Base oil markets throughout Europe, the Middle East and Africa are mostly showing weakening demand across all types of products, although some groups are faring better than others. API Group I is showing the softest demand as inventories grow longer by the week. Buyers are now running the show for these grades, which were tight during the first half of the year.
Despite a rash of refinery maintenance turnarounds, base oil production is returning to nearly pre-pandemic levels as refiners diverting as much feedstock as possible to base oils, in light of their outstanding margins. Of course, as shortages ease, these margins may decrease.
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Group II supplies appear to be riding out any storms – literal and otherwise – leading to ample availability. Group III is the star of the show at the moment. With the United States offering premium prices for these grades, producers are keen to maximize exports in that direction, perhaps at the expense of European and Asia-Pacific destinations, where prices and margins are lower. European demand for Group III is still rising, though.
Crude oil prices rose suddenly during the past couple weeks but are now retreating. Analysts forecasts weaker values toward the fourth quarter of this year and possibly into 2022. The Atlantic Hurricane season has so far caused only marginal disruptions, and refiners appear well stocked.
Dated deliveries of Brent crude are now at $74.30 per barrel, $2 higher than last reported, now for November front month settlement. West Texas Intermediate fell to $70.40/bbl, up just $1 from our previous report, still for October front month.
ICE low-sulfur gas oil prices have followed a similar track and are currently around $625 per metric ton, now for October front month. These prices were obtained from London ICE trading late Monday.
Prices for Group I exports from Europe continued to slowly erode the past couple weeks. Refinery inventories are moving ever higher, and sellers are working to move large parcels to traditional export destinations.
Some sellers are prepared to negotiate what are now being seen as exceptionally aggressive numbers to clear space in storage tanks. Others are trying to cling on to the higher numbers seen last month, but buyers are able – to an extent – to pick and choose suppliers to complete packages for supply into regions where the arbitrage is wide open. West Africa, Middle East Gulf and U.S. markets are being targeted by traders, but additional competition is coming from Asia-Pacific sources where Group I is also long.
Prices for solvent neutral 150 have fallen between $20 and $40 per ton to $820/t-$875/t, while SN500 has slid $40-$55 to $1,295/t-$1,355/t. These prices are still far above levels from the start of 2021, when SN500 was around $575/t. Sellers are still trying to hold up values, citing rising raw material costs and operating expenses that have climbed due to COVID-19 working restrictions.
Even bright stock is looking more like a buyer’s market, having dipped more than $100/t since the previous report. The range of prices has narrowed considerably and is now at $1,495/t-$1,545/t.
Domestic or regional European markets are more balanced with sellers moving to retain price gains at least during September. Many suppliers have targeted export markets to move large parcels of Group I while supplying smaller quantities to domestic markets. However, there are signs that buyers are aware of export prices and are not easily convinced to accept much higher numbers for October. Next week will confirm the outcome of negotiations on prices for October.
With large discounts being applied to export sales there remains a large price differential of €250/t-€300/t between exports and sales within the region.
European Group II prices are still holding up with the main players seemingly resolute not to cave in and start discounting selling levels. There would not appear to be a strong requirement for suppliers to move prices lower, since demand in this sector seems to be continuing to remain relatively strong, with sellers not exactly flush with spare capacity or inventory. There have been fewer spot imports of Group II base stocks from U.S. and Asia-Pacific sources, which may have the effect of maintaining incumbent suppliers’ market shares.
Prices are stable, although last week there were some noises from buyers in northwestern Europe and the United Kingdom that they were able to achieve lower numbers for some lighter-vis grades for the last quarter of this year. The removal of the duty tariff waiver next year may tighten up the European Group II market further, making it unattractive to any supplier other than those sourcing from areas with a free trade agreement in place.
Some Group II prices are slightly lower for this report with instances of small discounts being applied to some of the lighter-viscosity grades for fourth quarter supplies. Levels are assessed at $1,425/t-$1495/t (€1,215/t-€1,275) for 100 neutral, 150N and 220N, while 600N is at $1,775/t-$1,845/t (€1,515/t-€1,575). Euro prices have altered due to exchange rate fluctuations.
