of time before blenders make the switch to Group II as the ‘work-horse’ base oil type, achieving higher specification and more mature quality in finished lubricants.
Similarly, the news of new supplies of Group III base stocks, reaching the European shores will also further the acceptance of these base oils as the markets move faster and further towards lower emissions and higher expectations from all types of lubricants from automotive, and industrial to specialities such as electrical oils and greases.
Maintenance schedules were also laid out for many refiners around the European, Middle Eastern and African regions with both major and minor turnarounds programd throughout the coming year. Returning to Gdansk refinery, there will be a significant period of maintenance starting towards the end of this month and continuing into March.
Other notifications of refinery downtimes were for the North Atlantic venture at St Jerome in northwestern France, where it is anticipated that further work will be undertaken to convert Group I production to an upgraded re-refining facility at that site. details of the program are yet to be finally advised.
Routine maintenance will also be carried out at Group I production in Spain, Italy and Greece during the course of the year, with exact dates yet to be released from the various refineries. Work will also involve additional parts of the refinery production, with feedstocks and fuels being affected.
From the contents of many of the presentations, one item figured very highly on the agenda, that being the attention and effort being directed at re-refined oils, with all aspects of nw technology being examined and discussed.
The importance of re-refining lubricating oil has passed the point of purely being a ‘green’ eco project, moving to longer term sustainability and economic justification for such activity. Many companies are seeing the potential for re-refining, from starting at the non-burning of waste oils, to now producing Group II and Group III base stocks which can compete on quality, specification and performance when compared to virgin base oils.
In addition to the ‘green’ credentials attached to global projects for re-refining, there are many economic benefits to be had by blenders using a proportion of re-refined base oils in their slate. Prices tend to be slightly lower than virgin material, and with availability increasing access European, Middle Eastern and African regions, there are opportunities for new entrants into this sphere of base oil production.
An important feature of producing high end re-refined base oils is the provision and guarantees that are attached to maintaining sources and supplies of appropriate used oil. This becomes vitally important when re-refining Group II and Group III base stocks for the markets.
The days of emptying any old used oil into oil road tankers has passed with sophisticated control and management of the collection and storage of used oils t be used as feedstock for new plants which are evolving various locations across the regions.
Opportunities in Middle Eastern and African countries are presenting themselves to established re-refiners from Europe and the U.S., and the progress being made into this segment of the base oil market is nothing short of remarkable.
An overall sentiment gleaned from parties at the conferences suggested that the trend had been established for a general movement to premium base oils. This change is becoming more apparent and is gathering speed. The days of only having merely having access to Group I base stocks and a small selection of additives and dilutants is fading, and will not return, although there will be a period of transition from the ‘Stone Age’ to the ‘New Age’. Just how long this move will take is an unknown, but the pace is certainly increasing!
During last week there were geopolitical events taking place with talks between U.S. negotiators and Iranian representatives in Muscat, Oman to discuss and hopefully avert conflict arising between the two nations regarding the Iranian nuclear and ballistic programs.
The threat of Iranian reactions taken as a response to American strikes, could include the blocking of the Strait of Hormuz, through which around 20%-25% of global oil and gas is transported, making this a crucial route for crude oil from GCC sources.
Against this backdrop, crude prices have remained relatively firm, with levels approaching $70 per barrel in respect of dated deliveries of Brent crude. Should Hormuz fall under Iranian control, forecasts are that crude prices could rocket to around $250 per barrel.
Longer term forecasts have no wavered however, with banks and energy consultants maintaining the outlook with a glut of crude occurring around mid-year leading to lower price levels.
Only time will tell which scenario is more accurate.
Crude and Gas Oil Prices
Prices for dated deliveries of Brent crude rose $3.35 per barrel the past week.
Crude and gas oil prices
Dated deliveries of Brent crude: $69.35/bbl, April front month
West Texas Intermediate: $64.85/bbl, April front month
European low-sulfur gas oil: $697/t, February front month
Source: London ICE trading late Monday, Feb. 7
Europe
European Group I base oil has become subdued, with little buying interest from the market. Buyers are aware that they can choose when to purchase and whatever quantity they require.
Prices remain relatively stable, and even with poor demand there are few factors indicating weaker numbers, while at the same time, there are no real pressures, as yet, from feedstock cost increases.
Should stocks start to build however, some suppliers may be tempted to enter the export markets with large slugs of Group I grades to clear inventories. Should the temptation be accepted, then FOB prices will have to fall considerably to accommodate sales into regions such as West Africa.
If prices for export start dip, then domestic levels will also come under the same pricing umbrella, with pressure on current levels which will fall towards the export levels. Producers are trying to avoid this scenario if at all possible, and are walking a fine line, between lack of sales and pulling prices lower.
Group I prices are currently steady, with numbers ticking over at current levels.
