Base oil trading has certainly resumed across Europe, the Middle East and Africa, but business in many parts of the regions is sluggish due to a lack of demand for routine purchases.
Many major economies are feeling the pinch of trade flatlining, with commercial activity muted at best. Some countries, such as Germany, France and the United Kingdom, are verging on the brink of recession.
The wars in Palestine and Ukraine continue, with Israel, Ukraine and Russia all seemingly trying to better their positions for ceasefires that incoming United States President Donald Trump promised ahead of his return to office next week. The impact that ceasefires would have on energy markets including base oil supplies and arbitrage openings is anyone’s guess right now, but many base oil players around the EMEA regions are taking steps to insulate themselves from prolonged downturns in trade and commercial activities and to protect their businesses against surprise increases in raw material costs.
The mood shift in the Middle East and Africa is quite different from that of Europe, with many participants in those base oil markets buoyant about the outlook for coming months. Many predict growth will be the key element to success in the spring and summer months in the northern hemisphere, whilst in the sub-equatorial regions preparations are underway for a busy and productive winter.
As has happened in other regions, API Group I base oils are gradually taking a back seat there to Group II and III, which increasingly are being required to meet the latest performance standards for finished lubricants such as automotive engine oils. Chemical additive companies are working around the clock to develop formulations for lube blenders, and whilst existing products will be around for some time to come, the transition to those that require Group II and III is ongoing. Group II base oils appear on their way to becoming the new workhorse grades.
Base oil prices have been generally flat past few months, although currently the markets are seeing greater availabilities for all types of base oil, which may be causing downward pricing pressure. European price levels are under pressure in all base oil groups, thanks to the economic doldrums. Economies are in better shape, elsewhere, for example in South Africa and the Middle East Gulf, where against all odds, trade is blossoming.
Fundamentals have been moving the past week, with crude prices firming and the United States dollar strengthening against almost all major currencies. Sterling and the euro have weakened significantly for various reasons tied to political and economic developments.
Dated deliveries of Brent crude broke through the $80 per barrel mark and may rise further in coming days. West Texas Intermediate crude rose more, narrowing the crack with Brent to just $3, perhaps reflecting the strength of the U.S. economy … or the weakness of the eurozone and the United Kingdom.
Against forecasts from pundits worldwide, crude has bucked predictions late last year that prices would plunge as low as $30/bbl due to low demand and the opening of taps by OPEC rebels and other producers. It was also postulated that Saudi Arabia may ditch the restrictions on production and ramp up output back to original levels. The Saudis may be extra motivated to follow that course now in order to cash in on the financial opportunity, especially in light of large infrastructure projects now underway.
Dated deliveries of Brent crude rose $3 the past week firmed to $80.70/bbl per barrel, for March front month settlement. WTI climbed more than $3 to $77.85/bbl, for February front month.
Low-sulfur gasoil jumped $40 to $752 per metric ton, now for February front month. All of these prices were obtained from London ICE trading late Jan. 13.
Europe
Coupled with poor demand and growing inventories around Europe, there may be reason for Group I exports from Europe to resume – to destinations such as West Africa and Turkey. Having stated this possibility, most demand from West Africa, and Nigeria in particular, has been covered in recent weeks by Group I cargoes from the United Arab Emirates and the U.S. Gulf. Still, looking forward to March or April, the door may be open for European Group I base oils to pitch for export markets.
Group I in-house exports continue in the shape of large cargoes being shipped by ExxonMobil to West Africa and South Africa, maintaining affiliated supplies and deliveries to contracted third parties. Prices in Europe will have to be tempered lower to compete with alternative supplies of large Group I cargoes, although most of the surplus barrels from the U.S. have now been exhausted, and current prices there may no longer be as favorable for export trade.
Prices for Group I sales within Europe show signs of weakening. Some early year buyers have been offered competitive numbers, with prices heard last week for solvent neutral 150 at €850/t and SN500 at €880/t, both on an FCA basis. Sellers maintain that they haven’t capitulated to buyers demands, but have been realistic in assessing the market as it stands currently.
