Some are postulating that it may be another year or more before markets start to look anything like pre-COVID times.

The start of the vaccination programs that are rolling out across the regions may help to start the process of rejuvenation, although this program may take many months to cover all populations requiring innoculation.

Base oil markets throughout the European, Middle Eastern and African regions remain tight, with some product groups being in short supply. API Group I base oils are particularly short, with many reports of spot requirements going uncovered in export markets. Group II grades also shortened up in availability terms, with most supplies forming contracted quantities that are arranged for next year. API Group III has seen some forms of allocation taking place, with virtually no spot, or increased contract quantities made available.

The effects of the above are that prices have firmed further, with heavier viscosity grades in all sectors moving upwards at an alarming pace. Demand is strong for the material that is available, supplies having been constrained by a number of factors, one of the main being the lack of availability of feedstock to produce larger quantities of base oils. Refinery runs were cut back on fuel production, since transportation demand fell substantially during the last year due to the pandemic.

Crude oil and feedstock prices have firmed on the back of strengthening demand and the resolution by OPEC players to maintain production quotas, limiting the quantities of crude available in the various main markets.

Dated deliveries of Brent crude lists at $51.50 per barrel, $2 higher than two weeks ago, this level still being in respect of February front month. West Texas Intermediate crude also climbed to $48.25 per barrel, now also for February front month.

ICE LS Gas Oil prices moved up by $20 per metric ton from the last report, now posting at $428/t for January front month settlement.

Prices were obtained from late London ICE trading on Dec. 28.

Europe

European Group I export prices became firmer again during the last two weeks, with very few spot availabilities identified.

SN150 prices moved higher to FOB levels at $710/t-$745/t, with heavier solvent neutrals SN500 and SN600 moving to $745/t-$765/t. Bright stock is extremely tight, with indication levels heard at around $825/t producing a price range of $800/t-$840/t

The above Group I export prices refer to cargo-sized – minimum of 2,000 tons –  parcels of Group I base oils, FOB from mainland European supply points, always subject to availability.

European domestic and regional markets are firmer with prices notified for January contracts at levels which have moved upwards by some $20/t-$30/t. Few opportunities exist for spot purchases, with some sellers struggling to meet full contractual arrangements.

The markets slowed somewhat during the last few weeks, with lockdowns and holidays interrupting normal activities. The year-end sell-off of stocks is absent this year, with sources trying to keep inventory levels at an optimum.

Some comments received over the past few days suggest that allocation procedures may be adopted should January see a maximum levels of off take from producers. Contract buyers may face cut-back in quantities available during January and February.

The notification of a negotiated Brexit trade deal between the European Union and the United Kingdom was gladly received by both sellers and buyers alike. With no changes to tariffs and duty elements for purchasing and reselling base oils, this will mean a relatively smooth transition for blenders based in the U.K., although there will be additional documentation for importation of base oil into the U.K. from EU sources.

The differential between domestic and export prices is maintained at €35/t-€85/t, since export prices have moved already, and regional prices will be moving in the next few days from Jan. 1.

Group II numbers are firmer across Europe, with both importers and domestic producers raising prices from late December and early January. Levels are raised by €10/t-€20/t, with the lower increments applying to the lighter vis grades and the higher premium applying to 600N. Demand is steady, with sellers reasonably confident that January and February will be the best months for some time, with many buyers trying to re-establish production rates to meet expected demand during the first part of 2021.

On the question of the EU duty waiver for imported Group II grades, the duty-free quantity will remain at 200,000 tons for the first six months of 2021. Thereafter, subsequent to a review in May or June, the quota from July would alter to a waiver for only 100,000 tons for the ensuing six months.

Following this period, it is intended at this stage to remove the duty waiver altogether for 2022, meaning that imports from sources without an FTA would be subject to 3.7% import duty. Material entering the U.K. from EU sources or origin will continue to be tariff free, although any Group II base oils imported into the U.K. either directly or under bond through an EU corridor will not be subject to the duty waiver quota; however, at this stage, clarity is sought as to whether the U.K. will apply limitations or a quota on the imports.

Prices are moved upwards and are now assessed at $885/t-$920/t (€725/t-€745) for the two lighter vis grades (150N and 220N), with the higher vis grades of 500N and 600N now at $980/t-$1025/t (€805/t-€840).

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

Group III price levels rose dramatically during the last couple of weeks, with strong demand for both fully approved and partly-approved grades.

Sellers comment that they cannot access enough product to satisfy demand and are putting calls into producers to send replenishment cargoes as a matter of urgency. Virtually no spot deals are being transacted, although there are a few documented contracted arrangements in place, according to sellers. Most of the business is done between regular buyers, who are only offered their normal quantities of material.

Heavy rainfall was welcomed by barge operators on the river Rhine, where water levels are rising and are due to reach the seasonal norm by around year-end.

Prices for forward sales into January and February already moved higher, and now material offered for the second half of February and into March have firmed again. Current offers are now at €800/t-€850/t for the range of partly-approved Group III base oils. Levels are now assessed at €820/t-€835/t for the 6 centiStoke and 8 cSt grades, with 3 cSt and 4 cSt at €800/t-€825/t. Prices are for FCA supplies from northwestern European hubs.

Fully-approved Group III base oils holding European original equipment manufacturer approvals had prices adjusted upwards to €845/t-€875/t for 4 cSt base oils, with 6 cSt and 8 cSt grades at €860/t-€885/t.

