Expectations for a surge in demand after the holiday period in August appear to have been misjudged, based on trading during the first week of September. The anticipated lift in demand has yet to happen, although there has been a tentative return to purchasing both small and large quantities of API Group I base oils for both export and domestic consumption around Europe, the Middle East and Africa.
Prices for Group I slipped again since the last report, although the rate of decline has slowed in export markets. Domestic or regional prices have crashed for September, but given that they were starting from perhaps artificial highs, the falls in pricing are not surprising. During August local prices were largely left at July levels, with buyers being very quiet during that month. Sellers came back for September negotiations to find that the markets had reversed, and that the advantage was held by buyers. This was as a result of the large downward adjustments in the Group I export markets, suggesting that high domestic levels were unsustainable.
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Group II prices appear to be holding up, with only small price adjustments where levels had reached a zenith point. Availabilities appear to be reasonable, with no reported shortages in any of the main areas using these grades, although some suppliers suggested that they are not actively looking to take on new or additional business at this juncture.
Group III remains tight. With prices escalating in alternative markets such as the United States – where there are reports of increments of up to $175 per metric ton for Group III base oil grades – the European, Middle Eastern and African scene, and particularly Europe, is expected to be under pressure to follow this trend. There is still a limit on available supplies for API Group III, and with demand expected to rise dramatically for these grades, the opening of further on-stream facilities producing these grades cannot come quickly enough.
The crude scene experienced some action during the past couple of weeks, with dated Brent extending to above $73 per barrel at one point. This surge was due to the incidence of Hurricane Ida hitting Louisiana in the U.S. Gulf, causing power outages, damage and delays to refineries’ and storage terminals’ operations. With precautions put in place by a number of refiners and storage companies, the situation, although serious, has not inhibited trade as badly as could have been the case.
Crude levels subsequently receded a little over the past week, although dated deliveries of Brent crude is still reported at $72.60 per barrel, some $4 higher than two weeks back. This level is now for November front month. West Texas Intermediate crude also reacted in a similar fashion and is now found at a level of $69.30 per barrel, this level still in respect of October front month.
Following the rises in crude, ICE LS Gas Oil prices moved ahead, posting at $611/t still for September front month. This level is some $45/t higher than last reported two weeks ago.
Prices were obtained from late London ICE trading on Sept. 6.
European export prices for Group I base oils are weaker, although the market is not seeing the dramatic falls from the highs seen during June and July. There is steady erosion to prices with the solvent neutrals taking the brunt of lower demand and more stocks being produced.
Refinery inventories are relatively high, with last month being exceptionally quiet. Some players commented that this is typical for a holiday month, while others purport that traders and other buyers/receivers were waiting as long as possible for prices to re-adjust downwards. Some players are now almost desperate to take cargoes to export destinations, which have become very low on usable stocks for blending finished lubricants.
There has been a chipping away at prices, with producers looking to move material now rather than have inventory which is having a declining value. September has brought a number of large inquiries to the market for destinations such as West Africa and Turkey.
Prices for smaller quantities of SN150 are down by $30/t-$55/t, with levels now between $850/t-$895/t. SN500 remains more in demand for export trades, but has still weakened by some $20/t-$35/t to a range at $1,365/t-$1,425/t.
There is still considerable pressure on SN500 prices to fall further but these calls are being resisted by sellers, who are claiming that rising raw material costs in form of feedstock values are rising and that they can justify holding levels around current offers.
Bright stock remains relatively strong, since not many suppliers are able to offer large parcels of this grade. Sellers had been tempted to target the domestic markets, but recent weakening of prices in this sector have encouraged some producers to look at moving large slugs of bright stock to export destinations. However, with the prices for this grade going sky-high earlier in the year, there have been moves to look at lower priced alternatives such as SN900, a grade which remains extremely short from all possible sources.
Prices remain in a wide range, with levels assessed at $1,595/t-$1,650/t, but there are underlying weakening factors which might still pull this grade downwards, narrowing the differential between SN500 and this product.
As mentioned, domestic European prices remained high during August, when there was muted activity around the market. In the days and weeks leading up to the beginning of September, it became obvious that existing price levels were unsustainable, with some Group I grades priced above Group II.
Adjustments were made and continue to be made as buyers heap the pressure on suppliers to realign prices lower. The falls have not yet been as dramatic as those seen in the export sector, but negotiations are still ongoing, with all tools being used to appease the buying community. There are weekly prices that are reviewed mid week for the next period, there are temporary discounts, special quantity prices, temporary voluntary allowances, etc. The list of various pricing methodologies is extensive.
There still remains a considerable differential between export and domestic prices, although the differentials are much less than for last month. Bearing in mind that export numbers are also weaker, the differential this week for current pricing is assessed at €150/t-€200/t, domestic numbers remaining the higher. This may change during the month as continuing negotiations and pricing debates roll on.