Bright stock remains relatively tight, and may provide to be difficult to meet any export requests, especially if SN900 is to be blended using this grade.
Some sellers have maintained high published prices, but it is felt that no deals have been done at the elevated numbers.
Group I
European Exports. FOB (levels necessary to make deals possible)
SN150: $625/t-$650/t
SN500: $685/t-$710/t
Bright stock 150: $1,075/t-$1,095/t
northwestern Europe, FCA basis Antwerp-Rotterdam-Amsterdam
SN150: $770/t-$795/t
SN500: $835/t-$865/t
Bright stock 150: $1,220/t-$1,245/t
Eastern Europe, FCA
Supplier A
SN150: $995/t-$1,000/t
SN500: $1,020/t-$1,070/t
Bright stock: $1,475/t
Supplier B
SN150: €680/t
SN500: €770/t
Bright stock: €1,255/t
Mediterranean, FCA Spain
SN150: $815/t
SN600: $925/t
Bright stock: $1,310/t
Pan-European, FOB/FCA
SN150: €610/t-€655/t
SN500/600: €685/t-€725/t
Bright stock 150: €1,025/t-€1,055/t
Pan-European prices are assessed on an aggregate basis from prices obtained from Scandinavia, Poland, France, Germany, Benelux, Spain, Italy, Greece, the United Kingdom, and Baltic States.
The euro-U.S. dollar exchange rate was $1.18992 Monday.
European Group II base oil prices remain steady with demand seemingly healthy for these grades. Current levels are being accepted by buyers with levels around $1010/t in respect of the 150N grade with 600N at $1175
The EU duty element of 3.7% for non FTA imported Group II base stocks was to be removed in January, but initially with threats of U.S. tariffs, this decision was reversed, and it was confirmed last week from sources attending the Argus conference that the duty element remains in place.
Group II production from Gdansk refinery will be starting towards the end of the year with the nameplate production will now be 430,000 tons per annum. Discussions are ongoing as to how prices will be established, but this report is confident that this supply will be more than able to compete with current suppliers, and that with growing demand for premium base oils, and Group II in particular, this production will be welcomed into the European arena.
Group II, FCA basis, unchanged
110N: €825/t-€860/t
150N: €825-€865/t
220N: €820/t-€850/t
600N: €890/t-€960/t
Prices refer to a wide range of Group II base oils which may be sourced from within Europe, the U.S., the Red Sea and Asia-Pacific.
Group III base oil cargoes continue to arrive into Antwerp-Rotterdam-Amsterdam from Middle East Gulf and AsiaPac with a cargo from Al Ruwais in United Arab Emirates arriving into Dordrecht during this month. Another parcel which loaded during the last few days of January from Sitra is en route to Northwestern Europe and should arrive around mid-March.
News broke around ten days ago that Maersk and Hapag Lloyd containers vessels have decided to route through Red Sea and Suez, although sources from these companies did remark that the situation was being kept under review, and that any signs of problems from Houthi rebels in Yemen and vessels could be re-routed around the Cape.
The point of this announcement is that Group III cargoes from Middle East Gulf and AsiaPac still seem to be taking the route around the Cape at this time, and with Iranian noises supporting proxies and suggesting that if U.S. forces attacked Iranian targets, then Houthis would be expected to assist by striking ‘hostile’ merchant vessels in the Bab-al-Mandeb Strait in the southern Red Sea.
No further information has been heard regarding the Group III cargo which arrived from Indonesia, with no reports of FCA prices being circulated in the market.
European Group III prices are maintained, with buyers having accepted offers for March and April. The market remains tight, with no spot trades reported or taking place. All quantities arriving into Antwerp-Rotterdam-Amsterdam are being allocated to regular or contracted buyers.
Group III
Partly approved, FCA Antwerp-Rotterdam-Amsterdam, Northwestern Europe
4 cSt: €1,195/t-€1,225/t
6 cSt : €1,185/t-€1,210/t
8 cSt: €1,165/t-€1,190/t
Fully-approved, FCA Antwerp-Rotterdam-Amsterdam, Northwestern Europe, Spain
4 cSt: €1,595/t-€1,620/t
6 cSt: €1,585/t-€1,610/t
8 cSt: €1,565/t-€1,590/t
All the above products sold on a delivered basis will be subject to transportation charges, added to the prices above.
Rerefined Group III, FCA German, up slightly
4 cSt: €1,030/t
5cst: €1,020/t
6 cSt: €1,075/t
Baltic Sea
No information has been forthcoming from sources approached during last week, with all persons contacted or spoken to commenting that they did not have any information regarding availabilities of Russian base oils, particularly for export cargoes. With sanctions hitting Lukoil and Rosneft hard, and Ukrainian strikes on a number of refineries, including Bashneft at Ufa, there do not appear to be any signs of base oils leaving the shores of mother Russia. Those contacted last week are distanced from activities within Russia and are only on the fringe of the situation being located in the Baltic States.