These prices apply to a wide range of Group II, including oils from Europe and the U.S. with full slates of finished lubricant approvals and material from the Middle East, the Far East and the U.S. with partial slates or no approvals.
Prices continue to rise for Group III imports and grades of that category produced within the region. Values for grades with partial approvals are at €1,720/t-€1,765/t for 6 and 8 centiStoke grades and €1,695/t-€1,740/t for 4 cSt, all on an FCA basis ex Antwerp-Rotterdam-Amsterdam hubs.
Group III oils carrying a full slate of European OEM approvals are at €1,745/t-€1,775/t for 4 cSt and €1,760/t-€1,795/t for 6 and 8 cSt.
Neste announced that it will begin offering around the end of September a 4 cSt Group III+ oil designed to compete with other Group III+ oils and with polyalphaolwfins in some applications, such as 0W automotive engine oils. Prices for this grade have not yet been discussed in the open market, but they may be assumed to start somewhere in the region of $2,500/t.
Baltic and Black Seas
Baltic base oil prices stabilized, albeit at very low levels, even compared to the weakening mainstream prices in Europe. For example, the arbitrage open between Baltic and the U.S. Gulf Coast is now estimated to be around $475 per metric ton, allowing opportunities for large and small cargoes to be pushed in that direction. While quality and specification have to be taken into account, there still remains a healthy margin for material to be supplied to buyers in the United States.
Other export destinations also figure in the supplies of Russian export barrels, with West Africa and, specifically, Nigeria, being in the fore for cargoes loading out of the Baltic. The main issue for these supplies is being able to access large quantities of heavier material, such as SN900, which can be blended using SN500 and SN1200 in relative quantities. The demand for such grades is high in West Africa. With buyers perhaps realizing that prices are nearing a nadir point, a number of receivers are looking to take supplies of suitable cargoes from this source.
A cargo loaded out of the Baltic last week for receivers in Apapa, Nigeria, this parcel being made up of around 6,000 tons of heavier grades.
FOB prices are maintained this week with levels having stabilized over the past few weeks. Prices are assessed for SN150 at $875/t-$910/t, with SN500 at $1,055/t-$1,100/t. SN900 where available, is priced at around $1,120/t. These levels are current for this month, but there are suggestions that these levels could be further trimmed for prompt firm purchases of material for end September or early October.
Turkish and Black Sea reports signal little activity for base oils in the region. The main news since the last report is an announcement by Tupras, the operator of the refinery at Izmir. Base oil production is to restart around this time, with availabilities towards the end of the month. Supplies of base oil were made from existing inventory during the shutdown, which has lasted for some seven or eight weeks.
The pricing conundrum continues, however, since up until last week supplies of SN100, SN150 and SN500 from the Izmir refinery were priced at more than $300/t above offers for imported material from Italy and Greece. Supplies were made in truck loads and would have been sold in Turkish lira, an advantage due to the poor state of the local currency. Even given this pricing imbalance, the selling levels were way above market levels. To rectify this, Tupras announced price reduction from earlier this month of around $175/t-$190/t, still maintaining a large differential against imported barrels.
Tupras also announced it intends to offer supplies for export when the new production is made available. The prices for these tenders will be announced in due course. With one former cargo loading out of Marmara for Nigeria, these barrels will have to be priced on a different basis than truck supplies from Izmir.
Turkish traders importing base oils from Mediterranean sources are still hanging back anticipating that Group I prices will be under pressure to drop further. The Turkish lubricant markets are very quiet, with little activity reported even into this month after the holiday time during August.
There are a number of offers around from sellers based in Greece and Italy, reported at CIF price indications around $975/t CIF for SN150, with SN500 around $1,455/t. There was little buying interest at these levels, with receivers indicating that they would look for prices at least $200/t lower.
Imported Group II base oil prices are taken slightly lower, but Group III prices moved higher. Prices for the range of Group II base oils are placed at €1,425/t-€1,470/t for the low vis Group II grades, with higher vis 600N at €1,795/t-€1,835/t.
Group III ex tank sales currently are at €1,685/t-€1,720/t for partly-approved and fully-approved 4 centiStoke material, with 6 cSt and 8 cSt grades at €1,695/t-€1,725/t.
