Base oil markets are still struggling to recover from the economic downturn caused by the COVID-19 pandemic, but prices have started to recover, particularly in the API Group I camp.
Group I production cutbacks accomplished over the past few months have started to bite, and rising demand is exerting pressure on the supply chain. The other factor affecting demand for Group I base oils is the large price differential between Group I and Group II prices, which is acting as a deterrent against buyers moving over to Group I. This difference in pricing is narrowing as Group I levels start to rise, but there remains a massive incentive to continue using Group I grades wherever possible.
Crude oil costs are stable to firm, and some commentators predict they will remain at current levels for some time to come. Dated Brent posts at $42.85 per barrel, now for September front month settlement, marginally higher than two weeks ago. West Texas Intermediate has also firmed slightly to $40.15/bbl, still for August front month. The crack is narrower than traditionally seen, even against the backdrop of U.S. markets being depressed at the moment due to the continuing coronavirus situation.
ICE LS gas oil prices have moved upwards to $367 per metric ton, around $20 higher than last reported, perhaps reflecting the increasing use of cars, vans and trucks across the regions as movement restrictions are lifted in many countries. These prices were obtained from London ICE trading late Monday.
The Group I export scene has changed radically over the past few weeks, from a market that was long and affording little margin to a tight market with rising prices and shortages of material. Group I base oil export prices throughout Europe have risen substantially from the lows seen some weeks ago with many buyers expressing concerns regarding future supplies. Some have expressed frustration where regular suppliers have either run down stocks and have little material available, or where traders and distributors have not replenished material from refinery sources due to uncertainty caused by effects of the coronavirus pandemic.
Increases are significant for some grades such as bright stock, which is in limited supply across Europe due to maintenance turnarounds and production cutbacks. Where export prices were right down, levels have firmed, and the emphasis has changed to a lack of availabilities of all grades. Some sources have only certain grades to offer, such as light neutrals, while others have ruled out having any availability during July and August.
Prices having risen between $30 and $50 per ton across all grades, to between $375/t and $420/t for solvent neutral 150 and $390/t-$425/t for SN500. Bright stock in large quantities is tight and is priced at $425/t-$475/t, and demand is increasing by the day.
The arbitrage to export markets in West Africa, the Middle East and of course Turkey, where the Tupras refinery remains closed at least until the end of July, is open, but with limited availabilities around Europe, inquiries are being declined at an alarming rate.
The above Group l export price levels refer to cargo-sized parcels of at least 2,000 tons of Group I base oils, sold on an FOB basis ex mainland European supply points, always subject to availability.
The market for Group I sales within Europe is approaching the summer recess period when many operations traditionally close temporarily or at least move to shorter hours. This year may be different with some major blenders maintaining full production, trying catch up after the restrictions during the peak of the coronavirus spread.
Having lost time and output during that time many blenders are looking to improve sales and cash flow during the next few months, to bolster lost opportunities. Demand is on the rise for finished lubricants with manufacturing and process industries avoiding the summer break and continuing to operate through August
Prices have moved up and from July 1 increases were notified across the board, and with further increases marked for next month there is something of a scramble to buy stocks now rather than wait. There is a spike in demand being caused by potentially higher numbers being applied to Group l base oils from next month. Some suppliers have increased prices on a weekly basis rather than wait until month end.
Prices in this sector of the market were relatively higher than export levels, hence the increases to prices have been less dramatic. Nevertheless these have been substantial with levels rising by some $20-$30 per ton. Suppliers are holding contracted customers to their allocated quantities with no extra availabilities to offer during July and August.
The effect of substantial price increases within the export market, and smaller increases in the domestic markets has narrowed the differential between the two groups of prices. The differential between domestic and export numbers is now assessed between €55-€120 per ton, regional prices being the higher.
Group II prices have firmed, although not in such a dramatic fashion as the Group I slate. These prices were substantially higher previously but are have responding to healthy demand following the coronavirus episode. Levels for Group II base oils have moved upwards by $10-$20, and may move further given the current impetus. The increases are purely down to demand which is positive due to the lack of Group I avails and also the move to higher specification finished lubes which are becoming more and more prevalent throughout European markets.
The announcement from the European Union Tariff Group that the EU import tariff limits for the second half of 2020 will remain at the same level as for the first six months of this year. With the COVID-19 situation muddying the waters for imports, it was felt that the quota should remain as previously set, until normal trading affords the scope to alter the limit. The limit will be 400,000 over the next six months, until Dec. 31.
Group II prices are moved higher, to between $665/t-$700/t (€590-€625) for 150 neutral and 220N, while 500N and 600N are at $695/t-$750/t (€630-€665).
Prices still pertain to a wide range of Group II base oils, including European, and U.S. fully approved grades, but also unapproved or partly-approved grades from Middle East, Far East and the U.S.
Because of the COVID-19 situation certain source suppliers of Group III base oils were hesitant to replace or increase stocks in tank. This in itself has caused a tightening in the market with restrictions on availability for sole players. This in turn has allowed distributors to raise prices by between $20/t and $50/t. With demand rising, replenishment cargoes are on the way into Europe from Far East and Middle East supply points.
Prices are now at €685/t-€695/t for 6 and 8 centiStoke oils and €670/t-€685/t for 4 cSt, all on an FCA basis ex Northwestern Europe hubs.
