EMEA Base Oil Price Report

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As the effects of COVID-19 continue to take their toll on base oil markets, some light may be at the end of the tunnel, which could offer hope that economies may be starting to get back into the swing.

Real fears of a second wave of the virus still persist, particularly for the winter months, and preparations are underway in most of the countries around the world to combat any downsides that may emerge should the virus take hold again.

Base oils have recovered to an extent. Even with the summer recess period well underway, pockets of trade and activity may indicate that come September, business may start to pick up, with many players returning to their offices and factories to promote the steady rise of trade and commerce.

With manufacturing returning to the markets, and industrial processes restarting after the last few months, economists are forecasting that the last quarter of this year will see improved market conditions for many sectors of the economy. Base oils will ultimately benefit from higher demand from the finished lubricant sector, with automotive, commercial and industrial parts of the regions starting to gain ground.

In the meantime, Group l base oils have gone very short, with few sellers able to put together substantial parcels for sale into export markets. The reasons behind this situation are many, with production cutbacks earlier in the year at a number of Group l refineries, some units in turnaround during the holiday time and also regional or domestic markets having increased demand for local products. That has deprived sellers of offering large swathes of Group l base oils for sale into export markets.

Prices for whatever material is available have moved higher, narrowing the gap between Group l and Group ll.

Group ll prices appear to be marking time at the moment, with a real drive starting in September to move more quantities of Group ll base stocks around the Europe-Middle East-Africa regions. Group lll numbers are also firmer, with sellers taking advantage of market conditions to hike prices higher wherever possible, for both approved and partly-approved grades.

With a number of main markets such as Spain and France experiencing what may be secondary COVID-19 infections, and other regions such as South Africa taking a huge hit from the pandemic, a great deal of trepidation and doubt remains about what the next stage and resultant outcome will actually be, since there are more unknowns around the markets than certainties.

Crude prices remained in a relatively narrow range over the past two weeks, but with demand increasing, producers are keen to look for higher prices going forward. Although crude prices were limited in moving forwards directionally any moves were upwards.

Dated Brent is cited at $45.05 per barrel, around $1.50 higher than two weeks ago, but is now for October front month. WTI responded in a similar fashion, moving to $42.10/bbl, only marginally higher than last reported. Prices are for September front month. ICE LS gas oil prices flat lined after moving higher during the latter part of July, and this product now posts at $370 per metric ton in the last couple of days of August front month. This level is a few dollars lower than seen last time around.

Prices were obtained from late London ICE trading on Aug. 10.

Europe

European Group l export prices are almost nominal in that very few suppliers hold stocks of unsold material for August, or even September loading. As mentioned, factors such as production cutbacks earlier in the year, turnarounds, and demand increasing, albeit by a relatively small amount, has caused this market to shorten. Many sellers are expressing disappointment, given the opportunities to move large swathes of material on a relatively prompt basis.

Reports are that domestic and regional markets were surprisingly active during the first part of August. Many players continued to work as normal during this month, trying to play catch-up after the lockdown periods when trade was stopped.

Traders reported difficulties in finding suitable cargoes for traditional export markets such as West Africa and the Middle East Gulf. A number of inquiries were floated for receivers in these regions, but so far very few offers are forthcoming from suppliers.

Some large cargoes are moving, but these tend to be majors repositioning stocks between global supply points, which require inventory top-ups of Group l grades. 

Prices for small quantities of material available moved higher, with FOB prices for SN 150 pushed up to $420/t-$450/t. SN 500 also reflects this trend, now at $425/t-$460/t. With all grades tight, and bright stock perhaps the shortest, this grade is also priced higher at $485/t-$520/t.

Players suggest there may be further scope for numbers to rise, but with a lack of any available large quantities in the market, it is difficult to see this happening in the short term.

The above Group l export price levels refer to cargo sized (minimum 2,000 tons) parcels of Group 1 base oils, FOB, from mainland European supply points, always subject to availability.

Regional and domestic European Group l markets appear to be continuing during August this year, perhaps as a result of time lost earlier in the year during the lockdown periods. This in itself maintained buying interest and sustained demand for Group l grades at a time when normally activity would be slack through August.

Some pockets of COVID-19 infections remain in countries such as Spain and France, which may have dampened normal working to an extent. Perhaps this is just as well, since it may have been difficult for some suppliers to cover additional requirements, had this been necessary.

Prices have moved up again in synch with the export numbers. Although this part of the market saw prices that were substantially higher than export levels, sellers are guided to this part of the market with whatever availabilities are in hand rather than by discount prices to sell into the export markets.