Supplies of Russian base oils are certainly being directed to the domestic market, following significant and major damage to production and storage facilities at a number of refineries and terminals around Russia. But the damage alone does not appear to be the major factor, with Lukoil and Rosneft in disarray over disposals of foreign assets in European countries, where these affiliates are all being sold or auctioned off. From gas stations to storage terminals, all foreign assets must be sold under the new sanctions on the companies.
Export destinations such as Turkey, the United Arab Emirates and Nigeria have not received any offers from traders who specialized in Russian barrels.
Russian exports, FOB St. Petersburg / Vyborg (notional)
SN150: $625/t-$655/t
SN500: $660/t-$685/t
Black Sea & Turkey
Contacts from Turkish traders and blenders last week confirmed no Russian base oils in any shape or form, have been landed in Turkey for months. From comments received, it looks like it would take some time to start base oils supplies into Turkish buyers, and this may never come about due to sanctions now in place.
Turkish blenders have instead turned to purchasing Group I base stocks from Sonatrach in Augusta, Sicily, and also from AMOC and APC in Alexandria in Egypt. Some have looked to ExxonMobil for cargo lots to bolster Group I supplies, but prices have been high, according to two traders. MOH have also been approached, but with two 5,000 tons cargoes of Group I base oils going to India, Greeks have little or nothing to offer right now.
Turkish domestic prices from Tupras are amended as follows
Group I
Spindle oil: Tl 31,224.00/t plus VAT Tl 8,274.60/t
SN150: Tl 28,185.00/t plus VAT Tl 7,666.30/
SN500: Tl 34,864.00/t plus VAT Tl 9,002.10/
Bright stock: Tl 50,823.00/t plus VAT Tl 12,163.40/t
Sales also incur a new standard loading charge of Tl 10,146.50/t which should be added to the prices above
Group II, ex-works offered through Turkish traders
110N and 220N, no availabilities
350N : no offers, assuming no avails.
150N, ex Taiwan or Saudi Arabia: $990/t
500N/600N, ex Taiwan or Saudi Arabia: $1,185/t
Group III
Partly approved
Tatneft 4 cSt, FCA: €933/t (no availabilities)
Fully approved
From Cartagena, Spain, CIF Gemlik
€1,655/t/t-€1,680/t.
Middle East
Reputedly, prices for SN500 out of Yanbu have dipped by around $5/t during the fist few days of February. This is not yet confirmed.
Large cargoes of Group I and Group II base oils are being loaded for receivers in India and the UAE. Cargoes mainly of Group II base oils are going into Chennai and Mumbai anchorage.
Other smaller cargoes are also being organised out of Yanbu and Jeddah, with receivers in Aqaba, Durban and Alexandria preparing to take delivery of various quantities of Group I base oils from both Yanbu and Jeddah, according to shipping brokers’ reports.
In discussions held last week, it became apparent that the Group III introduction at Yanbu would not be any time soon, but would possibly be targeted for the end of the decade.
Blenders in are trying to cover any eventualities by purchasing cargoes of Group I and Group II base oils in case of conflict between Iran and the U.S. Group I and Group II base oil cargoes are being arranged to cover against any problems with supplies.
One blender based in Sharjah, intimated last week that quantities of Group III base stocks are being prepared for export to Iranian receivers who are also preparing for any hostilities which may occur anytime. The exports to Iran have been common practice for some time, it was added.
Once again in the UAE there is a reported shortage of containers for shipping finished lubricants to export markets such as East Africa. This problem is only set to get worse with fewer vessels calling at U.A.E. container ports such as Fujairah and Jebel Ali. Liner vessels such as President Line ships are still calling at Fujairah, but will no longer enter the Gulf. Feeder vessels will be used to move containers into ports in the UAE, and elsewhere in the Middle East Gulf.
UAE-bound cargoes continue to arrive from U.S., Korea, Thailand and Indonesia, discharging in Fujairah, Hamriyah and Jebel Ali.
News from Iran is filtering out with communications now restored for some time, but communication blackouts continue to be a problem.
Negotiations are proceeding in Muscat, but Israeli Netanyahu has made an immediate list to Washington to press for a deal which includes ballistic missiles to be decommissioned as well as uranium being downgraded from weapons standard.
The Middle East awaits with bated breath, to see what the outcome of the talks result in.
Imported base oil prices into the UAE are maintained as per last….
Group I, CIF/CFR UAE ports
SN150: $890/t-$925/t
SN500: $955/t-$980/t
Bright stock 150: $1,245/t-$1,275/t
Group I cargoes are being supplied to receivers in the UAE by traders based in the U.S., but also through companies based in Switzerland. Some direct sales are initiated through Luberef and also with suppliers in Rayong, Thailand.
