Stocks will have to be used in the first instance, rather than blenders rushing out to the market to buy more base oil. This makes economic as well as logistical sense, since almost all manufacturers of lubricants have had their cash flow and revenue streams seriously damaged by the virus spread, and many do not have the reserves to invest in capital projects or new stocks.

With demand being almost totally removed, many outfits are still running on limited capacity basis, and many staff are either furloughed or laid off. Some may never return to their previous posts, and some blending operations may never reopen again. There are some situations around the markets where smaller operations have amalgamated or have been bought out by larger companies.

At least there is some positive news in that crude prices have lifted over the past couple of weeks and demand has reappeared from China. However, there are signs in some countries that a second spike to infections may impede progress to resumption of whatever the “new normal” may turn out to be.

Dated deliveries of Brent crude has moved upwards to trade at $37.65 per barrel, now for August front month settlement. This level is around $2 higher than last reported two weeks ago, with West Texas Intermediate crude also showing strength to post at $34.75 per barrel, but still for July front month.

Oddly, ICE LS Gas Oil prices have fallen back a little below $300 per metric ton. Prices in late trading were pitched at $295/t, and the consensus of the markets is that this drop in price is purely down to demand being far below seasonal expectations due to fewer cars and other vehicles on the road and the needs for heating and air conditioning depleted due to offices and factories being closed or on part-time working.

The above prices were obtained from ICE trading in London Monday.

Europe

European Group I base oil export prices have again been marked downwards.

FOB prices for quantities of solvent neutral 150 are between $335/t-$375/t, with SN500 at $350/t-$385/t. Bright stock has also been realigned at $375/t-$410/t.

There remain very few openings to send European production to export destinations, and any which can be identified such as West Africa, are also open to competition from alternative sources such as the U.S. The coronavirus situation has been growing in these regions, limiting companies’ ability to accept imports. With other markets still closed such as India and Middle East Gulf, the possibilities to place cargoes into export destinations are all but removed. Almost all export markets also have high inventories which will have to be downsized before further purchases for replacement stocks can be considered.

The Turkish market has been one beacon of hope, at least for some producers of Group I base oils in the Mediterranean, due to the fact all local distribution of Group I base oils from the refinery at Izmir being halted not due to restart until July 1. There are also limitations to demand due to the economic downturn in Turkey and monetary restraints which this situation has imposed.

The above price levels refer to cargo sized (minimum 2,000 tons) parcels of Group I base oils, FOB ex mainland European supply points, always subject to availability.

In the regional European Group I markets some countries have eased restrictions to get economies and commerce back to work. However this looks like a long and very different road from before lockdown, and one where there is no previous or existing situation against which models can be compared. 

The new rules of social distancing in all countries ranging between one to two meters is imposing difficulties for some working arrangements, and where this is impossible to be effected, then PPE has to be employed by all, further limiting activity. In a market which is largely surreal, in that there is no market, prices for regional Group I base oil have remained at relatively higher levels than those being witnessed in export trades. Buyers have not really returned to buying mode as yet, and as discussed previously, current inventories will have to be run down before any buying sprees are evidenced.

The price differential between domestic prices and export numbers remains at its highest, possibly in all time, being assessed at €80/t-€155/t, local prices obviously being the higher. The solvent neutrals tend to edge towards the lower end of this spread, while bright stock shows the largest differential.

The European Group II scene has also been negatively affected by reduced demand but this sector has not been exposed to anything like that of Group I exports. Further concessions have been made to May prices for June and a number of buyers commented that they had been approached by sellers to ascertain volumes for the month. Perhaps there are signs of green shoots appearing within the Group II sector, with this camp perhaps leading the way out of the Coivid-19 nightmare. The European Group II market remains price strong in comparison to other major regions such as North America and Far East. 

With an announcement expected before July 1 on the EU import tariff limits for the next six months, the current situation continues to be vague. There appears to be little discussion surrounding a total review of the tariff limits, taking into account imports over the last four months. Rumor is that due to the effects of the coronavirus spread, the tariff limits will remain at current levels until more “meaningful data” can be assembled. There was no official statement or confirmation from the EU Tariff Group.

Prices are taken lower but with margins still extremely healthy, sellers remain content to supply customers with Group II grades at these levels. Raw material costs may have lifted slightly, but the differential between total costs and selling prices provides realizations which are extremely acceptable. 

