Base oil demand has begun to wane throughout Europe, the Middle East and Africa, reflecting seasonal factors affecting the various sectors. Opinion and recent forecasts suggest that trading activity will slow toward the end of this year and that the trend may carry on into 2022.
The significant repercussions from the COVID pandemic are here to stay with markets being affected by slower demand and lower uptake on petroleum products, particularly transportation fuels. This slower pace has taken its toll on the base oil markets, in some cases limiting production due to feedstock constraints, although most refineries are back to run rates closer to pre-COVID levels rather than the reduced outputs of the last two years.
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API Group l base oils have seen further erosion of prices, due to greater availability of material and lackluster demand both from regional and export markets. The largest price movements have been seen in the European domestic markets where sellers were keen to preserve the higher prices reached during the summer and late spring. Prices in this sector of the market have come off by some $150 per metric ton to $200/t, perhaps due to export numbers crashing in the late summer, and this sector of the market realizing the differential between export and domestic prices for the same products.
Group ll prices fared better from a sellers’ perspective, although there has been some gentler erosion to prices which had reached all-time highs. There has been an element of protecting market share by some sellers, by granting small discount incentives to some buyers to preserve robust buying patterns.
Group lll markets saw prices steady after the large gains of the last few months, although there have been rumblings from producers that raw material costs have risen sharply after the recent crude price hikes. There may be further pressure from those sources to raise prices to cover incremental costings. However, the Group lll markets can be described as stable at the moment, with further reviews towards the end of the year.
Crude oil prices rose sharply over the last two weeks in the main, causing unexpected pressures on some principal economies that had been selling from the recent effects of the COVID lockdowns. However demand for crude and subsequent petroleum products has been intense, with crude oil producers determined not to let this near windfall erode with an increase in output and crude production. This aspect is being kept tight, with OPEC containing any increase in production.
Dated Brent has moved to a new recent high at $85.70 per bbl, more than $4 higher than last reported, this level pertains to December front month. WTI has moved higher, and with a minimal crack between this crude and DB, now showing at a level of $83.55/bbl, $7 higher than two weeks ago. WTI levels are for November front month.
ICE LS Gas Oil also rose steeply in the face of crude moves, with a level now at $751 for this product for November front month. This product escalated by more than $50/t during the last two weeks, and if taken over the last month, increased by more than $100/t.
Prices were obtained from late London ICE trading on Oct. 18.
European export prices for Group l base oils continue their downward trajectory, although the rate of fall moderated. Some pundits are making comments that prices may have reached their nadir, taking into account the size of the falls from the peaks of the early summer and the almost meteoric rises in crude and feedstock prices.
Prices for quantities of SN 150 are marginally lower by $10/t-$20/t, with levels now established at $795/t-$825/t. SN 500 has also seen weaker levels, with prices down by a further $10/t-$25/t, now in a range at $1,075-$1,095/t.
Bright stock started to stabilize around levels reached a week ago, with the range of prices assessed at $1,295/t-$1,355/t.
Sellers are digging their heels in when it comes to offers, maintaining that raw material costs have risen sharply and have yet to be reflected in selling prices. Buyers continue to claim that prices remain too high, and that levels should reflect those being applied at the beginning of this year.
Domestic markets around Europe saw prices slashed, with an increasing number of buyers citing export levels as comparative levels. Levels fell by more than €100/t in some cases, while most others were reduced by €70/t-€100/t. Pressure to reduce prices in the domestic markets started around the end of September, and was reflected in price offers for October month. Some buyers did not accept revised numbers that were offered, instead holding out for larger discounts that were ultimately applied as the competition to supply started to kick into the market, with ample availabilities for all grades.
Some sellers are adopting the attitude that prices have fallen far enough, and that there may be market pressure for the next moves to again be upwards. Some adjustments are still to be made to bring domestic levels into line with export prices, so there may be some tough negotiations in the last week of October.
The differential between export and domestic prices diminished over the last three weeks, and is now assessed to be at €75/t-€125/t, domestic numbers remaining higher.