Group II base oils basis FCA, or RTW UAE and Oman
110N, 150N and 220N: $1,275/t-$1,325/t
600N: $1,385/t-$1,420/t
Group II base oils imported into U.A.E. and other Middle East Gulf ports in Qatar, Bahrain and Kuwait are supplied from a number of sources, Red Sea, U.S., South Korea, Singapore and Europe. High ends of the ranges refer to material being delivered by RTW in the UAE and into the Oman exclave, north of Khorfakkan and Fujairah.
Group III, FCA Hamriyah/Sharjah port, or RTW UAE and Oman
4 cSt: $1,240/t
6 cSt: $1,250/t
8 cSt: $1,275/t
Prices for Group III prices above include revised reseller’s margin of around $105/t to cover storage, handling, insurance and a margin. RTW deliveries from distributors can incur a further charge of between $20/t-$65/t, depending on delivery location and quantity.
Middle East Gulf Group III base oils produced in Al Ruwais and Sitra are delivered in smaller parcels of around 3-4,000 tons by local vessels into Hamriyah and Jebel Ali. There have been problems with vessels getting access to port facilities, whereupon, distributors were looking for supplies by truck from Al Ruwais, this was too expensive to be considered from Bahrain.
Netbacks for Group III base oils ex Sitra and Al Ruwais for distributor sales in Europe, the U.S., India, China and Thailand are maintained between $1,075/t-$1,095/t for 4, 6 and 8 cSt grades.
Netbacks for gas-to-liquids Group III+ base oils ex Ras Laffan, Qatar, remain unchanged at $1,125/t-$1,165/t. Levels are given as indications only, since no distributors are involved in these cargoes, the product being mainly retained by Shell affiliates for in-house blending. Middle East Gulf Group III netbacks are assessed using selling prices in known markets, less estimated marketing costs, margins, handling, storage and freight.
Large cargoes have loaded out of Ras Laffan in Qatar for receivers in India, the cargo is reported to be around 27,000 tons in total. The cargo was misreported last week as being loaded out of Ras Tanura, a Saudi Arabian port where predominantly crude is loaded for international sales.
A large cargo of around 10,000 tons has loaded out of Al Ruwais for receivers in India.
Africa
Turkish buyers are looking at Egyptian and Algerian supplies of Group I base oils as their busy time of year starts in the Turkish market. Blenders in Turkey also have commitments for supplies of finished lubricants into Syria and around the Black sea regions such as Georgia.
The Moroccan requirement remains uncovered from latest information, but checks will take place this week to establish the latest proceedings.
Yet another large base oil cargo will load out of Rotterdam and Fawley for Durban, but this cargo will probably load during March, with an arrival ETA around mid to end April.
This report has tried to get an update on selling prices into Guinea, Cote d’Ivoire and Ghana, but to date has not been able to establish price levels for these supplies. It is anticipated that prices will be substantially higher than those for Group I imports going into Nigeria.
The Nigerian base oil market is busy at this time, with a number of cargoes recently arrived.
Trucks loaded in Apapa from shore storage can take a number of days to reach some northern destinations, from conversations last week, it can take around three days to deliver quantities of base oils.
It was suggested that drivers making these journeys can be distracted from their task in hand to get the material to blenders as soon as possible. Apparently much of the driving is done at night, when roads are quieter. One trader will load another 18,000 tons cargo out of the USG during February, with another trader taking 10,000 tons from USG sources around the same time. The trader behind this latter cargo has been identified and is well known for operating in the Nigerian market at very low prices, which ultimately have to be met by others.
Bids to European suppliers are being met with derision, with no suppliers looking to drop FOB prices to levels which would enable export cargoes to be purchased.
Prices being requested by receivers in Lagos still reflect the last Russian material to arrive in Apapa, many months back. Traders comment that it will be impossible to offer at the levels requested, on the basis that that Group I FOB prices remain where they are today. Markets in the U.S. are stable with prices steady right now, leaving no room for negotiating extremely low levels, being requested by receivers in Lagos.
Bid levels are now heard at $800/t for SN150, $870/t for SN500 and $990/t for SN900. These numbers are incredibly low and if freight, margin and other expenses are taken into account, these levels put FOB levels at around $630/t for SN150, $700/t for SN500 and $820/t for SN900.
The black market exchange rate for the Nigerian naira was NGN 1,431 to the dollar Monday.
Group I
U.S. origin, CFA Apapa
SN150: $800/t
SN500: $870/t
SN900: $990/t
The above prices are the lowest heard in the market and may not be achieved for all cargoes arriving into Apapa. It is considered that reasonable selling levels could be at least $50/t-$75/t higher.
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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