Refiners are cutting back on production levels, trying to maintain a balance between keeping plant and manpower in operation while ensuring optimization to meet essential supplies of base oils. These base oils are required for the manufacture of a range of finished lubricants ensuring that emergency, medical users and food transportation operations are kept going through the pandemic.

Specific lubricant blenders in various countries have been nominated by governments to maintain a supply of finished lubricants, such as automotive, marine and process oils.

Crude oil prices have responded after a majority of OPEC+ members agreed to cut production of crude by 9.7 million barrels per day. For at least for the next two months the crude battle between Saudi Arabia and Russia will cease. Some crude oil prices have responded relatively positive to this news with dated deliveries of Brent crude sticking at around last week’s levels. West Texas Intermediate crude, however, has not reacted in the same way, languishing at around $23 per barrel and increasing the crack between the two marker crudes to almost $10 per barrel. This is vastly different from a couple of weeks ago, when the crack was seen at less than $2.

Dated deliveries of Brent crude are steady, trading at $32.15/bbl for June front month, with West Texas Intermediate crude down at $23/bbl still for May front month settlement.

ICE LS gas oil prices have rallied a little, echoing some of the strength of dated Brent, but with demand for road fuels diminishing by the day and warmer weather in Europe this product may struggle to gain further. Prices are recorded at close to last week’s level at $300 per metric ton but now for May front month.

Demand for crude remains weak overall, and the OPEC+ cartel may have arrived too late since markets are dull and many businesses and sectors are closed, so the daily cut proposed will not be enough to stem a further drift on prices.

These prices were obtained from London ICE trading late Monday.

All base oil prices have been affected by both the current situation and lower crude and feedstock prices, showing weaker numbers across the board. Some regions, however, are subjected to heavier discounting than others.

Europe

European API Group I export prices are marked down with solvent neutral 150 at $420/t-$500/t, and SN500 almost in the same range at $430/t-$500/t. Bright stock is also weaker, but prices are assessed at $495/t-$575/t due to fewer availabilities of this grade, and hence fewer sellers.

These levels refer to cargo-sized parcels of at least 2,000 tons, sold on an FOB basis from European supply points, always subject to availability.

Apart from a few designated blending operations, regional European Group I markets are almost non-existent with a noticeable downturn in activity in all regions. Prices have fallen in line with export numbers, although not to the same lows.

Many players have either closed down operations or have moth-balled parts of their sites, concentrating on supplying critical and key users. But with overall demand depressed, even aggressive spot offers from some sellers are failing to instill any interest from many buyers.

Some of the local resellers have chosen not to sell material which has been in storage for some weeks since these quantities were purchased at higher prices, and selling now would certainly mean incurring substantial losses. Also some traders are unwilling, or unable to relinquish tankage space, which may be difficult to hire in the future. Hence they are deciding to retain some stocks in tank at least for the time being.

The transport issues have been mentioned again this week, and many drivers and operatives have been missing from their posts. As with last week, offices are closed, while some storage installations remain open, primarily on safety grounds.

The price differential between domestic prices and those applying to exports is maintained as per last and is reported at $75/t-$100/t, local prices being the higher.

Group II prices are reported as weaker, but the market is all but disappearing due to the number of countries in lockdown. Prices appear to have fallen in line with some of the source discounts which came into effect during March.

Prices are adjusted downwards, but still maintained in wide ranges due to variations in sellers’ approaches to the current situation. Prices are now assessed at $475/t-$600/t (€440/t-€550/t) for the two lighter-viscosity grades (150N and 220N), and higher-viscosity grades (500N and 600N) at $475/t-$610/t (€445/t-€560/t).

These prices apply to Group II oils with full slates of finished lubricant approvals as well as those with partial slates or no approvals.

Group III trading has faltered with only a handful of reported sales from European hubs this week. Sellers report that they have accepted the current situation and will support buyers and blenders where necessary, but are being realistic in that the Group III market will take some time to become re-established, as car production and a return to ‘normal’ movements are integral to this segment of the base oil market.

Prices are down this week, and partly approved Group III base oils range at €525/t-€610/t for 4 centiStoke grades, while 6 cSt and 8 cSt base oils sit at €530/t-€625/t. Some offers for small spot sales have been at very low prices, hence the wider ranges. Prices refer to FCA supplies ex Northwestern European hubs.

Prices for European OEM fully approved Group III base oils have succumbed to the pressure with wide spreads due to some sellers trying to compete with partly approved prices merely to effect sales to some retained customers. Levels are assessed at €540/t-€675/t for 4 centiStoke base oils, while 6 cSt grades sit at €555/t-€685/t and 8 cSt oils sit at €560/t-€700/t.

Baltic and Black Seas

Baltic trade is particularly weak, as few cargoes are either loaded or enquired about. Following the exodus of the large cargoes for receivers in Nigeria, few notifications of any further or repeat trades on the same scale occurred. Traders and resellers closed up shop in some cases, and one or two are trying to run businesses from residences. Forecasts suggest trade will be thin around this region for some time to come.

One small cargo was reported loading last week on the east coast of the United Kingdom. This was the small cargo of 2,000 tons of Russian export grades notified last week. Reports indicate that high inventories in Antwerp-Rotterdam-Amsterdam are preventing further parcels from the Baltic under contract because of containment and ullage issues that prevent the discharging of these cargoes. Cancellations were reported for space and vessels for routine cargoes moving out of the Baltic ports because of the downturn in the Benelux markets.  

