EMEA Base Oil Price Report

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The coronavirus again holds center stage. With the emergence of variants from the United Kingdom, South Africa and Brazil, many countries have again imposed various forms of lockdowns and restrictions on travel and trade, creating more trials and difficulties for the base oil industry.

There are still requirements for all forms of lubricant, although sectors such a transportation, industrial and travel have all been negatively affected by the pandemic, with demand falling in every sector.

At this time of year API Group I base oils would normally be buoyed by rising seasonal demand, but with limited spot availabilities. That perhaps affects the export markets more than regional sales, which tend to be contracted over time. Refineries also report lower than normal inventories. At the same time, production is limited by the availability of feedstocks. That’s due to cutbacks on distillate fuels because of lack of demand from transportation sectors.

Supplies for Group I grades are tight, and this will probably continue at least through the first half of 2021.

Group II also sees limited availabilities, with demand rising for these grades because of the new raft of higher specification lubes required. Also in Europe imports are down, with suppliers from the United States and the Far East preferring to support new opportunities in South and Central America, where margins are higher. Domestic production for Group II grades is also only running at around 75% of nameplate capacity, perhaps because of the perceived downturn in demand due to the coronavirus.

Group III is also facing a tough year, with two major suppliers in Europe about to go into turnaround. These producers hold full European OEM approvals for their base oils. Pressure is also building on supplies of Group III base stocks, with markets in India, China and the U.S. all upgrading lubricant formulations to meet tougher emission standards. Demand is thus growing in those markets, placing supply pressures on availabilities of both fully-approved and partly-approved API Group III oils.

Crude oil prices appear to have plateaued, with levels almost identical to two weeks ago. Some small transitional movements up and down occurred during the past couple of weeks, but no significant variations took place during this period.

Dated deliveries of Brent crude are found at $55.10 per barrel, only 10 cents adrift from last reported, this level being for March front month. West Texas Intermediate crude echoed these moves and now sits at $52.25 per barrel, now also for March front month settlement.

ICE LS gas oil prices are marginally higher by $4 per metric ton, but this small differential merely confirms that markets are relatively stable. ICE Gas Oil posts at $450/t.

Prices were obtained from late London ICE trading on Jan.11.

European Group I export prices are firmer, with the market showing limited availabilities for these grades. Sellers are taking every advantage of this situation to apply upward pressure by squeezing prices by further $30/t-$50/t in any sales being negotiated. Another anomalous situation occurred for European export prices in that they now post higher than domestic or regional prices for Group I grades. This is most unusual, but reflects shortness in the market for substantial quantities of these base oils.

SN150 numbers are therefore pitched higher, with FOB levels moving upwards to $740/t-$775/t, with solvent neutrals SN500 and SN600 moving forwards at $800/t-$845/t. Bright stock remains extremely short and has seen levels rising to well above $900/t. One offer was heard quoted at $955/t, although it is believed that the final number was perhaps around $10/t below this level.

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

European domestic markets also saw Group I prices rising. But with second half January prices agreed on during the second week of the year, these prices remain in place until the end of the month. Talks are around large increases taking effect from Feb. 1, although these have not been finally agreed as yet and will only come to light around the end of this week.

As mentioned, the usual seasonal boost to demand is missing this year, with many enterprises suffering under lockdown arrangements and government edicts of remaining out of the workplace by staying at home.

Demand is much lower than would be expected, although some blenders commented that they had requirements for quantities of base oils due to commitments for finished lubricants orders to be met during the second quarter of the year.

The differential between domestic and export prices is reversed this week, with export levels moving ahead of regional prices. The differential is now assessed at €25/t-€50/t, but with export levels higher.

Group II price levels are firmer, with levels rising constantly during the first half of January. There are talks of further increases come either this week in the case of one major suppliers, and from Feb. 1 in the case of others. Demand is high for Group III grades, perhaps because of the moves to higher specifications in formulations for passenger car motor oils and heavy-duty motor oils in particular. This could also be an effect from the scarcity of Group I base oils, forcing some blenders to move across to Group II as an option.

Prices are lifted this week in anticipation of new levels coming in at the beginning of February. Levels are assessed at $935/t-$975/t (€772/t-€805) for the two lighter vis grades of 150N and 220N, with higher vis grade 600N at $1,050/t-$1,090/t (€868/t-€901).

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

In Europe, Group III markets face real supply problems, with two of the main fully approved players going into turnaround in the next couple of months. The producers in Finland and Spain are currently building stocks to cover the period of maintenance, thus shortening up the market further.

Another factor in this scenario is new finished lubricant formulations have approved the use of Group III+ base oils as a substitute for polyalphaolefins. This in itself will increase demand for these “top-shelf” base stocks, creating further pressure on supplies.

Although this put pressure on fully-approved Group III grades, partly-approved products may be able to fill the void to some extent. But the supply of these grades is also under extreme pressure for the reasons below.

At the same time upgrades to quality in lubricants produced in markets such as China, India and the U.S. involves increasing use of Group III base oils in blends. This piles more pressure on available quantities of material coming out of existing production from producers in the Middle East, Russia and the Far East.

Price levels remain strong, with firmer numbers at €790/t-€845/t for the range of partly-approved Group III base oils. Levels are assessed at €820/t-€845/t for the 6 centiStoke and 8 cSt grades, with 3 cSt and 4 cSt at €790/t-€810/t. Prices are for FCA supplies from northwestern European hubs.

Group III base oils holding full European original equipment manufacturer approvals are priced at €855/t-€885/t for 4 centiStoke base oils, with 6 cSt and 8 cSt grades at €870/t-€900/t.

Baltic and Black Seas

Russian export barrels seem to have returned to Baltic trade. A couple of smaller cargoes loaded out of Kaliningrad and Liepaja for receivers in east coast United Kingdom. Another parcel of more than 3,000 tons from Riga will load at the end of this month for Antwerp-Rotterdam-Amsterdam.