With decent margins versus distillates, the incentive was in place to move quantities of base oils sooner rather than later. That incentive may be fading as vacuum gas oil prices rise in relation to base oils. However there still appears to be little upward pricing pressure at the moment, since demand is relatively weak and opportunities to move large quantities into the region’s markets are limited.
Bright stock maintains a firm position in pricing due to restricted availability. There are few refiners producing this grade – only around eight sources on the European mainland. There are availabilities from North African producers, but these base oils do not necessarily carry REACH certifications.
Prices for Group I sales in Europe are adjusted lower this week to €850/t-€910/t for SN150 and and €880/t-€925/t for SN500, with bright stock remaining pegged at €1,195/t-€1,245/t, depending on quantity and availability. All of these prices are on an FCA basis.
The euro’s value versus the U.S. dollar weakened to $1.02036 Monday. The average price differential, across all grades, between Group I sales within the region and hypothetical exports is unchanged at €5/t-€15/t.
Group II prices around Europe appear to be steady but similarly to Group I levels are coming under price pressure. Escalation of crude and feedstock values may exert some pressure against the downward pressure typically created by a flush market. Prices are taken slightly lower this week to €1,075/t-€1,100/t for 110 neutral or 150N, €1,095/t-€1,120/t for 220N and €1,155/t-€1,195/t for 600N. These prices apply to a wide range of Group II oils, some produced in Europe and others imported from the U.S., the Red Sea and Asia-Pacific. Regarding imports, the price ranges given refer to bulk shipments.
European Group III prices had remained stable during the holiday season but have now come under a fresh round of price negotiations for February and March orders. Buyers are arguing hard for markdowns.
There are rumors of exceptionally low offers from traders who have access to Group III base oils sourced from a Middle East Gulf producer – oils that have been shipped to Antwerp-Rotterdam-Amsterdam for resale on an FCA or delivery basis. Four centiStoke oils were heard offered at $1,050 (€1,019)/t for prompt sales during January. This cargo may have limited time in storage, hence the rush to move the material out of tank quickly.
One seller continues to offer Group III with a partial slate of finished lubricant approvals for €1,125/t, whilst other sellers have maintained higher prices of €1,145/t-€1,185/t. European price levels for partly-approved grades are at €1,019/t-€1,185/t for 4 and 6 cSt and at €1,165/t-€1,195/t for 8 cSt, all on an FCA basis ex Antwerp-Rotterdam-Amsterdam and Northwestern Europe.
Prices for rerefined Group III grades are adjusted lower now to €1,085/t-€1,135/t for 4 and 6 cSt, on an FCA basis ex rerefinery in Germany.
Prices for Group III oils with full slates of finished lubricant approvals remain higher but are also coming under pressure, although just one supplier currently fits this category. Prices are now heard at €1,725/t-€1,775/t for 4 and 6 cSt and at €1,785/t-€1,800/t for 8 cSt, all on an FCA basis ex hubs in Antwerp-Rotterdam-Amsterdam, Northwestern Europe and the refinery source in Spain.
Baltic and Black Seas
There are reports around that Russian domestic prices had risen by the ruble equivalent of $10/t, but there appears to be little evidence that this price increase has been applied to export cargoes. It may be early days as yet however, and price increases may start to filter down into cargo prices from the Baltic and Black Sea.
If domestic markets are not running at full steam, it being winter months, then there may be case for discounting base oil prices below the cost of feedstock to produce these grades, since the alternative would be to put the light neutrals back into the distillate pool, but this doesn’t seem to happen.
Russian export prices appear to continue to be heavily discounted ensuring that these grades remain attractive and super-competitive wherever they are being dumped. Rosneft barrels are being sold at very low levels into Turkish and Middle East Gulf markets, with Gazprom base oils not far behind.
For whatever reason Lukoil barrels seem to be priced slightly higher, but appear to sell reasonably well in markets such as Turkey, U.A.E. and Nigeria. Some have implied that ‘quality’ is more reliable from Lukoil, but from past experience this would to appear to be the case.
FOB prices in respect of SN150 and SN500 ex St. Petersburg or Vyborg, Russia, are estimated from prices offered and delivered into receivers in Lagos and Turkey. Levels remain currently estimated at around $650/t-$660/t for SN150 and $675/t-$690/t for SN500. SN900 blended specifically for Nigerian receivers, is calculated to be around $725/t. If the domestic increase is applied, then these numbers will be $10 higher.
