There are some pockets of hope where interest and demand is starting to return to the base oil scene, but these isolated events are few and far between, with many players electing to wait until after the summer period to make a return to full-time working and a number of companies furloughing or even laying off staff.

Crude prices rose the past two weeks, and at one stage dated deliveries of Brent crude breached the $40 per barrel mark. Prices retreated the past few days, however, due to higher than expected inventories and dire economic forecasts. Dated deliveries of Brent posted at $39.05 per barrel Monday for August front month settlement, while West Texas Intermediate showed at $36.30/bbl, still for July front month.

ICE LS gas oil prices have strengthened, elevating this crude to a level of $331 per metric ton, some $35 higher than a couple of weeks ago. With more vehicles taking to the roads throughout the European, Middle Eastern and African regions, demand has improved for motor fuels, thus promoting prices for gas oil higher.

These prices were obtained from London ICE trading late Monday.

Europe

European API Group I base oil export prices have stuttered over the past few weeks with a general weakness being detected around the market. There have been a number of massive cutbacks in production by some of the major producers of API Group I base oils, but this has not prevented large inventories building up, with sellers trying to move material merely to keep the supply chain moving.

There is evidence of some sellers offering prices as ‘one-off’ deals which are well below the ranges specified here, but to include these numbers in this report would distort the overall pricing ethic, hence these prices are acknowledged as existing, but are not engaged as part of the general market.

Prices are weaker again this week with FOB prices for solvent neutral 150 between $330 per ton and $365/t, with SN500 in a range between $345/t-$375/t. Bright stock has also been trimmed with prices assessed between $370/t-$400/t. What is noticeable is the close proximity of bright stock prices to those of SN500, with only a small premium being observed in respect of prices applying to bright stock.

The arbitrage to the Far East, India and the Middle East Gulf may be open for European Group I cargoes but there are few buyers in the market with each of those destinations recovering following lockdown. There is also fierce competition from Group I cargoes loading ex U.S. Gulf Coast. 

Turkish buyers are the prime interest of many suppliers based in the Mediterranean region, with the Tupras refinery in Izmir completely closed down with no availabilities of Group I base stocks coming from this source. The plan is for the refinery to re-open on July 1, although there have been local rumors that this date could be postponed. With the Turkish market re-opening to an extent after the lockdown period, there are enquiries from a number of traders for Group I material to be imported over the next couple of months

The above Group I export price levels refer to cargo-sized parcels of at least 2,000 tons sold on an FOB basis ex mainland European supply points, always subject to availability.

The regional or domestic European Group I markets are expecting to show signs of getting back to work, but as mentioned earlier many blenders have decided to continue short-time working with reduced staff levels and shorter working hours. Some operations have elected to move to a three day week, reflecting much reduced demand levels for finished lubricants from all corners of industry, whether it be automotive, industrial or commercial enterprise. The marine sector is perhaps one area of demand, with the IMO 220 regulations on sulphur levels in marine fuels moving vessel operators to a new family of marine lubricants with, for example, lower TBN levels and new formulations for many of the products. 

Social distancing varies from country to country with some imposing a two meter distancing whist others have moved to a one metre standard. It has been recognized as being vitally important to adopt the lower limit, which provides the flexibility for staff to work closer, without presenting a higher degree of risk to Covid-19. New working practices are being planned and adapted for blending operations throughout Europe, with a number of national lubricant associations providing advice and information for their members.

The price differential between domestic and export numbers remains assessed between €80/t-€155/t, local prices obviously being the higher. Solvent neutrals differentials are towards the lower end of this spread, whilst bright stock shows a larger differential between export and regional markets.

Group II base oils throughout Europe have come under price pressure, almost as if there were a delayed effect stemming from Group I levels moving lower. The differential between Group II prices and those for Group I domestic supplies remains large, although with erosion to Group II levels this week, the delta is becoming smaller. The scene remains sluggish with demand showing only small signs of any recovery. This sector may be affected by buyers retaining higher inventories over the period of the lockdown, thus having to eat into those stocks before purchasing replacement material demand is returning according to comments received from a couple of the major suppliers in Europe, but it will take some time and before a return to pre Covid-19 days.

The announcement on or before July 1 regarding the EU import tariff limits for the second half of the year is expected to maintain the limits as for the first half of 2020. This limit is currently set at 400,000 tons over six months for imported Group II grades being import levy free, thereafter an import tax of 3.7% would apply to all and any imported material.

The stats however have been muddled by the incidence of the coronavirus situation which has had obvious effects on demand and offtake levels over the past few months. Representations have been made on behalf of importers by Lubricant Associations from across Europe to abandon the import limits and reinstate the tariff waiver, at least for the current period, due to complications caused by the Covid-19 situation. The decision as to whether or not any change will be effected is eagerly awaited. No statement has been received or made from EU sources.

Some importers are planning large quantities for import to arrive into EU just after the initial date for the new tariff period, perhaps looking for some form of insurance against having to incur a 3.7 percent import levy.

