EMEA Base Oil Price Report

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With most of mainland Europe and key locations in the Middle East and Africa still in some form of lockdown, economies are contracting, eroding demand for finished lubricants or base oils.

However, progress toward one or more vaccines is buoying hope that 2021 will bring a much improved market that benefits all regions. Improvements may come faster than predicted with some players suggesting that there may be a mini-boom before the end of the year.

The justification for this spike may be that refiners may have turned the corner, looking to produce more transportation fuels for the first quarter of next year. This in turn will increase the quantities of feedstock available for secondary production of specialties such as base oil and waxes.

Demand may start to develop for API Group II and API Group III base oils, pushing these grades to the forefront of a different market by the first quarter of 2021. For now, this remains conjecture, though, since there are many hurdles to overcome before a restoration to pre-pandemic normality. 

Crude oil has made something of a comeback as prices climbed higher perhaps due to demand picking up in key markets such as China and the Far East. Stocks have fallen to lower levels, and this trend is expected to continue through year-end when accounting rules traditionally dictate that inventories should be kept to a minimum. This year that could set the scene for an early rise in demand come January.

Dated deliveries of Brent crude rose to $44 per barrel, around $6 higher than last reported, this level now being for January front month settlement. West Texas Intermediate crude also firmed and is now posting at $40.50 per barrel for December front month.

ICE LS gas oil prices have risen by around $35 per metric ton since the last report to $352.25 per metric ton, now for December settlement. These prices were obtained from London ICE trading late Monday.

Europe

European export prices for Group I base oils have flattened and are reported as steady. This stability may be due to the market running out of steam over the past few weeks, sellers having limitations on quantities available, whilst at the same time buyers are unable or unwilling to offer cargoes to export destinations, many of which have closed down or are severely restricted.

There are pockets of demand arising out of the mist, with South American buyers, Brazil in particular, looking for Group I base oils. This is partly due to a lack of availability in the local market, but also because of move to higher demand for these grades in the region.

FOB levels for Group I grades are around the same levels as last reported with only small movements in certain offers heard from Mediterranean suppliers, mainly for offers to receivers in Turkey, where values have been tweaked slightly higher on account of the local prices from the refinery in Izmir.

Solvent neutral 150 remains between $640 per ton and $680/t, while SN500 and SN600 are at $675/t-$700/t. Bright stock remains elusive, with only one offer heard at $735/t-$775/t, the same levels as previously noted.

The above values apply to Group I cargo-sized parcels of at least 2,000 tons, sold on an FOB basis ex mainland European supply points, always subject to availability.

Prices for Group I sales within Europe also remain flat as much of the energy has been taken out of markets when countries moved into their various forms of lockdown. Those blenders still operating are not really in the market to purchase large quantities of Group I base stocks since most are existing on a hand-to-mouth basis. Those contacted this week almost unanimously announced that they would not be laying down stocks of any size, at least until the new year.

The early November increases that were posted by many sellers have since eroded – in some cases falling below those that were in place at the end of October. There is resistance by most buyers to accept any increases at all, since some sellers have told their customers that product is short and supplies are tightening all the time. Buyers are unfazed by such talk and have resolutely decreed that they will not accept any markups.

The markets have settled down, and even with year winding down players seem reluctant to get excited about establishing supplies of Group I grades through the end of next month. With many operations reducing hours, the scene is set to be played out in this vogue until January comes along.

The differential between regional and export prices is maintained at €35/t-€85/t, the latter being higher.

Group II prices throughout Europe have also remained relatively static, but comments received this week suggested that demand has been knocked sideways over the past few weeks. Some suppliers expressed concerns regarding high stocks in tank, and few takers are willing to accept large quantities of Group II grades. This may in part be down to the practice of reducing year-end inventories.

Some are suggesting that prices are under downward pressure in the European arena, partly because numbers tend to be lower in some other regions of the world and partly because the large differential between Group I and Group II values, even after the recent lift in Group I. Finally, if suppliers want prospective customers to transition from Group I to Group II base stocks, the deal has to be attractive.