Red Sea shipping reports give news of two or perhaps three large cargoes loading out of Yanbu and Jeddah ports with almost 20,000 tons for each vessel. These base oil supplies are all marked for Mumbai anchorage, or other berths in Mumbai such as Jawaharlal Nehru Port Trust. This trade appears to have made a comeback, following the recurring COVID situation in India.
In the Middle East there is news regarding the supply of base oils from an Iraqi refinery for blenders in Turkey and Lebanon. These supplies will be made by road because shore storage is currently unavailable in Beirut port. This agreement between the two parties was finalized at the end of July and may involve other petroleum products to be delivered in a similar manner.
Again, there are no reported Iranian base oil cargoes this week, although rumors are around that Iran is supplying base oils into Syria by truck. These reports are not confirmed and cannot be corroborated by any source, as of yet.
The reported quantities of Group I base oils available ex tank in United Arab Emirates proved to be Sepahan SN500+ material. The material is available for export to the west coast of East Africa, and is priced at $1,425/t-$1,445/t FOB. Certificate of origin would record the U.A.E. as the source of the material.
A flurry of activity for Group III cargoes loading out of Al Ruwais and Sitra was accompanied by large parcels moving out of Ras Laffan in Qatar. At the same time smaller parcels are lodged in storage in U.A.E. for ex tank sales to buyers in the region.
Netback assessments for Group III base oils exported from Al Ruwais and Sitra are moved higher in this report due to the large increases announced in the U.S. and also new European levels that will filter through into the market during October and beyond.
Netbacks for Group III base oils exported from Middle East Gulf are now assessed at $1,795/t-$1,885/t for 4 centiStoke, 6 cSt and 8 cSt partly-approved Group III base oils. Group III base oils from Sitra refinery that hold full European OEM approvals will netback higher. These grades are assessed to netback at $1,825/t-$1,895/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 Middle East Gulf from various sources in the U.S., Asia-Pacific, Saudi Arabia and Europe – which are resold on an FCA basis – have prices slightly lower at $1,565/t-$1,675/t for light vis grades 100N, 150N and 220N, with the heavier vis 500N and 600N grades at $1,860/t-$1,895/t.
Sources in South Africa confirmed that a vessel completed loading this week in Rotterdam and Fawley, with a cargo of around 21,000 tons of base oils and other chemicals for Durban discharge, and then finally, Mombasa.
The inquiry for a vessel to load out of Singapore with some 6,000 tons of base oils for Apapa port, Nigeria, is still doing the rounds. At the same time, another shipping enquiry was issued for 6,000 tons of base oils to load out of Singapore for Rotterdam. This could imply some form of STS transfer in Rotterdam, with the cargo then being re-routed to Apapa. Just how the economics would look on this deal would be very interesting. To take into account the double freight angle, the FOB prices for the Group I grades to be supplied would have to be in the range of $1,335/t-$1,395/t, assuming margin, freights and STS costs. This could be possible, with Group I prices reflecting these rates in Singapore.
Updates on the stand-alone cargo of 7,000 tons of base oils show that the vessel completed two port loadings in Rotterdam and Fawley and will call firstly into Abidjan in Cote d’Ivoire, and subsequently, Conakry in Guinea.
Continuing the saga of the STS operation in Apapa for Koko in Equatorial Guinea, there is still a “prompt” shipping inquiry for a vessel to perform this voyage and STS transfer. There are a number of question marks here – the first that it is impossible to identify the mother ship that would have the quantity on board, and secondly there appear to be no facilities in the port of Koko to handle 4,800 tons of base oils.
The Baltic cargo appears to have loaded with a parcel of around 6,000 tons for Lagos. Prices are expected to be very low for FOB numbers, but whether those levels are passed on to receivers in their entirety by traders is another matter.
CFR/CIF levels for API Group I base oils landing into Apapa are taken lower this week, with the prospect of the Baltic loading showing much lower levels than previously considered. Prices are placed tentatively in the new ranges, assessed at $1,355/t for small quantities of SN150, SN500 reckoned at around $1,425/t, and SN900 with VI min 95 at around $1,500/t.
Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly at email@example.com.