EMEA Base Oil Price Report

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With most of mainland Europe moving toward another period of lockdown, the future for base oils throughout Europe, the Middle East and Africa looks bleak. Demand is certain to fall away during this indeterminate time, which has provisionally been put at a month but with the proviso that it could be extended if infection rates do not fall.

Economies in Germany, France, Spain, the United Kingdom and Italy are all headed for lockdowns. The problems are many, with factories starting to close, unemployment beginning to surge and the domino effect will impact trade and general business.

This is not good news for base oils, as a number of large blending operations look to close the doors until after the new year. Some have already elected to cut production rates for finished lubes due to demand falling away from retail and wholesale markets.

It is hard to read what will happen to base oil prices in the short term. Some insiders predict a sell-off of inventories of all types of base oils prior to the end of the year. If this scenario evolves then prices could plunge, however another tack could be that supplies of product become tight with markets moving short, thus this angle would push prices higher, at least in the short term.

The sad truth of the matter is that no one can foresee what will actually happen. Events will unfold only after some time, during which participants in this market will have to adjust where possible and accept whatever is thrown at them.

Crude oil and petroleum products have weakened over the past week due to poor demand and increasing inventories, this situation currently being exacerbated further by the prospect of lockdown and government restrictions in many countries.

Dated deliveries of Brent crude fell to $38.25 per barrel, around $4 lower than last reported, now for January front month settlement. West Texas Intermediate is down to $36.10/bbl, now moving to December front month.

ICE LS gas oil prices dropped by some $35 per metric ton to $307 per metric ton, still for November front month settlement. These prices were obtained from London ICE trading late Monday.

Europe

Export prices for European Group I base oils continue to rise, but much slower than previously. Whether demand holds up over the next period remains to be seen, but one of the peculiarities of this market has been that the past few months have been an excellent period for selling API Group I base oils with potentially high margins and very acceptable netbacks for all grades.

The problem has been a distinct lack of availabilities due to feedstock shortages caused by refineries scaling back on operations to fit reduced demand for transportation fuels during the pandemic. This situation has limited the ability of refiners to max out base oil production, and whilst this curtailment of availabilities has resulted in prices moving higher, sellers remain in a position of being unable to offer sufficient supplies of these grades.

Another factor affecting the export market has been the disappearance of some of the main export destinations such as West Africa, where civil unrest has been curbing demand for finished lubricants in Nigeria. Demand from the Middle East and India has also slowed.

Prices for Group I exports rose slightly the past couple weeks, but as mentioned, it is hard to assess where this market will be in a month. Increases are in a range of $5 to $10 per metric ton this week, reaching between $640/t and $680/t for solvent neutral 150. Heavier neutrals such as SN500 are now assessed at $675/t-$700/t. Bright stock remains the shortest grade with prices being offered for the few parcels available at $735/t-$775/t.

These prices apply to cargo-sized shipments of at least 2,000 tons of Group I base oils, sold on an FOB basis ex mainland European supply points, always subject to availability.

Domestic or regional European Group I prices were rising formerly but with demand falling dramatically over the past few days and weeks this market is in a state of limbo, with many players commenting this week that they did not know where prices would be around in a few week’s time, or in fact whether some would still be in business.

Some sellers had tried to increase prices from Nov. 1, but these have been largely resisted by those buyers still active in the market. The result of ongoing negotiations suggest that prices may remain flat for the next few weeks, until such time as the market finds its feet, in reacting to the evolving situation regarding the coronavirus pandemic.

Markets are in turmoil and with year-end approaching the present situation is being exacerbated by events. As mentioned previously, some operations are considering short-time working or even part, or full closure between now and the beginning of next year. These moves could have dramatic effects in local markets, resulting in large scale downsizing and realignment of commercial operations throughout Europe and beyond. 

The differential between domestic and export prices is maintained between €35/t-€85/t, regional prices being the higher.

European Group II prices remain buoyant, but the differentials between these grades and Group I prices are being squeezed, hence it may be difficult for sellers to lift prices in respect of the Group II slate. Certainly the ensuing period up until the end of the year could prove difficult for maintaining current levels of sales, which ultimately could put pressure on prices. Ideas of increasing prices for November and December sales appear to have been abandoned with sellers reportedly more than satisfied to try to hold current levels for the foreseeable future.