Prices remain around the same levels as the previous report at $800/t-$850pmt (€680/t-€725) for 150 neutral and 220N, while 500N and 600N are at $865/t-$890/t (€740/t-€760). These prices apply to a wide range of Group II oils, including those from Europe and the United States with full slates of finished product approvals as well as those from the Middle East, the Far East and the U.S. with partial slates or no approvals.

Most suppliers in the Group III market have seized the opportunity to restock supply hubs during the past couple weeks, sending large quantities into Antwerp-Rotterdam-Amsterdam and other ports in Northwestern Europe. Quantities from the Middle East Gulf, Malaysia, Finland and Spain have been restocking storage tanks at the delivery hubs.

But sources say sales for these grades have fallen over the past couple weeks. It is not expected that demand will return before year end since strict lockdowns may continue within mainland Europe.

The fall-off in the Group II market does not appear to have dented Group III values, which if anything have firmed. Maintenance turnarounds are scheduled at two major European Group III plants, so the market had expected that the supply situation would tighten during the first quarter of next year, but that looks unlikely now.

Prices rose by some €5/t-€10/t to €720/t-€740/t for 6 and 8 centiStoke grades of partly-approved Group IIIs, while 3 and 4 cSt are at €715/t-€735/t, all on an FCA basis ex Northwestern European hubs.

Prices for fully-approved Group IIIs holding European OEM approvals also moved higher and are now at €765/t-€790/t for 4 cSt and €790/t-€810/t for 6 and 8 cSt.

Baltic and Black Seas

A couple of Baltic movements occurred, but in the main these are coming out of Gdansk in the lower Baltic. One other cargo of some 4,500 tons moved out of Kaliningrad around the beginning of this month, but no other parcels were identified as either real or potential cargoes. In fact a couple of base oil cargoes moved into the Baltic ports of Riga and Klaipeda. The former consisted of a small parcel of re-refined oils from Hamina.

Indication prices are still issued by sellers, but these indications refer to cargoes that might be around for January, since there is no prompt availability of Russian export barrels. The prices are high, compared to last seen numbers, suggesting that suppliers would have to bid at higher levels to attain supplies from one of the Russian refineries.

FOB indication levels remain as previous, with SN150 priced at around $625 per metric ton, SN500 around $640/t and BS 150 at $735/t. Base oils SN150, SN500 and quantities of bright stock out of Gdansk are priced in line with mainstream European prices, or perhaps just under those levels, with solvent neutrals maintained at $635/t-$685/t and bright stock around $720/t-$760/t FOB.

Black Sea news contains reports of a few cargoes offered from Mediterranean sources for receivers in Marmara ports such as Gebze, Turkey, Derince and Gemlik. These offers suggest that blenders in Turkey are not able to cover all requirements from the single source at Izmir. It was rumored that production, after start-up, was not running at optimum levels; hence, there may be a need to take alternative supplies from Mediterranean suppliers. Two of the offers came from Greek suppliers, whilst the other is based on a supply from Livorno.

Group I grades out of the Mediterranean are expected to be priced at around $695/t, $735/t, and $820/t on a delivered basis CIF for the three Group I grades – SN150, SN500, 600 – and bright stock if loaded.

The continuing problem in Turkey is the exchange rate for the Turkish lira against the U.S. dollar. Prices FCA Izmir refinery are unchanged for the range of Group I grades. These prices are updated regularly, mainly because of the changing exchange rate. An update is expected for the next report.

Prices in TL remain as SN150 at 5,024/t ($596), SN500 is at TL 5,394/t ($640) and bright stock at TL 5,809/t ($690). In addition, a loading fee of $11/t, plus various duties and taxes, must be added to arrive at eventual prices delivered. Final numbers are assessed at $914, $965 and $1,023, respectively, for the three grades.