Russian Group I base oils are being advertised and regularly sold around the Black Sea by a few Turkish traders to buyers, some of whom are based in EU countries.
Russian barrels are being bridged from Black Sea ports such as Taganrog, Russia, and Turkish ports to Egypt, stored in tank, and then re-exported to markets such as Nigeria. Cargoes of SN150, SN500 and SN900 are being delivered into Apapa by a trader. Russian levels for SN900 delivered into Nigeria are heard at $1,080/t, on a CFR basis. From a Turkish trader Russian and Uzbek SN150 is priced at $790/t and SN500 at $800/t, but the price for SN900 is much higher, at $1,055/t. These prices are ex works in Gebze, Turkey.
There are no reported updates on Tupras prices for local sales, so risking non-availabilities, values reported here are unchanged at 35,285 lira/t for spindle oil; Tl 31,104/t for SN150; Tl 33,253/t for SN500; andTl 44,962/t for bright stock. These prices are ex rack and incur an additional loading charge of Tl 5,150/t.
Group II FCA in prices in Turkey are maintained at $890/t-$1,100/t for 110N, 220N and 350N, the lower numbers applying to 110N and 220N, the upper to 350N. It could be that the two light-viscosity grades are of Russian origin, whilst the heavier grade may be either Taiwanese or from Yanbu, Saudi Arabia.
Mainstream higher-spec 500N is offered at $1,500/t and 150N at $1,150/t. These two grades were imported from Taiwan, from Formosa Petrochemical. Overall, Group II base oils were imported from the Red Sea, the U.S., South Korea, and Taiwan, and now also from Russia.
Four cSt oils from Tatneft in Russia are among the Group III base oils with partial slates of approval or with no approvals that are available in Turkey. Tatneft 4 cSt is now priced around €1,095/t, on a CFR basis, while other partly-approved grades are priced higher, between €1,360/t-€1,400/t.
Fully-approved Group III grades from Cartagena in Spain are being delivered into Gemlik. Prices are taken lower following buyers’ objections to paying top dollar. Buyers maintained that they could import lower priced fully-approved base oils from elsewhere. Prices are now between €1,865/t-€1,895/t FCA.
Middle East
Cargoes of Group I and Group II base oils continue to load from Yanbu and Jeddah, Saudi Arabia, but information is being sought on when maintenance is planned for Yanbu refinery, since it is considered that a major turnaround may be overdue for this facility. The implications of a maintenance stoppage are considerable, but with ample storage for both Group I and Group II base oils, there may be only slight interruptions to supply. There have been lower quantities moving into the U.A.E. during December since alternative barrels were made available from U.S. sources late last year.
Saudi Aramco, with S-Oil, may look to increase Group I and II exports to Europe. S-Oil has been in the Group II market in Europe for many years, and this practice of loading out of Yanbu would save time and costs of moving cargoes from Korea for Group II base stocks. The export of Group I may be slightly more complex due to the growing availabilities of these grades within mainland Europe.
Base oils from Sepahan’s refinery in Iran have been largely unaffected by ongoing Iranian activities, but more and more base oils are being retained within Iran, although it is not clear why.
There has been a large quantity of imported base oil arriving into the U.A.E. for blending operations in Fujairah, Sharjah and Dubai. Many cargoes have loaded from the U.S. Gulf, through international traders based in the U.S. and the Middle East Gulf. The supplies are heard to be relatively large quantities of Group I and II. These base oils are being sold to third parties but are also going into appointed distributors. The cargoes are predominantly split between Group I and Group II base oils, with some vessels carrying both types of base oil, loaded from two ports in the U.S. Gulf.
Prices for imported Group I material arriving into the U.A.E., are assessed at around $925/t-$945/t for SN150, $965/t-$980/t for SN500 and $1,125/t-$1,175/t for bright stock, all on a CIF or CFR basis ex U.A.E. ports. These prices refer to imports loaded from the U.S., with lower numbers heard for smaller quantities from Thailand, India and Indonesia.
