Base oil demand is sluggish throughout Europe, the Middle East and Africa as lackluster economic activity has turned a normally slow season deathly quiet. Many lubricant blenders have made their last base stock purchases of the year, and inventories of all grades are rising.
API Group I prices are coming under renewed pressure, and some suppliers are implementing markdowns in efforts to reduce inventories before the end of the year. The problem is that sellers have little room to move, since Group I prices are barely above raw material costs, and any more discounting could take margins into negative territory.
The idea of diverting feedstock to production of diesel is beginning to appeal to some refiners, who see little point in continuing to produce base oils to sell at a loss. December is looking pretty grim for Group I sellers, with only a small degree of hope that the market picks up in January.
Group II markets have been rocked by the news that the European Union will not extend the duty waiver for imports of these base oils. Instead the bloc has initiated a quota system where only 400,000 tons of imports per year will qualify to enter the market duty free; additional quantities will be subject to a tariff of 3.7 percent.
Apparently the rules are that the quota will be applied on a first-come-first-served basis, so large cargoes of Group II base stocks may now be on the cards for a number of importers. There is to be a limit of 200,000 tons that can avoid the duty for the first six months of 2020, after which the quota quantity can be reviewed.
Crude and feedstock underwent a mini spike the past few days, as dated deliveries of Brent crude moved toward $63 per barrel for January settlement. West Texas Intermediate followed a similar path, climbing to $57.30/bbl, also for January front month. ICE LS gas oil has rallied to $581.00 per metric ton for December front month.
These values were obtained from London ICE trading late Monday.
Prices for European Group I exports are unchanged this week. Although there has been a slight build-up of supply, length is not exceeding, and there are no signs of end-of-year fire sales. The market remains rather balanced, but export markets are offering few opportunities to place large quantities.
Prices are for solvent neutral 150 are between $545 per ton and $580/t, while SN500 is at $555/t-$580/t, both on an FOB basis. Bright stock prices are also stable at $625/t-$660/t. These levels apply to cargo-sized shipments of at least 2,000 tons, sold on an FOB basis ex mainland European supply points, always subject to availability.
Group I trade within the region is also muted, with few buyers looking for spot purchases. As mentioned above, many large blenders have suspended major purchases until after the new year, and some will close or switch to a skeleton operation from mid-December.
Prices for sales within the region remain 55/t-75/t higher than for exports.
In the Group II camp many industry representatives are appalled by the new quota system, calling for a much broader approach and a higher quota limit for imported material of somewhere around 1million tons. Preference is either for this sort of figure, or a further extension of the duty waiver which has been inexistence since Group II base oils were first imported into Europe.
This unnecessary encumbrance will of course benefit local producers, but will penalise other traditional suppliers in the market who have been responsible for the evolution of Group II as a product range within Europe.
With duty being levied on any base oils with viscosities between 150N and 600N this covers around 97 percent of all the grades in this base oil sector. Also base oils from locations which have trade agreements with the EU will not be affected, these include regions such as Singapore, South Korea and Canada, but is still unclear if any imports from these countries would form part of the quota quantity.
Obviously large quantities of Group II base stocks are imported from U.S.A. and this is where the quota effect may be felt most. With average import prices of around $750/t, 3.7 percent import duty if incurred, would mean around $28/t cost being added to one tonne of these grades.
In the meantime, prices in respect of Group II base oils remain unchanged, but with some buyers calling for downward adjustments to be made for prices which are being offered for contract next year, These moves are being resisted by sellers, who are trying to maintain Europe as the highest contributing region for Group II base oils.
Group II prices remain as last reported with FCA levels around $685/t-$790pmt (640/t-730) in respect of the light-viscosity grades (150N and 220N), and the heavier oils (500N and 600N) between $765/t-$815/t (705/t-750).
The prices above pertain to the wide range of Group II base oils, including European and U.S. fully approved grades and also unapproved or partly-approved grades from Middle East, Far East and the U.S.