Prices are maintained and are currently assessed at levels of $800/t-$850/t (€680/t-€725/t) for 150 neutral and 220N, with 500N and 600N at $865/t-$890/t (€740/t-€760/t). These levels apply to a wide range of Group II oils, including European and United States grades with full slates of finished lubricant approvals and those from the Middle East, the Far East and the U.S. with partial slates or no approvals.

With the market moving, and favoring the uptake of Group III base oils up until now, sales of these grades may experience a retrograde step over the next few weeks. Prices are holding up at the moment and with stocks of these grades more than sufficiently distributed throughout the European arena, prices may start to come under pressure during the period between now and the year-end.

The market was gearing itself up for the maintenance at two of the major plants producing Group III base oils within Europe, but with current events taking over, the envisaged tightening of this sector may not now happen. There were talks of allocations being introduced should the market enter into an oversell situation but this looks currently unlikely. Some sellers have been trying to move prices higher from November 1, but with the confusion now around the markets regarding demand going forward, rumors are that some sellers have reluctantly agreed to maintain present levels for November. 

Prices are therefore stable this week with numbers remaining between €710/t-€735/t all viscosity grades of partly-approved Group IIIs. Levels are assessed at €715/t-€735/t for 6 and 8 centiStoke grades, with 3 and 4 cSt at €710/t-€725/t. Prices refer to FCA supplies ex Northwestern European hubs.

Prices for fully-approved Group III base oils holding European OEM approvals are also unchanged at €760/t-€785/t for 4 cSt oils, with 6 and 8 cSt at €785/t-€805/t.

Baltic and Black Seas

Trade in the Baltic region remains dire, with few movements or even offers for Russian export grades of base oils coming out of this hub. One early November cargo is scheduled to move from Gdansk to Antwerp-Rotterdam-Amsterdam, the only reported movement so far confirmed. A few contracted quantities may move during November. With reactions to the COVID-19 lockdowns around Europe still yet to fully filter through, these cargoes may come under review and may be delayed or cancelled.

With Nigerian buyers going quiet perhaps due to the civil unrest in that region, no inquiries were reported for further cargoes between now and the year-end.

Indication prices are somewhat notional because few offers were heard coming out of the region. One or two of the suppliers indicated that prices have risen, perhaps looking to entice Russian sellers to consider bids for December barrels.

FOB levels have SN150 priced at around $625 per metric ton, SN500 around $640/t and BS 150 at $735/t. Base oils SN150, SN500 and quantities of bright stock from Gdansk are priced in line with mainstream European prices, or perhaps just under those levels with the solvent neutrals at $635/t-$685/t and bright stock at $720/t-$760/t FOB.

In the Black Sea regions Turkish blenders were lifting material from Izmir refinery, but according to sources, this production is still not running at target rates. Turkish buyers are grappling with the plunging exchange rate for the Turkish lira against the U.S. dollar. The rate fell to around TL 8.4 to one dollar, which is leading to prices for base oils being reviewed almost daily. Latest prices, dated Oct. 29 for Group I grades from Izmir refinery are as follows: Prices in TL are SN150 at TL 5,024/t ($596), SN500 is at TL 5,394/t ($640) and bright stock is priced at TL 5,809/t ($690). In addition to these levels a loading fee of $11/t, plus various duties and taxes have to be added to arrive at eventual prices delivered. Final numbers are assessed at $914, $965 and $1,023, respectively, for the three grades.

A cargo loaded at the end of October will discharge any day now in the port of Izmit. This parcel of some 3,000 tons of Group I grades out of Livorno is expected to be priced at around $695/t, $ 735/t and $820/t on a delivered basis CIF for the three Group I grades, if loaded. Local taxes and import duties will have to be applied to compare this supply with that from Izmir refinery.

There are no reported Russian supplies moving into Turkey, nor have there been any notices of further loadings from the STS facility at Kavkaz, Russia. Indications for Kavkaz, Russia, STS prices are at $525/t-$560/t for SN500, with quantities of SN150 at $500/t-$525/t. With supplies via the river system starting to slow, there may not be many more large parcels moving through the STS facility.