No reported Russian supplies are seen moving to Turkey, or from the STS facility at Kavkaz, Russia. Indications for Kavkaz, Russia, STS prices moved a little higher to $555/t-$575/t for SN500, with SN150 at around $520/t-$545/t.

Group II and Group III base oils are available on an FCA basis from distributors in Gebze, Turkey. They have price levels at €760/t-€830/t for low and high vis Group II grades, with partly-approved Group III base oils higher, at €745/t-€790/t. Fully approved Group III material is heard ex-tank at levels of €805/t-€830/t.

Middle East

Red Sea news contains reports of cargoes moving out from Yanbu and Jeddah, with one exceptionally large parcel of 24,000 tons planned for loading during November. At the same time a 5,000-ton cargo is loading from South Korea to discharge in Yanbu. The latter will consist of Group III grades from the Saudi supplier’s sister company in Ulsan.

Middle East Gulf regions are basically locked down, with very little trades carried out by those trying to make the best of things. Hopes continue that one of the vaccines being made available for Iran and other Middle East Gulf countries, but at this time the situation is grave in Iran, where record numbers of cases are reported by the national news channel.

There are no Iranian exports of base oil at this point in time. Sources in India, who used to take regular shipments from Iran, commented that no base oils will move out of the Iranian market for the foreseeable future. Prices for notional Iranian supplies of SN500+ are still indicated in the United Arab Emirates at around $660/t-$685/t delivered. CFR United Arab Emirates SN150 is also indicated at $625/t-$655/t, but what these numbers actually refer to is anyone’s guess.

More large Group III cargoes were notified as loading out of Al Ruwais in the U.A.E., Sitra in Bahrain and Ras Laffan in Qatar. The large Qatari parcel will head to the west coast of India, whilst the parcel out of Al Ruwais will discharge in Karachi. The loading out of Sitra will deliver some 5,000 tons+ Group III grades into Houston for a distributor based in the United States. The cargo out of Sitra is possibly under the Neste banner, since neither Bahrain Petroleum Co. nor Stasco, both of whom lift material from this source, have distributorships in the U.S.

Notional netbacks for Group III base oils out of Al Ruwais and Sitra, are maintained as per last report, and remain around $695/t-$750/t for 4 cst, 6 cst and 8 cst partly-approved Group III base oils. Fully approved Group III grades, from Sitra and marketed by Neste, will provide improved netbacks due to higher selling prices in local markets. Assessments are that these grades will netback at $775/t-$825/t 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 estimated freight costs.

Group II base oils on basis FCA U.A.E. remain unchanged this week with levels at $720/t-$795/t for light vis grades 100N, 150N and 220N, with heavier 500N and 600N grades at $755/t-$840/t. The wide spread of this range takes into account various quantities from different sources, in both bulk and in flexies, with differing contract terms and selling conditions.

Africa

The ongoing civil strife in Nigeria shows little signs of abating, although sources suggest there was at least a partial return to transacting trade. Traders maintain their cautious stance when looking at sending Group I base oils to Apapa port. At that port, there exists the real possibility of demurrage on the vessel carrying the cargo, with port access still restricted by local government and the military.

One cargo due to load between Nov. 5 and Nov. 10 is still unconfirmed, with the final quantity not yet disclosed. The cargo could have been anything, from 5,000 tons of three grades, up to 11,000 tons of the same three grades – SN150, SN500 and bright stock.

Prices for API Group I base oils offered into Nigeria are maintained, after re-assessing numbers in the last report The higher levels reflect higher FOB rates applicable at the time of offer. These levels will also take into account a buffer added to prices to cover the possibility of demurrage.

CFR/CIF remain at $795/t-$825/t for smaller quantities of SN150, and SN500 lies at $820/t-$840/t. There are still no reported offers for SN900, but sources indicate that selling levels would be at $845/t-$860/t, should material be available. Bright stock continues to be indicated at around $895/t.

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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