Prices in respect of European OEM fully approved Group III base oils are also moved higher with levels between €690/t-€725/t for 4 cSt and €695/t-€755/t for 6 and 8 cSt. The wide variations and the low ends of the ranges are where some fully approved material has discounted prices, competing sometimes with partly-approved material.
Also the opportunity for fully approved oils to increase prices is limited compared to the partly-approved products which have greater scope to move upwards in price.
Baltic and Black Sea
Baltic trade has picked up even for this traditionally quiet time of year with a number of large inquiries being placed for Nigerian receivers. Inventories are still not high, and with the Russian and Ukrainian domestic markets showing demand for local production, not all inquiries can be covered. Selling prices are also more attractive to Russian refiners going into these markets.
Prices for those barrels being made available are moved higher with levels assessed at $325/t-$365 per metric ton for SN150 and SN500.
SN150, SN500 and bright stock out of Gdansk are also indicated higher, in line with mainland European prices at around $410/t-$440/t for solvent neutrals, and bright stock at $465/t-$495/t FOB.
In the Black Sea region in Turkey, the refinery at Izmir is still not re-opened. With planned start-up taking place this week, base oils may only become available during the latter part of August. Mediterranean sources are sold out until the end of August in most cases; hence cargoes from Red Sea are considered as an alternative source. Reports suggest one cargo from Greek suppliers offered into Gebze, Turkey.
Indications are that prices have firmed since last reported. They are now assessed at $465/t for SN150, with SN500 at $475/t basis CIF Gebze, Turkey, in cargo lots at 2,500 tons-5,000 tons.
STS supplies from Kavkaz, Russia, are loaded for Greek and Israeli receivers, with STS levels at $325/t-$340/t for SN500, with quantities of SN150 at $320/t-$335/t. Prices rose dramatically due to demand from Turkish buyers for getting any supplies of available Group I base oils.
Group II and Group III base oils ex-tank Gebze, Turkey, have revised prices at $710/t-$770/t for low and high vis Group II grades. Partly-approved Group III base oils were again adjusted at $645/t-$665/t.
It would appear that the incumbent supplier of the Egyptian General Petroleum Corp. tender retained the third quarter supply for bright stock into Alexandria after the tender was re-issued. It is unclear if any other offers came from European Mediterranean suppliers, although at the outset most declined to offer for the 15,000 tons to be delivered during the period of the contract.
Amidst the turmoil caused by the coronavirus in the Middle East Gulf, there are strong reports of a major trader and blender in the United Arab Emirates having trading problems and irregularities with a European banking group. Latest rumors are that this player is sorting out finance with backers and is not in trouble locally or internationally.
Elsewhere in the Middle East Gulf buyers are having problems locating suitable cargoes of Group I base oils on which the region heavily relies. European options are ruled out, and with little or no availabilities coming out of the U.S. Gulf after a number of cargoes were sold into the west coast of India, receivers in the U.A.E. are desperately scouring the market for alternative supplies. Black Sea sources are rekindled as options for supplies, although the latest information is that barrels are coming through the STS facility at Kavkaz, Russia.
An Iranian tender exists for a large quantity of base oils to be loaded out of the southern Iranian ports; however, the results of the tender are not published as yet, and no vessels appear to have been chartered to lift the quantities available. It is thought that U.A.E. buyers will be first in line to take availabilities from this source.
Local U.A.E. sources indicated higher prices for Iranian SN500 at $465/t-$495/t CFR, with SN150 at $455/t-$475/t.
Group III cargoes loaded out of Al Ruwais arrived into Europe and the United States. Although Chinese buyers are reeling once again from the effects of the COVID-19 second spike, a number of inquiries are for cargoes to move from Sitra and Al Ruwais for Chinese ports.
Notional netbacks for exported Group III base oils from Middle East Gulf sources have been lifted higher to levels at $625/t-$675/t for 4 centiStoke, 6 cSt and 8 cSt partly-approved Group III base oils. Group III base oils marketed by Neste out of Sitra are assessed higher. Due to holding the full range of European approvals, these base oils are now assessed to netback at $705/t-$755/t FOB for 4 centiStoke, 6 cSt, and 8 cSt Group III base oils.
Notional FOB prices on a netback basis are based on prices derived and informally assessed from regional selling levels, less marketing, handling and freight costs.
Local supplies from a Middle East Gulf Group II supplier are heard at levels of $495/t for N150, with N500 placed at $565/t.
Mainline prices are boosted with new indications on an FCA basis at $645/t-$725/t for light vis grades 100N/150N/ 220N, with 500N/600N at $660/t-$745/t. Prices depend on quantities and contract terms and conditions.
Partly approved Group III base oils ex-tank United Arab Emirates, delivered from Al Ruwais and Sitra are heard at $590/t-$650/t for 4 centiStoke, 6 cSt and 8 cSt grades.
West African reports contain news of cargoes being organized from the U.S. Gulf Coast and an optional supply from a Mediterranean source. In addition, an option for a Baltic loading may take precedence over the Mediterranean option.
There is no further news on a second cargo to load out of the Baltic, although a loading may be considered for August lifting and delivery.
Prices i of API Group I base oils landed into Nigeria rose in line with FOB increases. CFR/CIF levels are currently assessed at $520/t-$545/t for SN150, SN500 is found at $530/t-$555/t and bright stock, where applicable, at $565/t-$600/t. SN900 is indicated at $565/t-$5580/t.
Prices are for cargoes of minimum 10,000 tons 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 at email@example.com.