Indication prices are marked down lower, with FOB prices for the two main grades, SN150 and SN500, at $410/t-$460/t. SN150, SN500 and bright stock from lower Baltic sources in Gdansk are aligned with mainland European export prices, and are indicated on a par with last week at $420/t-$485/t in respect of the neutrals, with bright stock perhaps slightly lower at $500/t-$565/t FOB.

With the main markets all in lockdown, Black Sea trade is negligible. No reported cargoes were planned from the STS facility in Kavkaz, Russia, following the 10,000 tons parcel loaded for Rotterdam. Prices were heard and indicated at $410/t-$425/t for SN500, with smaller quantities of SN150 at $410/t. Prices from this installation may trend lower, setting the trend for any unlikely business that may come about over the next few weeks and months.

A Group I cargo of 5,000 tons loaded out of Livorno for Turkish receivers in Gebze, Turkey, a surprising move in the current circumstances. The prices for this cargo were deemed exceptionally attractive. Indications from sources are $470/t for quantities of SN150 with SN500 at $480/t basis CIF Marmara.

Middle East

The Group II offer from Red Sea suppliers appears to have evaporated. With local buying interest at an all-time low, taking this parcel into storage may have been a financial risk considered not worth taking.

The large parcel of Group III grades that loaded out of Middle East Gulf arrived in Gebze, Turkey, but with local demand lacking, this large parcel may be in-tank for some time. Sources have confirmed that basic supplies of base oil are still maintained to blenders involved in serving military and emergency vehicles, in addition to commercial transport moving food, provisions and medicines around Turkey.

Group II and Group III grades are available ex-tank from Gebze, Turkey, with selling levels moved downwards after recent new cargoes had arrived. Prices are estimated now at $625/t-$675/t for low and high vis Group II grades, with partly-approved Group III base oils at $660/t-$685/t.

Vessel enquiries for Group I and Group II base oils loading out of Yanbu’al Bahr, along with Group I solvent neutrals loading out of Jeddah, appear to lessen over the past week. Planned parcels for markets in India and the United Arab Emirates may have been put on ice until lockdowns are lifted in these regions.

There is still an inquiry to supply bright stock into Egypt for loading 6,000 tons of bright stock out of Yanbu during second half April.

The coronavirus situation is not clear in many countries in Middle East Gulf regions other than in Iran, where very large numbers of casualties and deaths were reported locally. Other countries such as Saudi Arabia, Kuwait, Qatar and Iraq have not issued a great deal of information on their respective local situations, although reports are that each region is now badly affected, with various forms of lockdown applied in each case.

The pandemic situation has restricted a great deal of movement of both people and goods within the region, with the U.A.E. issuing strict guidance as to what is allowed and what is controlled. Much of the trade in Middle East Gulf has halted; however, reports indicate some cargoes are loading out of Bahrain, although these appear to be serving receivers locally in the U.A.E. The Greek cargo offered last week seems to have taken an option to move material to Antwerp-Rotterdam-Amsterdam instead of the U.A.E., perhaps indicating that now is not the right time for importing material from Europe.

Demand was dealt a huge blow in Middle East Gulf base oil markets, because with few people leaving home, driving and transportation has all but stopped. People are in almost total lockdown in the U.A.E., with sources working from residences and almost all commercial offices closed for day-to-day business. 

Although no further reports were heard of any Iranian cargoes moving into India or the U.A.E., sources said that prices fell and material is indicated at $445/t CFR in respect of SN500.

A cargo comprised of 70,600 tons of Group III grades loaded at the end of March out of Sitra for receivers in Sharjah. All other deliveries of Group III cargoes into markets such as India and China ceased. With demand in receiving markets gone for the time being, it may be some time until trade is resumed at former levels.

Notional FOB prices are taken lower this week, due to the few local markets in Europe and U.S. reporting lower selling numbers. Levels are now assessed at $495/t-$535/t for the partly-approved range of 4 centiStoke and 6 cSt Group III base oils. Eight cSt grades, which would have been sold into India and the Far East, will have slightly lower FOB prices at $475/t-$515/t. This is due to discounted selling prices in those regions.

Group III base oils from Sitra, marketed by Neste, will also show weaker numbers, with notional netbacks now at $625/t-$680/t FOB for 4 centiStoke, 6 cSt and 8 cSt viscosities.

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

Group II base oil supply out of U.A.E. hub storage is missing. Numbers as indications only on an FCA basis are taken lower this week and are now considered at $625/t-$760/t for light vis grades 100N, 150N and 220N, with 500N and 600N at $650/t-$780/t.

Cross-Mediterranean trade is negligible, with no cargoes reported.

Africa

No base oil activity from South Africa was reported.

One region always defies even Covid-19, that being West Africa.  A cargo of around 6,000 tons of Group I grades of base oil loaded out of an Algerian port and will arrive in Apapa during the second half of April. This is an unusual cargo, although Group I material from this source loaded in the past for receivers in Turkey. The actual source of the material is unknown, although this may be product trans-shipped from Augusta refinery in Sicily. Prices for this cargo may be lower than levels below.

Current prices for Group I base oils imported into Nigeria are maintained because cargoes already loaded have not arrived into Lagos as yet and were accounted for in prices established last week. CFR/CIF levels remain with levels indicated at $595/t-$625/t for SN150 and SN500 at $600/t-$640/t, and bright stock, where forming part of the cargo, at $710/t-$730/t. An Indication in respect of blended SN900 is at $625/t-$645/t.

Prices are for cargoes of a minimum of 10,000 tons delivered into Apapa port in Lagos, Nigeria.

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.

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