Prices for API Group I base oils are mostly stable throughout Europe, the Middle East and Africa, thanks to a number of interlinked developments that have altered supply-demand balances - to the point that some sources are even forecasting shortages.
Some refiners have cut back on in favor of making more diesel, while at the same time demand has improved. As a result, Group I margins recovered when crude oil costs took their recent dive.
Group II prices continue to come under pressure after the opening of a large plant in Europe. Large numbers of shipments are also being imported to all three regions, raising prospects of surpluses. Demand for Group II is forecast to rise over the next year, but the chances of it catching up to supply are unknown.
Group III suppliers are fighting for market share. With more producers coming onstream from Far East locations and increasing output levels from Middle East sources, the supply side of the segment is headed for a stormy ride.
Crude oil costs remained relatively weak during the past week, as dated deliveries of Brent dipped below $60 per barrel before rising to $61.55/bbl for August settlement yesterday. West Texas Intermediate fell back to $52.30/bbl for July front month. ICE LS gas oil is now at a level of $557 per metric ton, almost identical to last week but now for July front month. These prices came from ICE London trading late Monday.
Prices for Group I exports from Europe are unchanged this week, despite attempts by some suppliers to impose markups. Buyers still hold the upper hand, although there are reports of many suppliers not having full slates of grades available and traders having to load cargoes from two or more ports. The market certainly is no longer exposed to discounting.
Solvent neutral 150 is not as long as it was a couple months ago and is not priced between $550 per ton and $575/t. SN500 is at $575/t-$600/t and bright stock at $700/t-$740/t. These levels apply to large cargo-sized parcels of Group I sold on an FOB basis ex mainland European supply points, always subject to availability.
Markets within Europe have seen some Group I sellers trying to raise values, but these attempts have been largely unsuccessful because buyers still have purchasing alternatives. The seasonal slowdown is starting, and come July base oil demand should tail off until September. This could increase availability and head off potential shortages.
The differential between prices for sales within the region and exports is unchanged at 65/t-90/t lower for exports.
Having stabilized during the first part of June, Group II prices have come under renewed pressure due to the large quantities of material available throughout Europe. Some sellers are being very aggressive in pricing, offering what would appear to be exceptionally low numbers particularly for new buyers. Whether these levels will be sustained is unknown, as these values may be intended to encourage blenders to switch from Group I to Group II.
Imported material continues to affect prices around the market; some lower priced material is being offered from Far East sources, although the volume that was being imported from the United States has been pared back, perhaps because of price hikes in that market.
FCA selling levels for Group II base stocks are trimmed this week to reflect a weaker market and are now at $720/t-$830/t (640/t-740) for 100N, 150N and 220N and $750/t-$850/t (665/t-755) for 500N and 600N. These levels include all prices heard around the market this week, from small truck loads to larger bulk parcels.
Group III price levels are steady this week, but the overall sentiment around this sector is that prices are moving toward lower levels mainly due to the competition and a temptation for sellers and suppliers to accede to buyers' demands. There is still evidence of heavy discounting for some grades carrying full slates of finished lubricant approvals, at least to certain buyers, and this is causing a knock-on effect with partly-approved grades having to be priced lower to stave off the threat of invasive actions on market share.
Group III prices are holding on within the ranges set last week and remain at 665/t-710/t for 4 centiStoke grades and 675/t-720/t for 6 and 8 cSt. These values refer to partly-approved grades for FCA sales ex hubs in Northwestern Europe.
Fully-approved Group IIIs are assessed at 710/t-840/t for 4 cSt, 800/t-865/t for 6 cSt and 775/t-835/t for 8 cSt, all basis FCA Antwerp-Rotterdam-Amsterdam. These ranges remain extensive, reflecting discounts for fully-approved base stocks from some suppliers, which are almost competing with partly-approved grades.
Baltic and Black Seas
Baltic reports are few and far between with a distinct lack of any upturn in trading out of this region. Demand is muted for Russian export material from these sources, and with lower prices available from the Black Sea, there has been a move to supply export destinations from Kavkaz, Russia, rather than from Baltic supply points. Traditional cargoes that would have gone to Nigeria are now being assessed on Black Sea loading, moving away from the need for a Baltic source.
One player pointed out that bright stock is not easily available from the Black Sea and that the Baltic will be preserved as a source for this grade along with other Russian export SN150, SN500 and SN900. Strangely, the Far East cargo that was loaded ex Baltic was the last large movement out of the area.
There are some cargoes into Antwerp-Rotterdam-Amsterdam and the United Kingdom from Baltic sellers, but this trade is not so prolific as in years gone by, since mainland Europe has enough mainstream Group I product available and also there has obviously been a significant move to using Group II grades in mainland Europe. There is still a Nigerian inquiry being negotiated from Baltic sellers, this perhaps being announced prior to end of June.
Prices are unchanged, with SN150 at $475/t-$500/t, SN500 at $485/t-$520/t and bright stock ex lower Baltic supply points at $700/t-$725/t, all on an FOB basis.