Levels have remained between 755/t-820/t in respect of 4 centiStoke base oils, with 6 cSt material at 785/t-855/t and 8 cSt grades at 770/t-835/t, FCA Antwerp-Rotterdam-Amsterdam. The prices above pertain to the wide range of Group II base oils including European and U.S. fully approved grades and also unapproved or partly-approved grades from the Middle East, the Far East and the U.S.
Group III base oil prices remain under pressure from the sheer volume of material which is widely available and is being offered into the European markets. The market within Europe is now multi-tiered with non-approved, partly-approved and fully-approved base oils being offered.
One piece of news this week is that a quantity of Nexbase Group III base oils from a West Coast U.S. refinery will be delivered into the European market by Neste who have the sole marketing rights for these oils which are produced under licence by Chevron in Richmond Ca.
Levels in respect of partly-approved Group III base oils are set between 665/t-740/t in respect of 4 centiStoke grades, with 6 cSt and 8 cSt base oils currently between 680/t-755/t. These prices are in respect of FCA sales ex hubs in northwestern Europe or delivered prices for material in flexies.
Prices for fully-approved Group III base oils are between 755/t-820/t in respect of 4 centiStoke base oils, with 6 cSt material between 785/t-855/t and 8 cSt grades between 770/t-835/t.
Baltic and Black Seas
Baltic trade is slow but this region may see some uptick in business during December when Russian refineries appear to be seeking to downscale inventories. With lower demand in Russian domestic markets and also a seasonal slowing in traditional markets such as Ukraine, perhaps more effort will be made to try exporting quantities of Russian base oils through Baltic distributors and resellers. Refinery gate prices are said to be very attractive and this may serve to bolster Baltic trade which has been sadly lacking during the last few months.
There are still limited options as to placing large quantities of base oils from Baltic sales, but some enterprising players may be interested to load large quantities for regions such as West Africa, where material would not arrive until January at earliest. There are a couple of enquiries for Nigeria which may proceed to load during second half of December.
There are also some smaller cargoes planned for Antwerp-Rotterdam-Amsterdam and the United Kingdom which would also load towards December month end, and with the cargoes being in transit over year-end, thus avoiding inventory damage at the end of December.
Prices are maintained at the moment with FOB levels in respect of SN150 between $465/t-$490/t, and SN500 between $470/t-$498/t. Prices for Russian bright stock are indicated around $585/t-$610/t FOB, mainly for quantities in flexi-bags with European spec bright stock in bulk ex Gdansk, maintained between $630/t-$655/t FOB.
Black Sea reports contain news that another large parcel of Russian export Group I grades was loaded out of the STS facility at Kavkaz, Russia,. Some 13,000 tons of base oils are to be discharged in Rotterdam, and since prices remain incredibly low, the logistics of such cargo movements become economically feasible. The STS facility appears to have soaked up all availabilities of further Russian cargoes, with Turkish buyers looking to purchase quantities of these grades if available.
Russian export prices can more than $100/t lower than mainstream European Group I levels, and although quality and specs are not comparable, these grades can be used in many applications where a premium base oil is not required. STS prices are indicated around $455/t in respect of large quantities of SN500, with smaller quantities of SN150 around $435/t.
Group I offers from Mediterranean sources are being made into Turkish receivers, with prices now more attractive than the local numbers from Izmir. Local product is priced very high compared to imported material, although local material is available to be bought in Turkish lira and in small truck loads. The Turkish base oil markets are again subdued with activity at another low. There are talks that Q1 of next year may bring better things, although there are still economic woes whish suppress a genuine recovery in Turkey.
Mediterranean Group I prices are offered CIF at around $557/t in respect of SN150 with SN500 at $564/t. SN600 is offered at around $575/t, with quantities of bright stock at around $690/t CIF.
Local resellers are handling Group II and Group III base oils on an ex-tank basis from Turkish ports, with prices indicated around $780/t-$820/t in respect of Group II grades, with partly-approved Group III base oils between $775/t-$810/t. Offers from a Red Sea source are being made to Turkish receivers, These offers are in respect of Group II base oils in the main, but also small quantities of Group III are also being touted, these supplies being imported into Saudi Arabia from South Korea, and then re-exported.
