The normal uplift in the market after the end of August does not appear to have taken place, at least as yet, and at the end of the first week of September, buying and selling of base oils has been muted to say the least. Many local markets are seeing blenders taking just enough material to tide them over for a few weeks, with very few operations building significant inventories, looking towards the final quarter of the year.

Forecast are filled with pessimism, with some sources suggesting that it could be until 2025 before markets and trade return to pre-pandemic activity, and some suggest that there will never be a return to the market that was.

Group II demand appears to have faltered with very little of the buzz which was forecast to take place after the summer period. This is not to say that sales of Group II are not prevalent with many blending operations taking the chance of the lull to re-evaluate finished lubricant formulations for the future, many of which will require a greater reliance on Group II and Group III base stocks.

Group III activity is steady with prices stable and adequate supplies of all grades around the various markets. Producers, through either direct or distributor based sales have been trying to move prices higher. This has been successful to a degree but buyers are not in the mood for higher prices at this time, where many blending operations are trying to cut or at least limit costs at this time. Operations large and small see this action as the only way forward to remain in the markets, with many companies trimming their payrolls and many employees becoming casualties of this cost cutting exercise. 

Crude oil and petroleum products generally have taken a knock during the past few days with reports of large inventories in all key area such as U.S. and Middle East. Demand is faltering, and even with a relatively strong input from Chinese buyers the rest of the global scene remains in the doldrums with very few positive aspects to dwell on.

Levels for the main marker crudes have retreated by some $3-$4 per barrel with Dated Brent recording at $41.95 per barrel, in now respect of November front month. West Texas Intermediate has also reacted similarly, dipping below the $40 mark and now standing at a level of $39.05/bbl, down around $4 last reported here. Prices being still in respect of October front month.

ICE LS gas oil price levels have been eroded by some $40 per metric ton from last the report reflecting both the crude prices and also weaker demand following the end of the driving season in Europe and other main markets. This product is priced at $329/t, still for September front month settlement. Prices were obtained from London ICE trading late Monday.

Europe

European Group l export prices are very difficult to ascertain since very few trades have actually taken place involving these base oil grades. With export markets becoming extremely tight, particularly for heavier neutrals and bright stock the chances of laying hands on sizeable quantities of Group I grades is nigh impossible from European sources. Prices are therefore maintained at existing levels. September availabilities are non-existent from many suppliers with available material being diverted into domestic markets where prices are higher, and demand is even, although not at a peak.

Traders have been the main losers from this scenario, since with few avails opportunities are limited with some players looking to alternative sources such as U.S. for Group I cargoes. Logistics have been a nightmare in the USG with storms limiting loading and hence delays for many export cargoes moving to destinations such as West Africa. 

FOB prices remain unchanged for the sake of reporting numbers in respect of Group I grades with solvent neutral 150 maintained between $440/t-$475/t. The small number of offers for SN 500 remain between $450/t-$485/t. Bright stock is hard to gauge with no reported offers for this grade from suppliers around Europe. Greek buyers had negotiated a semi-contracted deal from an Italian producer with prices expected to be around $525/t-$550/t on an FOB basis.

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

Regional European Group I prices have firmed a little on the back of possible shortages staring to hit these markets in addition to the export scene. Prices moved upwards from Sept. 1 for the rest of the month with number being around $10/t-$15/t higher than for August. 

Sellers were looking for higher levels, but after negotiations at the end of August agreements were reached at slightly less. Some sellers were looking for September prices to be $25/t-$40/t higher, but overall demand is just strong enough to take up available barrels for the month of September. However, as mentioned, buyers are lifting only smaller quantities and are not building any large inventories at this time.

There are reports of increasing activity during the first week of September after many players returned to work after the holiday period, although this activity is nothing like pre-coronavirus times, with demand for finished lubricants being severely curtailed due to reductions in manufacturing and production across Europe.   

Prices seem to be holding up, with the thoughts ever present that this market may go shorter if demand starts to develop during the second half of September.

The differential between domestic and export numbers is moved higher in a notional sense with a lack of export comparisons, hence the gap between the two sets of prices is assessed at €85/t-€155/t, regional prices being the higher.

Group II sales are steady but the forecast surge in demand which was being called during the summer has not yet materialized, although sources contacted have suggested that more sales will e taking place during September and October before the markets go into downturn towards the end of the year.