European Group II prices are described as steady rather than stable, since there have been a few instances around various parts of the market where prices weakened from levels established in the last report. Demand remains high, with some sellers trying to push prices a little higher, citing rising feedstock prices as the main justification. The gap between Group I and Group II is at its widest for some time, where some months ago Group I levels exceeded those prices applying to Group II.
There are still rumors around that lower priced Group II options could move from sources in the Asia-Pacific regions, although there has been no evidence of a major shift to Far East imports as yet. There are also possibilities that stocks from those regions could be diverted to cover any shortfalls in the U.S. markets, caused by the fallout from Hurricane Ida.
Group II prices are maintained, with the exception of isolated instances of discounts applied to some of the lighter vis grades. Levels are assessed at $1,475/t-$1,560/t (€1,240/t-€1,315) for the three lighter vis grades – 100N, 150N and 220N – with higher vis grades like 600N remaining at $1,775/t-$1,845/t (€1,495/t-€1,555 ).
Prices are for a wide range of Group II base oils, including European and U.S. fully approved grades, but also material from Middle East, Far East and U.S.
From being stable and steady during August, Group III prices are on an upward trajectory with almost all suppliers and producers imposing large price increases from Sept. 1. It is not apparent yet if these price increments will be applied immediately since with no spot trades, the bulk of Group III supplies have been pre-sold for at last a month in advance. What is not clear is whether sales have been made against prices, or against volumes. Therefore it may take time for increases to filter through current levels, but October and November prices are expected to escalate by perhaps $200/t-$250/t, given the current round of notified increases in Europe and other key markets.
Large quantities continue to move from European sources to supply hubs, and also this week to U.S. Gulf Coast. This region would normally be supplied from Asia-Pacific sources.
Forward prices are firmer for October, with levels now at €1,680/t-€1,730/t for the range of partly-approved Group III base oils. Prices of €1,695/t-€1,730/t are for the 6 centiStoke and 8 cSt grades. Prices for 4 cSt grades are pitched at €1,680/t-€1,715/t. Prices are for FCA supplies from Antwerp-Rotterdam-Amsterdam hubs.
Group III base oils carrying the full package of European OEM approvals (such as Volkswagen) are priced higher, at €1,675/t-€1,735/t for 4 centiStoke base oils, and 6 cSt and 8 cSt grades at €1,725/t-€1,775/t.
Baltic and Black Seas
In what is perhaps the weakest spot in the API Group I market around Europe, Baltic prices continue to show weaker numbers. That is occuring even though the quantities of material available appear to have decreased, with only a couple of the regular suppliers having a full slate of grades available for export sales. The discounts steadied somewhat over the past few weeks, and the levels at which offers are being made are closer now to mainstream levels than before. Russian domestic markets recovered from the summer lull. With agriculture and transportation making comebacks, the domestic scene may start to take up extra base oils that would previously have been marked for export sales.
A small cargo for the east coast of the United Kingdom loaded at the end of August to take 1,800 tons of Russian export grades into Hull, while a couple of shipping inquiries are out for material to move from Baltic ports to Turkey and Israel. Another firm inquiry is issued for around 6,000 tons of base oils to load out of the Baltic this week for Nigeria.
The open arbitrage from Baltic to the U.S. Gulf Coast may have been stymied by the effects of Hurricane Ida, with receiving terminals claiming force majeure in being able to handle cargoes both inbound and out.
FOB prices are taken down further this week, with levels assessed for SN150 at $875/t-$910 per metric ton, with SN500 at $1,055/t-$1,100/t. SN900, where available, is priced at around $1,120/t.
Black Sea reports for base oil traffic are few, with Turkey being particularly quiet even after the holiday month in August. There are no reported cargo movements through the STS facilities at Kavkaz, Russia. With cargoes arranged from the north rather than from Black Sea supply points, there may be interruptions to the supply of base oils from the southern Russian refineries. That aside, Turkish buyers are not looking for supplies from the usual Mediterranean sources in Italy and Greece, which is strange, given that domestic production from Izmir refinery is still interrupted. It may take a couple more weeks before the Turkish base oil market swings back into action, when inventories will have to face replacement.
There are reports that Turkish importers have been hanging back waiting for Group I prices to drop to levels that can support the local market. Other comments received last week suggest that because the market is so quiet, some blending operations moved to part-time working and are limiting the quantities of finished lubes blended, thus cutting back on base oil procurement.
With no reported Mediterranean sourced movements from Italy or Greece going into Derince and Gebze, Turkey, price indications only for potential cargoes are maintained, with levels estimated at around $995/t CIF for SN150, with SN500 around $1,495/t.
Imported Group II base oil prices are maintained, but Group III prices are expected climb in line with European levels. Prices remain for the range of Group II base oils, putting levels at €1,465/t-€1,485/t for the low vis Group II grades, with higher vis 600N at €1,825/t-€1,865/t.