Russian base oil cargoes arriving into Hamriyah port in the U.A.E. are loading out of Azov ports such as Taganrog and Temyruk, Russia, with others being bridged through Limas terminal in Turkey.
Sources in the U.A.E. report more news on another cargo of Russian base oils to be transferred at Hamriyah anchorage on a ship-to-ship basis. It is not yet known when this operation will take place, but contacts say it may occur during February. The operation will depend on traders locating a suitable vessel to make the transfer and then sail to Lagos with a cargo estimated at 15,000 tons. Of that amount, around 9,000 tons would be SN900 blended in advance at the initial loadport in the Sea of Azov.
Russian base oil prices on a CFR basis ex Hamriyah port, or STS anchorage, are at levels around the mid-$600s on a delivered basis, around $645/t-$785/t for SN150 and $655/t-$795/t for SN500. The higher ends of the ranges refer to base oils discharged into shore tanks in Hamriyah port.
Group III cargoes continue to be regularly loaded out of Al Ruwais, U.A.E., and Sitra, Bahrain. Netback levels are unchanged at $1,125/t-$1,200/t for 4, 6 and 8 cSt. Netbacks for gas-to-liquids Group III+ base oils ex Ras Laffan, Qatar, remain at $1,295/t-$1,325/t. Cargo economics and cost allocation are not disclosed, so these number are provided on an indication basis only, using freight indications and calculated FOB prices.
Netback levels are assessed from distributor selling prices minus estimated marketing, margins, handling and freight costs.
Prices are slightly lower this week for Group II base oils imported from the Red Sea, the U.S. and South Korea, resold ex tank in U.A.E., or on a truck delivered basis in U.A.E. and Oman. Those prices are $1,495/t-$1,535/t for 110N, 150N and 220N, with 600N between $1,585/t-$1,620/t. These grades are mainly priced and sold in U.A.E. dirhams, the U.A.E. currency being pegged to the U.S. dollar. The highs of the ranges refer to RTW deliveries to buyers in locations in U.A.E. and northern Oman.
Africa
Shipping agents in Durban say that they have been advised that another large cargo of base oils will be programmed for the first quarter of this year, but dates are still to be finalized and shipping details have not been released. It will be a large cargo of mixed base oils discharged in Durban.
Shipping reports contain details of a vessel to load out of Fawley, U.K., with around 9,000-10,000 tons of Group I base oils. Three grades will be loaded: SN150, SN500 and bright stock. The cargo will discharge in Conakry, Guinea; Abidjan, Cote d’Ivoire; and Tema, Ghana. The receivers in the first two ports are contracted buyers from this major. The Ghana delivery of 5,000 tons of SN150, SN500 and bright stock is a regular delivery under the Ghana tender that has been held and retained by ExxonMobil for a number of years. In the past, this contract had been held by traders operating out of London, using supplies of Group I grades from Livorno, Italy, refinery.
In Nigeria, more cargoes are being evaluated for delivery during the first quarter, but cargoes from the U.S. might become uncompetitive since availabilities there have decreased and FOB prices increased. Russian base oils from the Baltic, Egypt and perhaps the U.A.E. are being indicated in offers and continue to be difficult to compete against. Presumably traders involved with Russian supplies of base oil are making money from these cargoes, but producers in Russia must be selling base oils at or below feedstock cost, considering costs for shipping and finance.
The exchange rate of the Nigerian naira to the dollar flatlined this week and sits at NGN 1,645.
CFR Apapa prices for U.S. material have been confirmed at $985/t-$1,010/t for SN150, $1,040/t-$1,055/t for SN500 and 1,095/t-$1,125/t for SN900. Other traders have offered lower numbers on the light neutrals – $940/t for SN150, $995/t for SN500 and $1,130/t for SN900.
Russian barrels are delivered into Apapa via Turkey and Egypt, and even after triple handling are competitively priced, indicating how low the numbers are for Rosneft base oils going in and out of Turkey. Prices for Russian base oils delivered from Russia, Egypt and the U.A.E. are indicated at around $980/t for SN150, $995/t for SN500 and $1,080/t for SN900, all on a CFR basis ex Apapa.
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.
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