Demand is as good as can be expected given the current situation and whilst outbreaks of the virus in key areas are holding back full return to normal working in some markets, overall suppliers comment that they are pleased with progress in creating a larger Group II market within Europe.

Prices are stable with marginal increases being applied from Sept. 1, buyers having moved on from quoting the large differential between Group I and Group II prices.

Group II prices have risen, with levels having moved up by €5/t-€10/t for September delivered volumes and FCA sales.

Group II prices are assessed at levels as forecast at the end of August at $750/t-$790/t (€640/t-€675/t) for150 neutral and 220N, while 500N and 600N are at $780/t-$815/t (€665/t-€695/t).

It should be noted that relative U.S. dollar prices have risen due to the exchange rate for the dollar against the euro moving markedly during the last part of August, given that virtually all sales within the region are made in euros.

Prices are in respect of 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 U.S.

Group III base oil prices are steady to firm with demand improving for these grades. There are reports of a Malaysian cargo being loaded around the end of August with 3kt of Group III base oils for delivery into Antwerp. This replenishment cargo will arrive during October meeting an uptick in demand for Group III grades during Q4.

Other cargoes from Middle East Gulf sources are also expected to arrive to cover the markets during the latter part of the year. At the same time European producers are continually moving material into hub storage in Amterdam-Rotterdam-Antwerp from Spain and Finland.

Prices are stable with levels maintained between €690/t-€715/t for partly-approved Group III base oils. Prices are placed between €700/t-€710/t in respect of 6 and 8 cst grades, with 3 and 4 cst at €690/t-€700/t. These prices refer to FCA supplies ex Northwestern Europe hubs. Prices for Group III base oils holding the full range of European OEM approvals have levels ranging between €740/t-€760/t for 4 cst base oils and €765/t-€785/t for 6 and 8 cst.

Baltic and Black Sea

Baltic trade remains dull, with little activity in moving Russian export quantities from refineries to terminals in the Baltic. Russian sellers placed large quantities of production into markets that return better margins, such as domestic sales and “exports” into Ukraine and China.

What is not clear is whether the scarcity of heavier API Group I material within Europe will result in prices starting to rise for availabilities of Russian exports. No significant parcels were seen or heard during the past two weeks. Russian sellers should be able to sell at higher prices now for quantities of SN500 and SN1200, which could provide supplies of SN900 for markets in West Africa and beyond.

Enquiries remain in place for large parcels of Russian export barrels to go into Nigeria.

No reported cargoes are moving out of the Baltic to Antwerp-Rotterdam-Amsterdam, Scandinavia or the the United Kingdom. This perhaps suggests that stocks in tank are not available at this time, although contracted barrels will have to be delivered at some stage during September.

Notional FOB prices are maintained for few cargoes coming out of the Baltic ports and remain at $365/t-$385 per metric ton for SN150 and SN500, which are the two main grades.

With few availabilities for export, SN150, SN500 and small quantities of bright stock from Gdansk remain indicated at $435/t-$465/t for neutrals, and bright stock at $500/t-$525/t FOB.

Turkish sources indicate that quantities of Group I base oils are now for sale from Izmir refinery and that production has started to flow to storage tanks. Prices are not established yet, but will be forthcoming for the next report.

Mediterranean sellers report no availabilities for September delivery into Turkey, although two 3,000 tons parcels were loaded out of Greece at the end of August. These were the last availabilities seen in the market.

Indications from sources for those cargoes are placed at $512/t for SN150, with SN600 at $528/t basis CIF Gebze, Turkey.

Another cargo may load from the STS facility at Kavkaz, Russia. This parcel will be directed eventually to the Caribbean, firstly transshipping in the western part of the Mediterranean. This quantity of around 6,000 tons may originally have shipped through Rotterdam. With a smaller quantity than normal, this may be a more efficient method for moving the cargo.

Kavkaz, Russia, STS levels may have firmed since last reported, with levels now assessed at around $385/t-$395/t for SN500, with quantities of SN150 at $375/t-$380/t. Prices rose but surprisingly are still not at the same levels as potential Baltic barrels.

A cargo from a major is to load in Rotterdam for Gebze, Turkey, with two grades of Group II base oils, adding to the ex-tank sales of Group II and Group III base oils from storage in that port. Prices are moved slightly higher to levels at €730/t-€800/t for low and high vis Group II grades, with partly-approved Group III base oils moved higher, now at €700/t-€725/t. Fully approved Group III material is available ex-tank at expected levels of €755/t-€795/t.