Group III ex-tank sales are at €1,640/t-€1,685/t for partly-approved and fully-approved 4 centiStoke material, with 6 cSt and 8 cSt grades at €1,675/t-€1,700/t, but these levels are expected to rise by perhaps as much as €100/t-€150/t over the coming weeks.
Red Sea reports identify two large cargoes of almost 20,000 tons each loading out of Yanbu and Jeddah for discharge in Mumbai. There appears to be a resurrection of trade from Red Sea going into west coast India, which was missing for a couple of months during the COVID resurgence in India.
No reported Iranian base oil cargoes this week, with sources in Iran and in United Arab Emirates unable to shed any light on what is happening with the lubricant industry in that country. It is assumed that blending is still taking place locally using indigenously produced base oils, but regarding exporting of Group I grades from Sepahan, no news is to be gleaned.
However, there are of quantities of Group I base oils that are available ex-tank in the U.A.E., the inference being that these quantities can only be of Iranian origin. Specifications match the recorded quality of SN500+, which may suggest that small parcels are managing to be moved from Iranian ports to storage tanks in various ports in the U.A.E. This cannot be confirmed. Any base oils imported into Middle East Gulf ports from Saudi Arabia or Europe are unlikely to be re-exported on an FOB basis.
Prices for these base oils are close to expectations for Iranian exports, with indication levels for SN500 at around $1,495 per metric ton, basis FOB from U.A.E. port.
The main exports from Middle East Gulf in base oil terms are the cargoes of Group III grades loading out of Al Ruwais for the west coast of India, along with parcels of Glll+ out of Ras Laffan in Qatar, for global distribution within the Shell network. One cargo of 6,500 tons will load out of Abu Dhabi for a three port discharge in India, the cargo going into Mumbai, Chennai and finally Kolkata. The relative quantities going into each location are not available. Another small parcel of 1,000 tons will load out of Sitra for receivers in Mumbai.
Netback assessments for Group III base oils exported from Al Ruwais and Sitra are to be moved higher following the notifications of price rises for local sales in export markets such as the United States and Europe.
Netbacks for future supplies of API Group III base oils exported from Middle East Gulf will now be assessed at $1,745/t-$1,855/t for 4 centiStoke, 6 cSt and 8 cSt partly-approved Group III base oils. Group III base oils from Sitra refinery holding full European OEM approvals will netback higher. These grades are assessed to netback at $1,785/t-$1,875/t for 4 cSt, 6 cSt and 8 cSt Group III base oils.
Notional netback levels are based on prices derived and informally assessed from regional selling levels, less marketing, handling and estimated freight costs.
Group II base oils imported into the Middle East Gulf from numerous sources in the U.S., Asia Pacific, Saudi Arabia and Europe, which are resold on an FCA basis, have prices maintained at $1,575/t-$1,685/t for light vis grades 100N, 150N and 220N, with the heavier vis 500N and 600N grades at $18,75/t-$1,920.
South African shipping agency sources notified about another large cargo of base oils and chemicals will be fixed to load out of Rotterdam and Fawley during the third week in September. The bulk of the cargo will discharge in Durban, but will also sail on to supply a local affiliate in Mombass, Kenya. The cargo will be larger than the usual with around 21,000 tons of base oils and chemicals.
West Africa threw up some interesting pieces of news last week. One cargo was being considered to load from Singapore, discharging 6,000 tons of Group I base oils into Apapa, Nigeria. This is a rather unusual source and route for the supply of base oils into Nigeria. This would be a first if this fixture is confirmed. The freight rates for such a cargo would outweigh any advantage there may be with FOB prices in Singapore.
Meanwhile, a stand-alone cargo will service requirements in Cote d’Ivoire and Guinea by delivering 7,000 tons of Group I base oils into the two ports.
The final “unusual” snippet is that there is a shipping inquiry for an STS parcel to transfer in Apapa for receivers in Koko, Equatorial Guinea. This report was not aware of any facilities in that location either with storage capability or blending operations to receive almost 5,000 tons of base oils. Further investigations will ensue.
One Baltic cargo is under negotiation to load in the next few days. Although this cargo is not yet firm, it is expected that confirmation will be any time for the parcel of around 6,000 tons to load. Nigerian buyers are still hesitant to purchase large cargoes, with Group I prices from Europe falling over the last month. Some very low bids have been heard countering offers from traders involved in Nigeria.
CFR/CIF levels for Group I base oils, although there are few cargoes currently landing into Apapa, are maintained this week until confirmation of the new round of cargoes is confirmed. Prices remain in the ranges as last reported, assessed at $1,765/t for small quantities of SN150. SN500 is reckoned to be around $1,825/t, SN900 with minimum viscosity index of 95 is at around $1,885/t.
Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly at firstname.lastname@example.org.