In addition, a larger quantity loaded out of Liepaja for Nigeria. This quantity was marginal at 5,400 tons, where freight costs are a critical part of the supply economics for material going into Lagos.

A larger cargo of 6,000 tons was booked to load out of Kaliningrad for receivers in Turkey. This supply would perhaps be more efficiently supplied from Black Sea sources by the same supplier. Since the vessel chartered was Turkish flagged, it may be assumed that the vessel was repositioning into native waters and may have offered a “special” freight rate for the voyage. A parcel of around 12,000 tons may also load out of that same port in the next few days primarily for Turkish receivers and then on to Singapore.

Prices followed mainstream European levels, with FOB levels rising to new highs with SN150 at around $695-$725 per metric ton, SN500 around $775/t with minimum of 95 viscosity index bright stock at $895/t. Blended SN900, if available can be assessed at around $795/t.

As predicted in the last report, a reasonably large parcel of Russian export material is to load out of the Kavkaz, Russia, STS facility In the Black Sea with the next few days. The destination of the cargo, however, was not as first thought, with 7,600 tons split among receivers in Sharjah, United Arab Emirates and others in Mumbai anchorage. The relative quantities for each disport are not known at this stage.

STS prices are gauged slightly higher for this current loading, with levels around $695/t-$725/t for SN500, with SN150 at $645/t-$660/t.

A substantial cargo of Group I grades will load out of Livorno around the end of the month for receivers in a Marmara port. This will most probably be into Gebze, Turkey. It is noted that no further offers for cargo of Group I grades are forthcoming from Greek suppliers. This may be due to a large parcel prepared for traders loading for Nigeria in the early days of February.

Group I base oil prices out of Livorno are pushed higher, to around $835/t for quantities of SN150 with SN500 priced at $870/t. Bright stock if loaded out of Livorno will be higher at around $995/t.

Group II and Group III base oils selling FCA Marmara ports had prices raised higher this week. They are now at €800/t-€845/t for low vis Group II grades, with the higher vis 600N at €860/t-€900/t.

Group III grades are assessed at €920/t-€950/t for 4 centiStoke material, with 6 cSt grades at €940/t-€960/t, and 8 cSt material at €960/t-€980/t.

Middle East

In the Red Sea the second half of January saw one large parcel of Group I and Group II grades loading out of Yanbu and Jeddah for discharge into three ports in the United Arab Emirates. Other material in smaller quantities is loading around the end of January for the west coast of India and Singapore.

In Middle East Gulf regions there is talk and rumor as to how serious a situation exists in Iran with regard to coronavirus. Comments received from sources in the U.A.E. suggest that Iran is experiencing wave after wave of the pandemic, and that the situation is out of control. This has a major impact on surrounding countries and in particular the U.A.E.

On the base oil front, no cargoes were identified as sailing from the southern Iranian ports, and no prices were forwarded from sources in the U.A.E. The feeling is that the Iranian economy is on its knees, with shortages of food and medicines. This of course is denied by Iranian contacts, who appear to suggest that normality reigns in that country. No base oil contacts could be reached over the last 10 days.

Group III base oils from Al Ruwais in Abu Dhabi, and Sitra in Bahrain have notional netbacks increased slightly on the back of reports of higher selling prices into markets such as Europe, India and China. Prices in those key markets moved higher, enabling producers to increase notional FOB levels. Netbacks are assessed at $825/t-$865/t for 4 centiStoke, 6 cSt and 8 cSt partly-approved Group III base oils. Fully approved grades from Sitra will provide higher value netbacks due to the pricing differential in global markets. These grades should netback at $885/t-$920/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 base oils FCA U.A.E. storage are tweaked higher. They are now assessed at $875/t-$915/t for light vis grades 100N, 150N and 220N, with heavier 500N and 600N grades at $930/t-$975/t. The wide range takes account of various base oils supplied from different sources – such as the Far East and Red Sea – and that were delivered into the U.A.E. in both bulk and in flexies, with varying contract terms and selling conditions.

Africa

It would appear some progress was achieved in traders finding at least some, or partial, quantities of Group I base oils to form the basis for cargoes going into Apapa in Lagos, Nigeria.

There are reports of at least one Baltic cargo that already loaded around Jan. 22 out of Liepaja. Another smaller parcel is being assembled from Livorno. At around the same time, a large repeat cargo of some 12,000 tons of Group I grades will load from Aghio in Greece around the turn of the month. This may be a similar cargo to one loaded back in December, which discharged in Apapa.

What is surprising is that availability out of the U.S. Gulf Coast appears still to be remote, while at the same time large swathes of material have been on offer from suppliers in the U.S. Gulf for receivers in the west coast of India.

Group I base oil prices for cargoes arriving in Apapa have prices altered to new levels, but further cargoes will reflect much higher FOB levels, as seen from European suppliers. Prices can be expected to rise in excess of $50/t over current levels.

CFR/CIF levels for API Group I base oils landing into Apapa are placed at $875/t for SN150 and SN500 at $895/t. Higher specification SN900 with VI min 95 will be priced at around $915/t. Bright stock, still unavailable, has indications only around $1,000/t.

SN900 is extremely short, with some comments received that only small quantities of around 3,000-4,000 tons were available. Demand for this grade exceeds 30,000 tons right now.

Prices will move higher for cargoes being negotiated presently and all for future cargoes, with prices moving to levels around $935/t for SN150, SN500 at around $955/t and min 95VI SN900 at around $985/t. Bright stock – if at all available for future cargoes in February or March – can be expected to be indicated at around $1,065/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.

Historic and current base oil pricing data are available for purchase in Excel format.

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