Baltic and Black Seas

Baltic activity dwindled again, with only a couple of cargoes witnessed moving out of the region. The dearth of cargoes either for import into Antwerp-Rotterdam-Amsterdam and the United Kingdom or to export destinations such as West Africa is a sign of the lack of Russian exports undertaken from the Baltic. The West Africa cargo consisted of 5,000 tons of Russian export grades moved into Apapa, loaded from Riga port. One other significant parcel is loading from Kaliningrad for receivers in Antwerp-Rotterdam-Amsterdam. This cargo was comprised of 5,000 tons of Russian grades.

No movements of material were identified loading out of Gdansk.

Prices are assessed higher with FOB levels moving upwards in line with European mainstream prices, hence SN150 is put at around $685 per metric ton, SN500 around $700/t and BS 150, with min 95 VI at $825/t. SN900 is assessed at around $735/t. Gdansk prices are not listed.

Group I imported base oils are quoted for Turkish receivers from the two traditional supply sources in the Mediterranean, Livorno and Aghio. One cargo from each supply point is noted this week, with 7,000 tons of Group I grades loaded out of the Italian source, while 3,000 tons is loading from Aghio. These cargoes will discharge in Gebze, Turkey, and Derince.

Group I grades from Mediterranean sources are priced higher at around $785/t, $800/t, and $895/t on a delivered basis CIF for SN150, SN500 and 600 and bright stock if loaded from Livorno.

The STS facility at Kavkaz, Russia, remains quiet with However, indication STS prices ex Kavkaz, Russia, are maintained with levels at around $625/t-$655/t for SN500, with SN150 at around $620/t-$645/t. It is envisaged that future supplies from this source may be priced higher, with increases of $25/t-$50/t applied.

Group II and Group III base oils sold FCA Marmara ports are priced a little higher this week, at €765/t-€800/t for low vis Group II grades, with the higher vis 600N at €800/t-€850/t.

Group III base oils are priced at €895/t-€925/t for 4 centiStoke material, with 6 cSt grades at €920/t-€940/t and 8 cSt material at €940/t-€960/t.

Middle East

Two large cargoes of Group I and Group II base oils are loaded out of Yanbu and Jeddah for receivers in Pakistan and the west coast of India. The second of these cargoes, both of which consist of 14,000 tons of base oils, is primed for a three-port discharge in the United Arab Emirates. Parts of the cargo will be discharged in Fujairah, Sharjah and finally Jebel Ali.

As mentioned in the last report with base oils being in short supply from both Europe and U.S. sources, Red Sea supplies from Saudi Arabia are perhaps the only alternative supply option open to buyers in Middle East Gulf locations.

There are no further reports of Iranian base oil activity, and with the latest news on the Iranian COVID-19 situation, it would appear that this nation has taken a severe beating from the disease, affecting the economy of that country to the extent that it may take years to rebuild both infrastructure and confidence.

There are no further updates regarding the attitudes and opinions held by the U.S. President-elect as to possible interaction with Iran, although there may be a softer and more negotiable stance, according to local news bulletins in the U.A.E.

The purely notional prices for Iranian barrels of SN500+, still mentioned by U.A.E. sources may be at $755/t-$775/t delivered CFR U.A.E. SN150 is indicated at $710/t-$740/t.

Group III cargoes from Al Ruwais in the U.A.E. and Sitra in Bahrain have notional netbacks adjusted upwards again after note of in light of higher selling levels in markets such as US, Europe, India and China.

Netback levels are assessed around $815/t-$855/t for 4 cSt, 6 cSt and 8 cSt partly-approved Group III base oils. Fully approved Group III grades out of Sitra will show higher netbacks due to the pricing differential in global markets. These grades should netback at $875/t-$900/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.

Information on Group II base oils being offered and sold FCA U.A.E. storage are adjusted higher in ranges at $750/t-$795/t for the light vis grades 100N, 150N and 220N, with heavier 500N and 600N grades at $820/t-$850/t. The wide range takes into account various base oils supplied from different sources that have been delivered into U.A.E. in both bulk and in flexies, with varying contract terms and selling conditions.

One notable North African sourced cargo of 7,000-8,000 tons of Group I base oils is programmed to load out of Arrow in Algeria for supply into Nigeria. This cargo is possibly material from a refinery in Sicily that is now operated by the national oil company of Algeria. The product may be bridged to Arzew, where in the past large slugs of Group I grades have been loaded for the Turkish market. There are also reports of Group I and Group III base stocks being sold into Mohammedia.

Africa

West African reports contain only one further cargo bought for Nigeria, that being the 5,000 tons cargo loaded out of the Baltic. With a further couple of inquiries, one of which is the Arzew parcel, Nigerian buyers may try to wait for the Group I markets to improve on availability and price before committing to further cargoes. That said, the availability is so dire that traders acting for receivers in Lagos are having difficulty laying hands on any material to place into the Nigerian market.

The Greek cargo is on the high seas right now. The only other enquiry concerns a small quantity of 3,500 tons being sought from Antwerp-Rotterdam-Amsterdam, although this quantity is rather small, with the respective unit freight cost being very high. However, it was suggested that this quantity is the only available material at this point in time.

API Group I base oil prices are tweaked higher due to increasing FOB values. Prices contained in new offers may have prices increased by $75/t-$100/t. This premium should be added to the current prices below which reflect trades which would have been completed some six to eight weeks ago.

CFR/CIF levels for cargoes arriving now are reported as $775/t for SN150, with SN500 at $790/t-$800/t. Higher specification SN900 with viscosity index of at least 95 will be priced at around $910/t. Bright stock, being unavailable, has indications around $895/t.

Cargoes from here on will be priced at around $895/t for SN150, with SN500 at around $925/t and minimum of 95VI SN900 levelled at around $960/t. Bright stock, if available for future cargoes in February or March, can be expected to be offered at around $995/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.

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