Dynamics for base oils in Europe, the Middle East and Africa are varying these days based on product group and region. The traditional seasonal slowdown in trade is in full swing, but several developments are roiling the markets.
API Group I prices are stable because supply and demand are in balance, which is unusual for this time of year. Supply is down because many producers have cut back on production due to poor margins - moves that are casting doubts about long-term provision of these grades.
The European Group II market is racked with confusion over last months adoption of a quota system for imports to the European Union. The situation is making some suppliers cautious as they negotiate contracts for next year.
The Group III continues to be gripped by an ever-increasing glut that is dragging prices down to levels that some sellers are challenged to match.
Crude oil costs rose but then retreated the past week, with dated deliveries of Brent settling at $61.45 per barrel yesterday, now for February front month settlement. This is almost $2 lower than last week's post. West Texas Intermediate came in at $56.20/bbl, still for January front month. ICE LS gas oil continues to hover around $576 per metric ton for December front month.
These prices were obtained from ICE London trading late Monday.
European Group I exports have slowed to a trickle as traditional outlets are being covered by sources in the United States, the Middle East and even the Pacific Rim. No long positions are being reported for European suppliers, though, with some even warning that they may be tight for December.
Prices were flat the past week, with solvent neutral 150 between $545 per ton and $580/t, SN500 at $555/t-$580/t and bright stock at $625/t-$660/t. These levels apply to cargo-sized parcels of at least 2,000 tons Group I oils, sold on an FOB basis ex mainland European supply points, always subject to availability.
Prices for Group I sales within Europe were also unchanged. Activity was light as many buyers have finalized most of their December purchases. Negotiations for next year are taking place but have been slowed by lack of clarity about the positions of some suppliers who are waiting to see the effects that IMO 2020 has on demand for distillate fuels.
Prices for sales within the region remain 55/t-75/t higher than exports.
The Group II market is still trying to digest the decision of the EU Economic Tariff Group to adopt rolling six-month quotas of 200,000 tons for imports of Group II grades between 150 neutral and 600N. Until now these oils have enjoyed a waiver of the 3.7 percent duty set for petroleum products, but the European Commission decided to modify the situation after the opening of the first large Group II plant within the bloc, ExxonMobils plant in Rotterdam, Netherlands.
The new rules take effect at the start of January, and if imports continue at the same rate as this year, the quota will be breached before the end of February. A number of points have yet to be clarified, such as the basis for setting the product price on which the tariff will be calculated, the body that will count import quantities and whether imports covered under EU trade agreements will be exempt.
Prices for December supplies rose $10/t-$15/t during the past week despite plentiful availability. Values are now at $695/t-$790/t (650/t-730) for 150N and 220N, while 500N and 600N are at $780/t-$815/t (720/t-760). These prices pertain to oils from Europe, the U.S. and the Middle East Gulf, with and without finished lubricant approvals.
Group III grades continue to face downward pricing pressure because of surplus supply. In addition, demand is wavering due to the seasonal downturn in blending operations.
Values for grades with partial slates of approvals are at 655/t-730/t for 4 centiStoke and 670/t-745/t for 6 and 8 cSt, basis FCA ex hubs in Northwestern Europe or CIF for material delivered in flexitanks. Rates for fully-approved Group IIIs are at 745/t-810/t for 4 cSt, 775/t-845/t for 6 cSt and 760/t-825/t for 8 cSt.
Baltic and Black Seas
Baltic exports remain dismally slow with no signs that December will bring a material change. Russian refineries have been able to sell to local markets, including Ukraine, at higher prices than Baltic resellers and distributors have been willing to bid.
This means that with low stocks in tank, opportunities to reach into export markets will be limited, and there will only be a few cargoes moving from the Baltic loadports to Antwerp-Rotterdam-Amsterdam, and a couple parcels shipping to the United Kingdom for the second half December.
The options being talked about for Nigeria appear to have been put on the back burner, perhaps due to the lack of material available at workable prices.
With only snatches of trades being reported, and most of the limited number of cargoes meeting contractual obligations, prices remain unchanged at $465/t-$490/t for SN150 and $470/t-$498/t for SN500. Russian bright stock is reported around $585/t-$610/t FOB, mainly for quantities in flexi-bags with mainstream spec bright stock in bulk ex Gdansk remaining at $630/t-$655/t FOB.
Russian exports from the STS facility at Kavkaz, Russia, appear to have slowed after the last large parcel loaded for Rotterdam. Given the onset of colder weather, there may be supply issues using the river system to place product aboard the mother vessel at Kavkaz. Prices are still around $455/t for large quantities of SN500 and $435/t for SN150.