Prices are moved slightly lower due to demand being suppressed and with plentiful avails, stocks remain relatively high at refinery source and in third party storage terminals.

Prices are assessed between $610/t-$640/t (€560/t-€585) in respect of the two lighter vis grades (150N and 220N), with higher vis grades (500N and 600N) between $665/t-$690/t (€610/t-€630).

Prices still 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 sales are weak with prices softening for a small number of sales being completed out of European hubs. There are however replenishment cargoes being planned from Far East and also from Middle East Gulf suppliers which will possibly arrive into Antwerp-Rotterdam-Amsterdam around the end of July.

Comments received towards the end of last week suggested that buying interest may be picking up, but suppliers and distributors echoed that progress was slow and that with high storage inventories being held by buyers, over the coronavirus peak, these stocks would be employed primarily before purchasing further material. Buyers suggested this week that their intention was to run down current stocks and thereafter maintain inventories at the lowest possible levels.

Prices are taken lower with levels assessed between €600/t-€660/t in respect of the range of partly-approved Group III base oils. Numbers are ranging between €600/t-€665/t in respect of 6 cSt and 8 cSt base oils, with 4 cSt grades between €595/t-€645/t. Prices refer to FCA supplies ex northwestern European hubs. Prices in respect of European OEM fully approved Group III base oils are also taken lower with levels between €665-/t-€720/t for 4 cSt base oils, with 6 and 8 cSt grades between €690/t-€770/t. The wide variations and the low ends of the ranges are instances where some sellers have discounted prices to be able to compete with partly-approved material.

Baltic and Black Sea

Baltic base oil trade is almost non-existent, with only one notable cargo of around 6,000 tons of Russian export grades moving out of Kaliningrad for receivers in Singapore. This contract supply was supplied from Black Sea in the past, although one other larger cargo was supplied from the Baltic previously.

A couple of inquiries for large cargoes to load during July for Nigeria were expected, but to date there does not appear to be any major activity on this front. These cargoes may have been sourced from alternative supply points.

No reported Russian cargoes moved from Baltic sources into mainland European storage. The only reported Baltic trade was a parcel loaded out of Gdansk. That will discharge into the west coast of the United Kingdom and Antwerp-Rotterdam-Amsterdam.

Following a scheduled turnaround, the restart at one Russian refinery was further delayed due to lack of demand for these grades.

Prices remain unaltered this week, but are purely notional in that no trades are reported. The cargo loaded for Singapore is perhaps unrepresentative of Baltic trade.

FOB prices for grades SN150 and SN500 are assessed at $335/t-$375/t. SN150, SN500 and bright stock from Gdansk also are indicated at mainstream European levels of around $340/t-$390/t for the solvent neutrals, while bright stock is at $375/t-$410/t FOB.

Russian base oil exports from Black Sea sources were missing, perhaps due to a production problems at Volgograd refinery, and this affected the available quantities of base oil. This may explain the loading out of the Baltic from the same supplier for receivers in Singapore. The operation at Kavkaz, Russia, may have stopped temporarily. It is uncertain whether the mother ship is still on station.

Notional prices from Kavkaz, Russia, are indications only, with STS levels at $315/t-$350/t for SN500, with quantities of SN150 at around $295/t-$330/t.

Turkish buyers are looking for low-priced Group I cargoes. A number of offers from Spain, Italy and Greece are circulating to prospective buyers. Another offer for some 3,000 tons of SN150 and SN500 is presented from Red Sea sources for prompt loading. This is for discharge into Gebze, Turkey. If fixed, it would arrive around the beginning of July.

With the Izmir refinery closed and not re-opening until July 1 at the earliest, Turkish blenders that are just out of lockdown are keen to buy material from traders in Gebze, Turkey, and Derince on an ex-tank basis.

Traders involved in purchasing cargoes are between a rock and a hard place. Although they want to optimize shipping costs by taking a relatively large cargo quantity, at the same time these buyers are limited by financial constraints and the possibility of retaining large inventories in tank for a considerable period of time.

Price indications may be slightly lower than last reported at around $395/t for SN150 with SN500 at $410/t basis CIF Gebze, Turkey, in lots of 2,500 tons-5,000 tons per cargo. SN100 is also indicated at $400/t on the same delivery basis.

Group II and Group III base oils are offered ex-tank. Their prices are reported at $610/t-$640/t for low and high vis Group II grades, and partly-approved Group III base oils are at $625/t-$660/t.

Middle East

As mentioned, Red Sea suppliers offered a number of cargoes out of Jeddah and Yanbu, such as Group I solvent neutrals loading out of Jeddah and both Group I and Group II base oils coming out of Yanbu. A number of possible destinations exist for these grades. Group II is offered into northwestern Europe, and another large mixed cargo is being pushed to a two port discharge in India. One parcel was offered into Brazil and another into Singapore. This suggests that the regular receivers in the west coast of India and the United Arab Emirates may be slowing due to the coronavirus episode.