European Group ll prices are being chipped away a little, with some major suppliers offering select customers discounted prices to remain loyal and also to lift agreed quantities of product. Some lower priced imports started to filter in to the European market, but large scale importing from Asia-Pacific sources has not yet been witnessed to any great extent. It is considered that with freight costs spiraling higher, shipping both bulk and containerized supplies from these sources has lost much of the attraction and remains elusive. Some players have investigated the option of supplies from Korean and Chinese suppliers, but these have yet to materialize. There has been one instance of a 4,000 ton cargo of Group ll grades loading out of Saudi Arabia for discharge into northwest Europe, this perhaps being the limit for the freight costs which would be applicable to other options from Asia-Pacific.
With competitive supplies from alternative sources not happening into Europe, local suppliers are relaxed in trying to hold on to higher prices. Buyers are looking for adjustments, but may have missed the opportunity with crude and feedstock prices taking off. Demand remains strong for Group ll grades, since with flexibility and the ability for these grades to be used to blend the new generation of both automotive and industrial lubricants, there really can be no substitute for Group ll base oils
Prices are described as steady rather than stable, with only a few reports of lower numbers for lighter vis grades.
Group ll prices are maintained as per last report, with levels at $1,395/t-$1,445/t ( €1,200/t-€1,242/t) for the three lighter vis grades (100N, 150N and 220N), and the higher vis grade (600N) at $1,755/t-$1,825/t (€1,500/t-€1,560/t).
Prices are for a range of Group ll base oils, including European and U.S. fully approved grades, but also material from Middle East.
Group lll prices appear to have stabilized around levels established for October; however, with rising crude and feedstock costs, producers may be inclined to look at further price increases to cover these eventualities. Apart from domestic production, cargoes from sources such as Malaysia, the Middle East Gulf and Asia-Pacific are still arriving into the European markets. With prices having risen in line with those increases posted in the U.S., the European market place is once again seen to be critically important to all sellers of Group lll base oils.
The headline news for this report under the Group lll banner is the sale of Neste‘s base oil production to Chevron. This will involve a number of fundamental changes in the market, both in Europe and elsewhere. For examples it is understood that the existing arrangements that Neste had with Bahrain Petroleum Co. in Sitra, to lift 145,000 tons of Group lll grades, will be transferred to Chevron under a new five-year arrangement with rollover reviews thereafter.
Prices are maintained this week with levels at €1,720/t-€1,785/t for the range of partly-approved Group lll base oils. Prices of €1,740/t-€1,785/t are for the 6 centistoke and 8 cSt grades, whilst 4 cSt grades are assessed at €1,720/t-€1,765/t.
Prices are for FCA supplies from Antwerp-Rotterdam-Amsterdam hubs.
Group lll base oils holding full European original equipment manufacturer approvals (e.g., Volkswagen) are priced a notch higher, at €1,765/t-€1,795/t for 4 cSt base oils, with 6 cSt and 8 cSt grades at €1,785/t-€1,810/t.
Baltic and Black Seas
Baltic Sea base oil prices for Russian export grades appear to have steadied over the last few weeks, with some comments heard that “Baltic price levels could not be expected to go any lower,” since they were at a point where refineries could not afford to produce the final product.
Others said that crude moving higher would put more pressure on Baltic FOB prices to start to rise on the back of higher refinery gate numbers, higher freight and rail costs, which would result in higher prices into and out of tanks.
The arbs are still open for cargoes from this region to be considered for U.S. Gulf Coast and South American destinations, both of which would still allow about $400/t for the arbitrage. One cargo has loaded for Nigeria, another for receivers in U.S. Gulf and a further cargo is moving into Brazil. The Nigerian cargo was estimated to have loaded around 9,000 tons of various Russian grades, with SN 900 the principal quantity.
Cargoes also moved from the Baltic ports to Gebze in Turkey and also to Ashdod in Israel, in addition to the contract barrels going into Antwerp-Rotterdam-Amsterdam on a regular basis. These supplies would normally be loaded from Black Sea ports, but there are still problems with supplies of base oils from a southern Russian refinery.
FOB prices are maintained or perhaps only slightly lower than last published, with prices for SN 150 assessed at $845/t-$865/t, with SN 500 at $975/t-$995/t. SN 900 when available, will be priced at around $1,025/t.
The Turkish market never ceases to confound. Just when the local Group l producer in Izmir came back on line and is producing quantities of base oils for export tenders out of Gebze, blenders in Turkey again resorted to purchasing and importing base oil cargoes from Italy. It can only be assumed that either the Tupras domestic pricing is not attractive or the imported material is priced to be able to attract buyers in Turkey.