The Black Sea appears to becoming the new hub for Russian export sales. There is news of more large cargoes to be loaded ex the STS facility at Kavkaz. Large cargoes are now being considered for Nigeria as well as the U.S., the United Arab Emirates and South Africa, these are in addition to the traditional supplies to Rotterdam and the West Coast of India. Low prices are the attraction, and in an area where once shipping was difficult to arrange, this appears to have been turned around with a number of suitable vessels available for West Africa and other destinations.
STS prices for Kavkaz supplies are assessed at around $475/t for SN500, $465/t for SN150 and $525/t for SN900.
Turkish base oil prices have not moved this week with new Group I offers for imported cargoes from Azov, Russia, Northwestern Europe and the Mediterranean. Prices heard during last week for offers of Group I base oils, basis CIF Turkish ports, are at $583/t for SN150 and $598/t for SN500. Bright stock, available only on an indication basis, is at $760/t.
Middle East Gulf
Red Sea traffic indicates a number of cargoes moving from Yanbual Bahr and Jeddah, Saudi Arabia, to India and the U.A.E. There is another inquiry posted for supply of Group I grades into Aqaba, Jordan, which is uncovered as yet. The movements from Yanbu into Turkey and Greece are considered to be offers for Group II that have yet to be confirmed by buyers. The other side to supplies out of Saudi Arabia is a 5,000 ton cargo coming into Yanbu from South Korea, which is assumed to be Group III supplies from an affiliated company.
Middle East markets are getting back into the groove after the Eid holidays, with trade picking up. The Iranian situation is becoming more difficult to report, and given the announcement that Iran will break the nuclear accord with the European Union within 10 days unless U.S. sanctions can be lifted, the conflict has stoked flames of doubt about any material coming out of that source.
There are still reports that Iranian base oils are being exported to U.A.E. and India, but getting confirmation from either side is nigh impossible. One source reported early this week that they had received an offer in local currency for Iranian SN500 at a price equivalent to $594/t FOB.
U.A.E. receivers are now looking at the possibility of another cargo of Russian base oil that would load ex Kavkaz. This is in addition to the cargo currently due to load this week from the same buyers. CIF prices in the U.A.E. are at $544/t for SN150 and $549/t for SN500.
Group III cargoes continue to load ex the U.A.E., Bahrain and Qatar, with notional FOB values ex Al Ruwais, U.A.E., and Sitra, Bahrain, unchanged. Prices may start to come under pressure from lower selling levels in export markets in the Far East and Europe, but so far there had been a reluctance to adjust selling levels.
FOB numbers are maintained at $685/t-$725/t for 4 and 6 cSt, but 8 cSt grades moving to India and China will have lower FOB levels due to local selling prices. Fully approved oils marketed by Neste from Sitra carry a premium, though the company continues to discount some prices within prime European markets. The purpose of those discounts is unclear from any market reports. FOB levels remain in the wide spread due to the variations between regional markets and are at $725/t-$875/t for 4, 6 and 8 cSt grades delivered into the European and U.S. markets.
Nominal FOB prices on a netback basis are based on prices extracted from regional selling levels, less marketing, handling and freight costs.
Group II prices within Middle East Gulf regional markets fell this week after reports of some extremely low prices being offered for relatively small parcels. The sources for these offers are not confirmed, but it believed that they may stem either from the Far East or from a Red Sea supplier. Selling prices FCA ex U.A.E. hub storage are at $795/t-$900/t for 100N, 150N and 220N, while 500N and 600N are at $815/t-$920/t. The low ends of the spreads are changed to reflect the offers heard this week.
The Egyptian General Petroleum Corp. third quarter tender has now closed, and the results will be announced before the end of June. The option is for almost 12,000 tons of bright stock to be supplied during the quarter, starting from July 1. Bidders and physical suppliers are not disclosed at this stage. North African receivers will take a number of Group I cargoes ex Livorno, Italy, in addition to supplies of Group III material from Cartagena. Supplies of Group I base oils are also marked to come out of Augusta, Italy, for blenders in Algeria.
There is an inquiry for South African receivers to take a large parcel of Russian base oils ex Kavkaz. This would be a first time cargo of this material, and it is possibly being arranged through traders supplying local third-party resellers in Durban.
The news that a Black Sea cargo is under consideration for Nigeria makes ultimate sense, based on the availability of large quantities of Russian exports coming out via this route rather than from the Baltic, where traditionally these grades would have been loaded.
With the choice of vessel perhaps more limited and a longer sea passage, the Black Sea may not be the optimum source from a freight viewpoint, but with exceptionally keen STS prices on the product, this may be the opening of a new arbitrage for base oils. At the same time, there is also a possibility for another Baltic parcel to load, since the full range of Group I grades may not be available ex Kavkaz.
Group I prices for cargoes moving into Nigeria are starting to firm up due to slightly higher FOB levels at points of origin. Values remain at $685/t-$700/t for SN150, $700/t-$720/t for SN500 and $885/t-$925/t for bright stock, all on a CIF/CFR basis Apapa port, Lagos. SN900 is assessed at $725/t-$750/t.
These prices refer to large cargoes of at least 10,000 tons landed into Nigerian ports.
Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly email@example.com.