Prices are assessed at $620/t-$650/t ( €570/t-€595/t) for the two lighter-viscosity grades (150N and 220N), with higher viscosity grades (500N and 600N) at $675/t-$700/t ( €620/t-€640/t).

The differential between Group I and Group II prices remains substantial, limiting the incentive for some blenders move from Group I to Group II. However, those blenders involved heavily in the automotive engine oils sector may find the timing right and prudent to be making the change following, hopefully, resumption of demand and uptick of activity around the markets. 

Prices pertain to a wide range of Group II base oils, including European, and U.S. fully approved grades, but also unapproved or partly approved grades from Middle East, Far East and the U.S.

Group III markets have stalled and there are few replenishment cargoes arriving into European ports from production sources outside the region. Sellers are saying that inventories remain high, and there are very few signs of increasing offtake from storage hubs located around the main European centers. There is a hope that with more workers returning to factories and plants around the continent, that things will start to pick up over the next couple of months, but there is a distinct lack of confidence in the region as to what will happen and more importantly, when.

Prices are slightly lower with levels now assessed at €610/t-€670/t for the range of partly approved Group III base oils. Numbers are ranging at €610/t-€675/t for 6 centiStoke and 8 cSt base oils, with 4 cSt grades at €600/t-€650/t. Prices refer to FCA supplies ex Northwestern European hubs.

Prices for European OEM fully approved Group III base oils are also realigned with levels at €675-/t-€725/t for 4 cSt base oils, with 6 cSt and 8 cSt grades at €700/t-€775/t. The wide variations and the low ends of the ranges are where some sellers are discounting prices to compete with partly approved material.

Baltic and Black Sea

Baltic activity slumped even further, with distributors opting not to buy in stocks of Russian export barrels, maintaining their stocks at very low levels, thus not being able to offer for any sport cargo requirements that might surface from time to time. They are concerned that prices may start to drop further, leaving them with higher priced stocks of material that they will not be able to move.

Restart at a major Russian refinery has been delayed to counter overproduction from this plant. With local domestic and export demand extremely thin, there have been few incentives for rushing to resume production of base oils. Margins for Russian exports remain positive. However, vacuum gas oil prices have started to creep upwards and with intense pressure on selling prices margins are being squeezed.

There are a few cargoes moving to Antwerp-Rotterdam-Amsterdam out of Riga and Kaliningrad, but with demand in mainland Europe extremely low, even these movements have diminished during the past couple of weeks. Gdansk, in the lower Baltic, appears to fare a little better in finding buyers who can load promptly with a large parcel for Nigeria loaded last week out of this port. The ability of this supplier to offer mainstream specifications for the whole range of Group I grades gives this source an added advantage to compete for large cargoes.

Prices are maintained given the small amount of business being transacted and reported. FOB prices for the two main grades SN150 and SN500 are put at around $335/t-$375/t. SN150, SN500 and bright stock ex Gdansk also are indicated at mainstream European levels at around $345/t-$405/t for the solvent neutrals, with bright stock at $385/t-$425/t FOB.

Black Sea Russian base oil trade has been limited perhaps with the lull in production coming out of the Volgograd refinery, which may have affected the quantities of base oil being made available. This action was taken as a direct result of the coronavirus situation in the region, with demand for petroleum products falling away to almost zero. This limited the quantities of base oils being through-putted at the STS facility at Kavkaz, Russia.

Prices out of Kavkaz, Russia, are indicated only, with STS numbers around $315/t-$350/t for SN500, with quantities of SN150 at around $295/t-$330/t.

In Turkey, offers of Mediterranean Group I base oils are circulating, but not many Turkish buyers are taking up these offers. Basically either they are concerned that prices may drift lower, whilst at the same time they are concerned regarding making a commitment to buy relatively large parcels of material that may sit in storage tanks for some time before being sold on a load-over-load basis by truck. However, with the Tupras refinery in Izmir closed until at least July 1, there may be no other option than to buy imported base oils from Mediterranean sources.

Prices indications are maintained at 405/t for SN150 with SN500 at $425/t basis CIF Gebze, Turkey, in lots at 2,500 tons-4,000 tons per cargo. SN100 is also indicated at $415/t and is made available on the same delivery basis.

Group II and Group III base oils offered out of tank are available from traders with prices heard at $610/t-$640/t for the low and high vis Group II grades, with partly-approved Group III base oils at $625/t-$660/t.