Middle East

Red Sea reports indicate that two cargoes will load around mid-September out of Yanbu and Jeddah, one for receivers in Pakistan and the other for buyers in the west coast of India. These may consist of Group I and Group II grades – the Pakistani cargo at around 5,000 tons in total, with 6,500 tons loaded for Indian receivers. No further bright stock cargoes appear to be on the horizon for Egyptian General Petroleum Corp. supply.

With COVID-19 infections at an all time high in India and Iran, Middle East Gulf authorities may impose new restrictions on the movement of people. This possibility will have enormous detrimental effects on markets within Middle East Gulf, causing economic hardship to many, just as it appeared that the region was coming out of the pandemic.

Middle East Gulf sources indicated that a large cargo of Group I grades loaded out of the U.S. Gulf Coast, this cargo discharging into both the west coast of India and finally United Arab Emirates. The relative quantity split between the two ports is not yet disclosed although sources close to receivers have suggested that the cargo will be divided more or less evenly between the two ports.

Sources in Iran reported that 3,000 tons of SN500+ loaded out of an Iranian port for receivers at the west coast of an Indian port. This is the first open export of Iranian base oils for some time, although many have suggested that smaller parcels were transshipped through U.A.E. over the past few months.

Another oddball cargo was mentioned coming out of Iran for Syrian receivers. This is an odd movement because freight costs will be extremely high, even if a suitable vessel is found to perform this voyage. Deliveries in the past into the Syrian market came by truck from Iran, this destination being one of the major markets open to Iranian base oils over the past few years. The cargo could be up to 6,000 tons in total of SN500 and SN150.

Indications for Iranian SN500 are $485/t-$510/t CFR for the west coast of India, with SN150 at $475/t-$495/t.

A Group III cargo of 6,000 tons is programmed to load for discharge in the west coast of India during the first half of September, with another of 5,000 tons for receivers in Pakistan. This week no reported cargoes loaded out of Sitra, following the parcel moved at the end of August to Mumbai anchorage.

Notional netbacks for Group III base oils from Al Ruwais and Sitra are raised on the basis of rising prices into markets in Europe, U.S., China, and India.

Levels are assessed at $650/t-$710/t for 4 centiStoke, 6 cSt and 8 cSt partly-approved Group III base oils. Fully approved Group III base oils, marketed in different market locations by Neste, are assessed higher. Ex-tank costs at Sitra are the same for all parties loading base oils out of the refinery. The grades are assessed to netback at $730/t-$785/t for 4 cSt, 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 estimated freight costs.

Group II base stocks sold ex-tank in U.A.E. are imported grades with prices moved higher, with FCA indications at $665/t-$745/t for light vis grades 100N, 150N and 220N; and 500N and 600N at $685/t-$775/t. Prices relate to various quantities and contract terms and conditions.

Partly-approved Group III base oils ex-hubs in U.A.E. are sold by Abu Dhabi National Oil Co. and Bahrain Petroleum Co. The base oils are delivered into tank in U.A.E. out of Al Ruwais and Sitra, with prices heard at $620/t-$685/t for the 4 cSt, 6 cSt and 8 cSt grades.

Africa

West African news contains further evidence that Nigerian buyers are experiencing problems in availability of foreign currency. That is causing banking delays and problems in establishing letters of credit in favor of traders supplying cargoes of base oils to receivers in Apapa.

The enquiry for some 17,000 tons of Group I grades remains around the European and Baltic markets with little response from sellers and producers, and no signs of any progress on establishing this supply. This has become frustrating for the traders concerned, who may widen the scope to U.S. sources.

Prices for replacement stocks of Group I base oils offered into Nigeria are reacting to higher FOB numbers from sources. As such, levels are assessed higher. CFR and CIF offers are still assessed at $595/t-$610/t for SN150, SN500 at $615/t-$625/t, but with no offers for either bright stock or SN900, due to non-availability of these grades.

It was rumored that prices in the local Nigerian market dropped by $5/t-$10/t, but this is denied by local sources. They commented that prices are indeed rising and material in tank is starting become short, and that with only one confirmed cargo en route, things may start to get a little nervous in this market.

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.