The differential between domestic and export numbers is maintained, assessed at €55/t-€120/t, regional prices being higher.

Unlike Group l, availability of Group ll is good in all areas and regions. Although some suppliers made moves to increase prices from Aug. 1, the market is resisting these moves. Buyers commented that the European market for Group ll base oils is one of the highest priced regions in the world, and that suppliers should be looking to narrow the price gap between Group l and Group ll if they want blenders to make the move over to using more Group ll.

Prices firmed a little, reflecting the small increases put into the market from Aug. 1, and levels moved up by another $5/t-$15/t.

Group ll prices are lifted slightly higher, to $690/t-$730/t (€615/t-€645/t) for the two lighter vis grades (150N and 220N), with higher vis grades (500N and 600N) at $720/t-$755/t (€655/t-€670/t).

Prices are for a wide range of Group ll base oils, including European and U.S. fully approved grades, but also unapproved or partly-approved grades from the Middle East, Far East and U.S.

Group lll sales are buoyant, with a number of buyers looking to take significant stocks of these grades, starting during August and into September. This is thought to be the effect of the return to passenger car production in the main areas within Europe, thus creating demand for factory fill and replenishment motor oils where Group ll base oils have an important role. Both partly-approved and fully approved Group ll base oils are making inroads in the European arena. Suppliers are fully geared up to cover demand, with replenishment cargoes moving from the Middle East Gulf and also from local European production in the Baltic and in Spain.

Prices firmed a little over the past few weeks, with levels at €695/t-€725/t for the range of partly-approved Group lll base oils. Prices are assessed at €700/t-€730/t for 6 cSt and 8 cSt base oils, with 4 cSt grades at €695/t-€720/t. Prices refer to FCA supplies out of Northwest European hubs.

Prices for European original equipment manufacturers’ fully approved Group lll base oils have not moved higher. Pressure is perhaps coming on to these oils from the partly-approved range, which can cover all but the specific formulations used by certain OEMs. Levels remain at €710/t-€760/t for 4 cSt base oils, with 6 cSt and 8 cSt grades at €725/t-€775/t. The wide ranges and the low numbers reflect where some fully approved material is discounted, to compete with partly-approved material.

Baltic and Black Sea

Trading in the Baltic almost came to a standstill, with few Russian export cargoes made available from the ranks of distributors and traders based in the Baltic supply ports. Reports are that Russian domestic markets show good demand, and with regions such as Ukraine upping demand at the same time, there are better margins to be made in selling into those markets rather than discounting to compete for export sales.

This is disappointing for a number of traders, some of whom are looking to purchase large cargoes of 15,000-20,000 tons of various specifications for receivers in Nigeria. Russian export specs could cover a large part of this requirement. With inventories low, and almost all available barrels committed to either prior sales or contract supplies in Antwerp-Rotterdam-Amsterdam and the United Kingdom, there are few opportunities to action any significant trades from this region.

A couple of cargoes are moving to the U.K. and Antwerp-Rotterdam-Amsterdam from suppliers in Kaliningrad and Riga, and prices for those barrels have levels assessed at $335/t-$375 per metric ton for SN150 and SN500.

SN150, SN500 and bright stock out of Gdansk, if available, are also indicated higher than previously noted, with these prices almost in line with mainland European numbers. These will be at $420/t-$455/t for solvent neutrals, and bright stock at $475/t-$500/t FOB.

Turkey’s refinery at Izmir re-started, but no quantities of base oil are available at this stage. It may be towards the end of this month before any significant on-spec quantities of Group I base oils are made available to the local market. Mediterranean sources report no availabilities until September. Even then, quantities are limited and due to this situation, prices are expected to rise significantly for any offers for product going into Turkish ports.

Indications are now assessed at $480/t for SN150, with SN500 at $495/t basis CIF Gebze, Turkey, in cargo lots of 2,500 tons-5,000 tons.

An interesting cargo was loaded out of the STS facility at Kavkaz, Russia, in the Sea of Azov. This parcel of 3,000 tons is bound for the east coast of the U.K. Although the supplier would normally offer this material from Kaliningrad, it may be that stocks in that location are missing, therefore this supply is being covered from the Black Sea. Freight costs will be significantly higher, but the supplier can tinker with STS rates to adjust to an acceptable landed price in the U.K. 

STS levels are still at $325/t-$340/t for SN500, with quantities of SN150 at $320/t-$335/t. Prices may rise again, with demand from Turkish traders and buyers.