Group II and Group III base oils made available on an FCA basis from distributors in Gebze, Turkey, have price levels at €750/t-€825/t for the low and high vis Group II grades, with partly-approved Group III base oils also higher at €735/t-€775/t. Fully approved Group III material is heard ex-tank at levels of €785/t-€825/t.

Middle East

Red Sea reports are that two parcels loaded for Fujairah and Karachi out of Yanbu’ al Bahr and Jeddah, with a further two large cargoes totaling around 35,000 tons planned for November loading for supply into Pakistan, India and the United Arab Emirates. In addition, a smaller parcel is destined to move to Aqaba from Yanbu.

Middle East Gulf regions report that the coronavirus situation returned in a second wave. Iran is reporting large numbers of infections, suggesting that the disease is out of control in that region, which could mean problems for other parts of the Middle East Gulf, such as the United Arab Emirates, Bahrain and Qatar.

Iranian exports of base oil are completely out at the moment, with a local Indian source stating that no flow of no base oils will flow out of Iran for the foreseeable future. It is unclear as whether this is due to coronavirus, sanctions by the United States or some other unknown reason. A reported cargo moving from Hamriyah to Hazira may be attributed to an Iranian supply of SN500 sometime back. Lockdown in the region is expected to last through the end of the year, with Iranian sources commenting that they do not see any upswing in base oils leaving that country.

Prices for notional Iranian supplies of SN500+ are indicated at $660/t-$685/t, delivered CFR U.A.E. SN150 is also indicated at $625/t-$655/t.

A number of large Group III cargoes were arranged and loaded out of both Al Ruwais and Sitra. These parcels are for receivers in the west coast of India, and in addition further cargoes out of Al Ruwais are planned for November loading for China and Pakistan. A 6,000 ton Sitra parcel will also load for Indian receivers during November. It is not apparent exactly which company is responsible for moving the material out of Sitra, since it may be under the Neste banner or the Bahrain Petroleum Co. flag.  

Netbacks for Group III base oils from Al Ruwais and Sitra are increasing slightly, with news of increased selling prices in regional markets. Levels are raised by $10/t-$20/t and are now at $695/t-$750/t for the range of 4 centiStoke, 6 cSt and 8 cSt partly-approved Group III base oils. Fully approved Group III grades, from Sitra and marketed by Neste, will provide higher netbacks due to increased selling prices. Supplies are assessed to netback at $775/t-$825/t for the 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 FCA U.A.E. are priced higher with FCA levels, in a range at $720/t-$795/t for light vis grades 100N, 150N and 220N, along with the heavier 500N and 600N grades at $755/t-$840/t. The wide spread pertains to varying quantities from different sources, supplied both in bulk and in flexies, with differing contract terms and selling conditions.

Africa

North African trade threw up supplies of Group III grades from Spain sold into Mohammedia in Morocco. Other movements were few and far between, with suggestions that the COVID situation is hampering trade in regions such as Egypt, Algeria and Libya.

West African news contains reports of the latest civil unrest in Nigeria, which is spreading throughout that country and affecting other parts of the region. Suppliers and traders are particularly wary of sending supplies of base oil into Lagos at this time. That is due to the potential demurrage situation that currently exists, with access to the port being restricted by local government.

One potential cargo is lined up from the Mediterranean for supply into Apapa, with this parcel scheduled to load sometime later this week or next. The final quantities of the Group I grades are not declared as yet, with options to load at 5,000 tons-11,000 tons, perhaps awaiting confirmation either from source or receivers as to cargo size and breakdown.

Prices for API Group I base oils offered into Nigeria are marked higher, reflecting FOB rates that climbed considerably during the last few weeks and also the “insurance” put into prices to cover any eventualities of incurring demurrage on the delivering vessel.

CFR/CIF are now assessed at $795/t-$825/t for quantities of SN150 and SN500 is in the $820/t-$840/t range. Without any reported offers for SN900, indications are that selling levels could be at $845/t-$860/t, should material be available. Bright stock was indicated slightly higher at around $895/t.

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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