There are no shipping inquiries for bright stock to load for Egyptian General Petroleum Corp. in Alexandria, perhaps hinting that the tender has been put on hold for the third quarter. Egypt was badly affected by restrictions imposed during the Covi-19 spread, and the economy is only just starting back after lock down. This may impinge on the bright stock requirements for the next tender.

Middle East Gulf reports are that life is starting to get back into a more normal routine, although there are many conflicting tales as to how easy it will be to return to normal activities. Some are waiting until after the summer recess to re-hire staff and restart blending operations, while other companies are returning to almost full scale activities, trying to jump start the economy.

Business is slow, however, with a significant downturn in trade and associated activity. Exports to destinations such as East Africa and India have all but disappeared. Some players commented that they believe business will never return to what it was prior to the Covid-19 spread.

In Iran no Iranian base oil cargoes were noted. Both India and the U.A.E. are only now coming out of lockdown, and many are afraid of a second wave resurgence of the virus, as has happened in China and other regions. There are, however, reports of prices circulated for Iranian Group I base oils which are heard, as indications only, at $390/t-$420/t FOB for SN500+. SN150 is indicated at $380/t-$405/t.

A large cargo of some 15,000 tons in total loaded out of the U.S. Gulf for the west coast of India and the U.A.E. Although the split of the cargo is not yet disclosed, a significant quantity will be discharged into Sharjah port. Prices are not yet available, but based on FOB numbers plus freight and margins CFR/CIF levels are expected at around $425/t-$445/t for neutrals, with bright stock around $485/t.

Other offers from European sources were heard into U.A.E. With the arbitrage open, offers from Spain, Italy and Greece were mooted. It is established on good authority that the Group I base oils out of the U.S. Gulf are more competitive, even with higher freight costs.

Group III exports from Middle East Gulf sources have slowed but have not stopped, with a number of cargoes from Al Ruwais and Sitra planned over the next couple of months. Exports from Sitra seem to be targeted into India ports, while one cargo from Abu Dhabi will deliver material into Egypt prior to delivering a replenishment cargo into storage in Dordrecht.

Notional netbacks for exported base oils are maintained and should 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. Neste’s Group III base oils out of Sitra are assessed higher because they hold the full raft of European approvals and are assessed at $625/t-$680/t FOB for 4 centiStoke, 6 cSt, and 8 cSt Group III base oils.

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 from U.A.E. hub storage is dull, although many Korean suppliers made offers to try to place cargoes into this market. The cargo of Group II base stocks from U.S. Gulf Coast suppliers will arrive into the U.A.E. around the end of June, replenishing stocks that were sold before and during the pandemic time. Prices are maintained with indications on an FCA basis at $600/t-$690/t for light vis grades 100N/150N/ 220N with 500N/600N at $620/t-$700/t. Group III base oils offered on an ex-tank basis U.A.E., stand at $655/t-$700/t for 4 centiStoke, 6 cSt and 8 cSt grades.

Cross-Mediterranean trade awoke with a number of possible cargo movements from Italy into Morocco, and also from the same source into Spain. Add to these cargoes a couple of parcels for Israel and the Turkish campaign to purchase Group I base oils to substitute for the lack of supply from Izmir. A supply from Italy for Greek receivers is expected to be 3,000 tons of bright stock.

Africa

South Africa reports a further large cargo of almost 20,000 tons of various base oils will load out of Antwerp-Rotterdam-Amsterdam and the United Kingdom. It will deliver various quantities into Guinea, Cote d’ Ivoire and Togo in West Africa before proceeding to Durban and finally to Mombasa. This closely follows an earlier cargo that discharged into Ghana, Durban and Dar-es-Salaam.

West African reports are wide and varied this week, with news that the cargo mentioned above will deliver into the relatively minor ports in West Africa. Additionally, a stand-alone cargo of 7,000 tons will sail from the Mediterranean and U.K. to service the Ghana tender in Tema. Another fixture is expected to load from Antwerp-Rotterdam-Amsterdam for Nigerian receivers around the end of June, with a cargo of 10,000 tons of Group I base oils.

A further parcel of around 20,000 tons will load out of either a northern Italian port and either one of two Spanish Mediterranean ports, before sailing for Lagos and Port Harcourt in Nigeria. It is assumed that due to the size of the cargo, additional storage in the port of Harcourt will be required to accommodate the parcel of Group I grades.

Prices for Group I base oils imported into Nigeria were re-assessed in light of low FOB numbers. That may be the key to getting receivers in Nigeria to accept these cargoes, since it is felt that the export market may be at its nadir. CFR/CIF levels are assessed at $465/t-$485/t for SN150, SN500 in the $480/t-$500/t range, and bright stock, where applicable, at $520/t-$560/t. SN900 is indicated at $510/t-$525/t.

Prices are for cargoes of minimum 10,000 tons delivered into Apapa port, 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.