Group II and Group III base oils ex-tank Gebze, Turkey, have prices adjusted this week, with levels now at $720/t-$785/t for low and high-vis Group II grades, with partly-approved Group III base oils moved to $655/t-$675/t. A reported cargo of 3,000 tons of fully approved Group III base oils from Spain moving into Gebze, Turkey, loaded at the end of July.

In Red Sea news the Egyptian General Petroleum Corp. tender was retained by the incumbent supplier. It is not clear if any other parties offered for this contract, since many of the physical suppliers expressed doubt as to the supply of a quantity of 15,000 tons of bright stock over the three months period commencing Aug. 1. The first reported cargo, however, is not scheduled to load until early September, perhaps reflecting a change in quantities required under this tender, due to coronavirus implications in the Egyptian market.

Middle East

Middle East Gulf buyers continue to experience problems in sourcing suitable cargoes of Group I base oils. One cargo may be available out of the U.S. Gulf Coast, but at this stage it is scheduled to discharge at Mumbai anchorage. European sources are not possible until late September at the earliest, which may be too late for some of the receivers in United Arab Emirates.

Buyers in the U.A.E. issued an enquiry to Russian exporters in Kavkaz, Russia, but still await a response. Suggestions are that selling into the Middle East Gulf markets is not attractive for Russian refiners, who have other options at home and close by which yield improved realizations.

Regarding the Iranian tender for the large quantity of Group I base oils, no news was gathered from local sources as yet as to the result – or even the existence – of the tender. Still, no shipping inquiries have hit the market, therefore the assumption is that the tender may have been cancelled or postponed indefinitely.

U.A.E. blenders indicate prices for Iranian SN500 at $475/t-$500/t CFR, with SN150 at $465/t-$485/t.

A large Group III cargo of 12,000 tons loaded out of Al Ruwais for Chinese buyers, this being the first large sortie from this source for some time. With Chinese buyers getting back into the swing after the Covid-19 episode, demand has returned to this market. The supplier from Al Ruwais appointed a new distributor to handle trading in mainland China.

A number of other Group III cargoes are loading out of Sitra for receivers in the west coast of India and mainland China. It is not clear from shipping reports as to whether Bapco or Neste are responsible for the sale of these cargoes, since both have drawing rights from Sitra refinery.

Notional netbacks for exported Group III base oils from Middle East Gulf sources were raised to reflect higher selling prices in various markets such as Europe, U.S., and China. Levels are now assessed to $640/t-$695/t for 4 centiStoke, 6 cSt and 8 cSt partly-approved Group III base oils. The Group III base oils marketed by Neste out of Sitra are assessed higher, but this figure is purely notional, since the ex-tank costs are the same for all parties loading base oils out of Sitra refinery.

Due to holding the full range of European approvals, Nexbase oils are now assessed to netback at $720/t-$775/t for 4 cSt, 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 estimated freight costs.

Group II product from a Middle East supplier is heard in the market at a level of $495/t for N150, with N500 at around $565/t.

Mainline prices are boosted with updated indications on an FCA basis at $655/t-$735/t for light-vis grades 100N, 150N and 220N, with 500N and 600N at $675/t-$760/t. Prices depend on quantities and contract terms and conditions.

Partly approved Group III base oils ex-tank U.A.E., delivered out of Al Ruwais and Sitra, are heard at $600/t-$675/t for 4 cSt, 6 cSt and 8 cSt grades.

Africa

West African markets are awaiting offers for Group I base oils from a number of sources, with Baltic, mainland Europe, U.S. Gulf Coast and even Black Sea considered as potential sources for 20,000 tons of various grades. There are differing specification parameters for some of the requirements, which may require that a vessel two-port loads to effectively cover the requirements.

With Baltic options limited, alternative sources are looked at, with a view to load towards the end of August, with around 17,000 tons of total product. One major’s cargo is being organized from Antwerp-Rotterdam-Amsterdam, with up to 15,000 tons possibly loaded during the first half of August.

Prices for Group I base oils to be landed into Nigeria are appraised higher due to FOB prices from both sides of the Atlantic. This is rising in response to demand and a possible shortage of API Group I base oils.

CFR/CIF levels are now assessed at $530/t-$560/t for SN150, SN500 will be at $545/t-$575/t, and bright stock, where applicable, at $595/t-$625/t. SN900 remains indicated at $565/t-$580/t.

Prices are for cargoes of a minimum of 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 pumacrown@email.com.

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