Middle East

Red Sea trade has seen exports falling out of Saudi Arabia due to the containment and high inventory stocks in regions such as India and Middle East Gulf. Shipping enquiries that usually indicate the levels of trade from this region have been muted, albeit with the Ramadan month followed by the Eid holidays. With the coronavirus and all its implications, demand waned in receiving markets. With the exception of the Egyptian General Petroleum Corp. bright stock tender, few new cargoes were seen. There may be doubts as whether the new Egyptian tender for the third quarter, which will be decided this month, will contain the large quantities of bright stock normally required.

Trying to get back to some form of normality is proving extremely difficult in Middle East Gulf regions. The period after Eid usually sees a surge in trade and business overall, and – with this period squeezed in before the summer recess period in the region – would have been expected to become a thriving center of trade. This is simply not happening with a similar picture to other regions where stocks of base oils are at tank tops, even given the extra storage facilities and blending operations that have started up over the last couple of years.

With few reports coming out of Iran, it is difficult to gauge exactly the extent of the effects of the coronavirus pandemic. It can be assumed that Iran appeared to enter a very bad time just after China locked down, and trade appeared to almost come to a standstill. No Iranian cargoes were reported and given the situation in both India and United Arab Emirates, demand was eradicated for Iranian base oil cargoes. With this situation in mind therefore nominal prices for Iranian material are as indications only, and are assessed at $395/t-$425/t FOB for SN500+. SN150 is indicated at $385/t-$410/t.

A couple of offers for Group I cargoes remain open on the table for importers in both the U.A.E. and the west coast of India. The two large cargoes may be decided later this week. One is a cargo of up to 20,000 tons of Group I base oils loading out of a source in U.S. East Coast, the second being out of the U.S. Gulf for around 10,000 tons of Group I grades.

Group III exports from Middle East Gulf sources have slowed right down for obvious reasons, which are that demand from regular importers and distributors has ceased for the moment. Regular cargoes out of the region have disappeared, with only a coupe of smaller movements to local receivers in the U.A.E. There are reports that Chinese demand for Group III may start to grow, this being one of the first targeted regions that suppliers in the Middle East Gulf will try to cover.

Notional netbacks for any exported material are maintained and are estimated to produce numbers at $495/t-$535/t for the partly-approved range of 4 centiStoke, 6 cSt and 8 cSt partly-approved Group III base oils. Group III base oils out of Sitra are assessed at $625/t-$680/t FOB for three Group III grades: 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 oils supply from U.A.E. hub storage is quiet, although a cargo from the U.S. Gulf Coast for a major will be arriving into the U.A.E. within the next few weeks to supplement material that was sold over the past few months. Prices remain unchanged, with indications on an FCA basis at $600/t-$690/t for the light vis grades 100N/150N/ 220N with 500N/600N at $620/t-$700/t. Group III grades are also offered on an ex-tank basis from the U.A.E., at $655/t-$700/t for 4 centiStoke, 6 cSt and 8 cSt grades.

Without the potential Turkish requirements, cross-Mediterranean traffic would be extremely quiet. With Turkish buyers still hesitating to purchase cargo lots of Group I base oils, trade is very slack. Activity is expected to move up a pace when stocks in Gebze, Turkey, and Derince get to lower levels, but when this will be, is an unknown.

Africa

South African reports are that another large Antwerp-Rotterdam-Amsterdam plus the United Kingdom cargo has loaded for South Africa, but in addition will carry additional cargo for Ghana and also for receivers in Tanzania. The vessel will deliver a smaller than usual quantity to Durban, perhaps reflecting the downturn in demand at this juncture for base oils to produce finished lubricants in South African regions.

A cargo of 10,000 tons is either loaded or is in process of loading out of the lower Baltic from Gdansk, and also another parcel loading from the Mediterranean is believed to have loaded and sailed for Lagos. Sources reported that Nigerian facilities were badly hit by the coronavirus spread. Now in the Democratic Republic of Congo there is a reported outbreak of ebola virus, which when last experienced in the West Africa regions, had a devastating effect on people and business.

Prices for API Group I base oils imported into Nigeria remain unchanged for this report, with CFR/CIF levels being assessed at $520/t-$530/t for SN150, SN500 in a range at $540/t-$555/t, and bright stock, where applicable, at $640/t-$660/t. SN900 is indicated at $560/t-$575/t.

When the latest prices for current loadings are established, prices may be reviewed to reflect any alterations and changes.

Prices are for cargoes of minimum 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.