Mediterranean Group I offers continue to be made to Turkish receivers who are still inclined to import from Greece and Italy rather than accept higher priced Group I base oils from the local refinery at Izmir. The only advantages of locally procuring these grades is that they can be paid for in Turkish lira and they can be lifted or delivered in smaller truckload quantities, thus avoiding any large inventory build-up.
A couple of months ago this refinery was desperate to move stocks and was trying to dump product into the export market. The supply scene appears to be better balanced now with no major activity to reduce inventory before the end of the year.
Mediterranean Group I prices are indicated at $554/t for SN150 and $562/t for SN500, both on a CIF basis. SN600 is offered at around $570/t and smaller quantities of bright stock at around $695/t.
Traders and resellers are offering Group II and Group III base oils on an ex-tank basis from Turkish ports, priced at $740/t-$760/t for Group II grades and $785/t-$820/t for partly-approved Group III base oils. The sources for these Group II and Group III base stocks are wide and varied with some Group II material coming from the Far East and some Group III from Middle East Gulf sources. Group II is also being imported from Europea and the U.S.
Middle East Gulf
Red Sea sources report a number of large cargoes are being and will be loaded later in December for receivers in India and the United Arab Emirates from Yanbual Bahr and Jeddah, Saudi Arabia. Receivers in the Mediterranean have also been targeted for supplies of Group II grades coming from these locations, although no shipping inquiries have been confirmed yet. The inquiry to move Group I base oil from Jeddah to West Africa has finally been taken off the table; some shipping sources said this route would be very difficult for major shippers operating vessels in the Red Sea regions.
There are no signs of Iranian Group I exports through the traditional channels in Bandar-e Emam Khomeyni and Bandar Bushehr,but Middle East Gulf sources said material is crossing the Iraqi border on the way to receivers in Syria. With U.S. sanctions still very much in place, base oils exported by truck are a viable alternative to pulling back on production.
Information about prices is only rumor, but these oils appear to be selling more expensively than traditional exports, with delivered rates above $700/t heard for premium SN500. FOB or FCA prices for premium SN500 are said by U.A.E. and Indian sources to be $525/t-$540/t, a bit higher than previously reported.
A 12,000-ton cargo of Group I base oils offered from a U.S. East Coast source has been directed to the West Coast of India, diverting from discharge into U.A.E. receivers. Offered prices for SN500 were around $569/t, on a CIF ex U.A.E., and a similar price tag is assumed for the West Coast of India. SN150 was indicated around $566/t and bright stock around $676/t, CIF Sharjah, U.A.E.
Group III base oils form Al Ruwais, U.A.E., and Sitra, Bahrain, remain around the same notional FOB levels as previous ly reported. Although prices are under pressure in markets such as Europe, no adjustments will be made as yet to notional FOB levels. Prices for grades with partial slates of finished product approvals are assessed at $650/t-$690/t for 4, 6 and 8 cSt oil being sold into Europe and the U.S. Eight cSt bound for India and the Far East carries lower prices.
Group III oils from Sitra with full slates of approvals are priced at $760/t-$855/t for all three viscosity 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 dipped this week, contrary to the moves happening in the European arena, possibly because a local supplier may be trying to move considerable quantities before the year ends. Group II suppliers from outside the region have not matched those markdowns. Prices for FCA sales ex U.A.E. hub storage remain at $745/t-$900/t for 100N, 150N and 220N, while 500N and 600N are at $755/t-$910/t.
North African news is dominated by two events in Egypt. The first is that Egyptian General Petroleum Co. has issued a bright stock tender for 15,000 tons to be delivered during the first quarter, as usual in a series of 2,500-ton cargoes. The subtle difference in this latest tender is that there are price penalties for any late deliveries. Three cargoes are designated as firm, with EGPC options for further supplies on defined dates during the period of the contract.
The other piece of information is that the El Mex refinery in Alexandria has not restarted, and local sources have advised that there are talks suggesting that the project be mothballed again, with this unit never again producing base oils and waxes.
South African shipping reports suggest that another large European cargo of Group l, Group II and Group III will load during December for February arrival into Durban. Quantities have not been disclosed, although the entire shipment may contain 12,000 tons of oil from two sources.
West Africa, and Nigeria in particular, has gone quiet with little news of any more large cargoes coming from the U.S. Gulf Coast, European or Baltic sources. The Baltic scenario looks bleak at this time, as few Russian export barrels are into that market, although there is still time to purchase a Nigerian cargo ex refinery, in which case the deciding factor would just be FOB price.
Prices for Group I oils discharged into Apapa port in Lagos, Nigeria, are unchanged this week at $630/t-$645/t for SN150, $640/t-$655/t for SN500, $720/t-$745/t for bright stock and $650/t-$675/t for SN900. These values pertain to cargoes of at least 7,000 tons.
Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly email@example.com.