Middle East Gulf
A number of large cargoes of base oil are being booked out of Yanbual Bahr and Jeddah, Saudi Arabia, for traditional receivers in India and United Arab Emirates. Reports are that there is lot of base oil moving out of Yanbu and Jeddah, with some offers of Group II base oils being targeted into receivers in the Mediterranean, located in Turkey, Greece and Italy. The shipping enquiry to move base oil from Jeddah to West Africa is still being talked in the market, but traders engaged in the traditional business into Nigeria have denied all knowledge of this potential cargo. It is possible that the quantity could go into an alternative West Africa market.
Iranian Group I SN500 and SN150 has been confirmed as being exported by truck into Iraq, where there is some confusion that this material is being resold as Iraqi production, with Iraqi Certificates of Origin. With Bandar-e Emam Khomeyni and Bandar Bushehr basically out of commission due to the U.S. sanctions, supplies of base oils by truck are perhaps the only workable option to move quantities outside Iran
Price levels in respect of Iranian premium SN500 are indicated by sources based in U.A.E. at around $510/t-$520/t FCA.
The 12,000 tons cargo of Group I base oils offered from a U.S. East Coast source may have been accepted by U.A.E. receivers, although the same company operates in India and may divert the cargo to Mumbai anchorage as an option. Price indications in respect of SN500 are heard at around $569/t CIF U.A.E. The requirements in U.A.E. are similar as those for the west coast of India, hence the cargo will probably comprise of SN500, SN150, and bright stock. SN150 is indicated at around $566/t with bright stock offered at around $676/t CIF Sharjah port, U.A.E.
Group III base oils produced by Adnoc in Al Ruwais in Abu Dhabi, and also by Bapco in Sitra, Bahrain, are priced at the same notional FOB levels as last week. Levels are calculated and are assessed between $650/t-$690/t in respect of the three Group III grades of partly-approved base oils being sold into Europe and U.S. 8 cSt grades going to markets in India and Far East will contribute less, due to lower local selling prices.
Neste Nexbase Group III base oils will achieve higher notional netbacks due to holding the full range of European OEM approvals. Notional netback levels in respect of the premium grades are higher, between $760/t-$855/t in respect of 4 centiStoke, 6 cSt, and 8 cSt grades delivered into western markets.
Nominal FOB prices on a netback basis are based on prices derived from regional selling levels, less marketing, handling and freight costs.
Group II prices in Middle East Gulf regions are again maintained this week amidst reports of very low numbers contained in offers from suppliers in Saudi Arabia.
Levels FCA ex U.A.E. hub storage remain unchanged being assessed between $745/t-$900/t in respect of the light vis grades 100N/150N/ 220N, with 500N/600N between $755/t-$910/t.
Problems remain for the re-start of base oil production at the refinery in Alexandria, Egypt, with local sources now suggesting that the operation may never re-open to produce base oils. Further information is being sought.
Nigerian news contains rumors of a couple of possible options for Group I cargoes to load during December, with a view to arriving into Apapa during early January. One option is to load a cargo of 10,000 tons-15,000 tons out of the Baltic, if Russian export pricing can be coaxed into making this deal work for receivers in Nigeria. There are other options to load a smaller quantity from the Baltic, and then perhaps top-off with additional material loading in northwestern Europe or Spanish Mediterranean.
Prices are maintained this week in respect of Group I grades being discharged in Apapa, those prices being indicated between $630/t-$645/t in respect of SN150, with SN500 between $640/t-$655/t, and bright stock, where loaded, between $720/t-$745/t. SN900 is indicated at $650/t-$675/t. Cargoes loading out of U.S. Gulf Coast sources do not normally have bright stock parcels as part of the cargo.
Prices are in respect of cargoes of minimum 8,000 tons being delivered into Apapa port, Lagos, NIgeria.
Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly email@example.com.