The offers shown to regular Turkish buyers from sellers based in Italy with CIF price indications at around $875/t CIF for SN 150, with SN 500 around $1,125/t.
Imported Group ll base oil prices are maintained for this report, while Group lll prices remain firm but stable. Prices for the range of Group ll base oils are put at €1,410/t-€1455/t for the low vis Group ll grades, with higher vis 600N at €1,775-€1,825/t.
Group lll ex tank sales are at €1,725/t-€1,750/t for partly-approved and fully-approved 4 cSt material, with 6 cSt and 8 cSt grades at €1,635/t-€1,760/t.
The Red Sea region has been particularly busy, with almost 75,000 tons of various base oils loaded out of Yanbu and Jeddah. The majority of these cargoes are going into west coast India but a couple of innovative enquiries for 10,000 tons will be shipped to Nigeria. Other parcels for Karachi and the Group ll cargo will making their way into Le Havre. Also mentioned is a smaller 3,000-tons cargo which will discharge into Aqaba in Jordan.
Notable Middle East news is that a large cargo of some 12,000 tons of base oils loaded out of Hamriyah port, discharging in Hazira, west coast India. The origin of this material is not apparent. Because there is no production of Group l base stocks in the United Arab Emirates, the only logical conclusion is that this material is of Iranian origin and is transhipped through the U.A.E. Follow up investigations will be undertaken prior to the next report. This could possibly be comprised of SN 500+ from Sepahan refinery in Iran.
A Group lll export cargo will load from Al Ruwais, with replenishment stocks for European distributors in Dordrecht. This cargo is expected to arrive into the discharge port around the end of November.
Netback assessments for Group lll base oils exported from Al Ruwais and Sitra are maintained this week with the evidence of steady or stable selling prices in Europe. As mentioned previously, producers are only too aware of higher refinery costs in the form of feedstocks and operating numbers which will have to be recovered at some point. The only recovery mode is to hike CIF prices to levels which may add a further $100/t to Group lll base oils arriving into markets such as India, Europe, U.S. and the Far East.
Netbacks for Group lll base oils being currently exported from Middle East Gulf are now estimated at $1,825/t-$1,875/t for 4 centiStoke, 6 cSt and 8 cSt partly-approved Group lll base oils. Group lll base oils from Sitra refinery, holding full European OEM approvals, will netback higher. These grades are assessed to netback at $1,840/t-$1,900/t for 4 cSt, 6 cSt and 8 cSt Group lll base oils. What is not clear is if the “Nexbase” branding will continue, since with the takeover of Neste’s base oil portfolio by Chevron these grades may be rebranded, while presumably still holding on to the approvals gained under the Neste banner.
Notional netback levels are based on prices derived and informally assessed from regional selling levels, less marketing, handling and estimated freight costs.
Group ll base oils currently imported into the Middle East Gulf from various sources in the United States, Asia-Pacific, Saudi Arabia and Europe, and which are resold on an FCA and delivered basis, have prices maintained at $1,555/t-$1,665/t for the light vis grades 100N, 150N and 220N, with heavier vis 500N and 600N grades at $1,850/t-$1,885/t.
With the Singapore enquiry for 6,000 tons of base oils for Apapa port dropped, the interesting feature for this report is the reputed cargo of 10,000 tons of various Group l base oils to be shipped from Yanbu and Jeddah in Saudi Arabia for a destination in West Africa.
Nigeria remains in a state of almost total impasse, but with one cargo nominated out of the Baltic there may be some stimulus to get things moving again in this market. Nigerian receivers are still looking for unattainable prices but may have been forced to make the purchase out of the Baltic due to a dearth of base oils in the country. They remain with counters of $950/t for SN 150, $1,050/t for SN 500 and $1,100/t for SN 900.
Traders are offering levels at around $100/t-$120/t higher than Nigerian buyers’ idea. Nigeria remains facing currency problems, hindering the opening of local letters of credit. Local banks are unable to lay hands on dollars to open the letters of credit.
CFR/CIF levels for Group l base oils landing into Apapa are maintained this week, until evaluation and confirmation of the Baltic cargo selling prices are known.
Prices are indicated at $1,050/t for small quantities of SN 150, SN 500 is offered at around $1,150/t and SN 900 at around $1,200/t. It may still take some time for the parties involved to agree a compromise agreement on prices.
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.