European, Middle Eastern and African base oil markets were rocked by large price hikes caused mainly by a lack of available products for blenders and traders. Relationships between buyers and sellers have become all important in maintaining supplies on agreed terms and under contract. Spot supplies are something of a rarity these days, with some trades being booked up to three months in advance and values being index linked to trade reports.
Most affected were the API Group I camp, with reports of sellers declaring zero availability of most of the grades through April and now into May and June. Prices rose dramatically over the past two weeks, with one of the basic problems being when blenders committed to supply finished lubricants at agreed prices back some weeks or even months ago. These operations are now faced with purchase prices that have more than doubled in some cases, leading to re-negotiations and force majeure declared in situations where no, or little material, is to be found.
The problems stem from the shortage of feedstocks that has come about due to refiners cutting back on production of transportation fuels during the pandemic, with the effects of the subsequent lockdowns cutting demand for these products. The production of distillate fuels is vital to feedstocks made available for the production of base oils.
Closely behind the Group I situation comes the supply of Group III grades, with many areas of the market declaring allocation systems and restriction to supplies to all buyers.
What is not apparent at this time is why demand suddenly spiked, although many comments were received during last week, which indicated that demand has not lifted significantly – it is merely the lack of availabilities that created a supply imbalance, which will only improve when refineries are back producing more transportation fuels, and therefore have the availability of feedstocks required to produce base oils. It must be added that some base oil production facilities do have dedicated feedstock sources and are able to maximize production up the available quantities of feed.
Group II base oils also shortened up, perhaps because of an increasing number of operations electing to switch to these grades, because of a lack of Group I oils and also due to the new ACEA regulations that will come into the pan European markets towards the end of the year. Those regulations will require higher specification formulations, which will mean increasing use of Group II and Group III base stocks.
One additional factor causing prices to rise is that crude has firmed to new higher levels, and this raw material cost increase has caused petroleum product prices to rise.
Dated deliveries of Brent crude settled around the mid-$60s level after breaching $70 per barrel a couple of weeks back. This crude now posts at $64.60 per barrel for May front month. West Texas Intermediate crude is also on a plateau at $61.85 per barrel, now also for May front month settlement. ICE LS Gas Oil as a petroleum product indicator has substantially higher prices than from a time in May last year when it was listed at around $220 per metric ton. This material has steadily risen to now record at a price at $514/t, more than double the price from that low point in 2020.
Prices were obtained from late London ICE trading on March 22.
In the last report from this source, prices increased steadily, and new highs were established. Has the report been written some three or four days later prices would have been seen to have risen even faster in reaching new highs.
European Group I FOB export prices made huge moves around two weeks ago, with buyers struggling to find sources that were able to offer any material on a spot prompt basis. With turnarounds still planned for the next few months, this situation is not going to improve until after the turnarounds are completed and refiners return to higher run rates, hopefully with the easing of lockdown restrictions. This situation is not entirely clear due to the varied vaccine rollouts across Europe and the imminent threat of a third wave of COVID-19.
Prices firmed dramatically, in some cases for some grades by more than $100/t-$150/t. Bright stock and the heavier neutrals took the brunt of the rising market. SN150 prices are now at $985/t-$1,025/t, with SN500 hiked to $1,075/t-$1,120/t. Bright stock prices rose to new highs at levels at $1,490/t-$1,560/t, the highest levels for this grade ever seen in the market. Even with crude at its peak at around $120 per barrel some years back, bright stock prices were sub $1,300/t on an FOB basis.
Bulk Group I export prices refer to cargo sized – minimum of 2,000 tons – parcels of Group I base oils, FOB from mainland European supply points, always subject to availability.
Rapidly moving export prices ultimately affected domestic or regional prices throughout Europe, since these local prices lagged behind export levels up to some three weeks ago. Things changed, with this market playing catch up to exports.
Regional Group I prices around Europe were lifted, with sellers announcing increases at $200/t-$300/t, since as an option export buyers were, at that time anyway, willing to pay higher prices to lay hands on any available barrels.
Buyers had to accept offered prices, since the alternative is to be without an allocation of supplies. With many blenders’ order books full for the next few months, there are not many alternatives other than to pay up. Some have seized the opportunity where Group I prices have now come into line, or are even higher than Group II levels, to make the transition to using Group II grades where possible.
Buyers have bitterly complained that many contracts are linked to export prices, and whilst pricing did not change on a daily basis, changes other than at month-end were instigated with levels being reviewed on almost a weekly basis.
The differential between export and domestic pricing has come down, with indications that export prices are still marginally higher than domestic levels. The differential is assessed at €10/t-€25/t, with export levels higher.
Group II numbers are climbing and have almost adopted the same protocols as Group l. Product is exceptionally tight, with many players suggesting that some avails may have been diverted from local production in Europe to cover a force majeure situation in the U.S. caused by the severe weather a month ago. There also appears to be an increasing uptake within Europe for those not able to lay hands on sufficient quantities of Group I base oils. All these aspects combined appear to shorten this market further.
Prices are pushed higher, with levels assessed at the end of last week to be $1165/t-$1200/t (€985/t-€1,015) for the three lighter vis grades – 100N, 150N and 220N – with higher vis grade 600N at $1295/t-$1365/t ( €1095/t-€1155 ).
Fewer instances of material are imported into Europe in flexies, and this may be down to two fundamental reasons. One is that fewer sources are available at this time to purchase stocks surplus to local requirements, thus restricting opportunities to pick up quantities from various sources around the world. The second is a dire global shortage of shipping containers, which is driving up rates and detracting from margins attached to this type of trade.
However, prices remain 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 Middle East, Far East and the United States.
European Group III markets remain exceptionally tight, with no spot trades recognized anywhere around the market. This is a sellers’ market where prices are almost a secondary issue. The prime necessities are availability and sufficient supplies. Turnarounds still threaten to shorten this market further, although suppliers reiterated that they have stocks in hand to cover “essential” supplies to contracted customers, although one of these suppliers has operated an allocation program for the last two months.
Demand is strong for all Group III base oils, with prices firming further this week for regular and contracted customers only. There are fewer barriers on the fully-approved oils versus the partly-approved, with buyers opting for quality and reputation of the products rather than relying solely on approvals. There were many discussions and trials with additive suppliers to be able to use and often substitute partly-approved products for European Automobile Manufacturers Association ranges of motor oils.
April price offers were readily accepted by buyers who are keen to cover requirements rather than haggle on prices, with offer levels easy to sell.
Levels are re-assessed this week with price levels at €1,080/t-€1,150/t for the range of partly-approved Group III base oils. Prices are placed at €1,130/t-€1,150/t for the 6 cSt and 8 cSt grades, with 4 centiStoke grades at €1,080/t-€1,100/t. Prices are for FCA supplies from Antwerp-Rotterdam-Amsterdam hubs.
Those Group III base oils holding full European OEM approvals are also moved higher, with prices now at €1,125/t-€1,175/t for 4 cSt base oils, with 6 cSt and 8 cSt grades at €1,195/t-€1,235/t.
Prices are expected to rise again should insufficient availabilities continue to be a feature of this market, although the prices above are expected to remain in place for April truck sales FCA Antwerp-Rotterdam-Amsterdam.
Baltic and Black Seas
Baltic trade is changing at least to some extent, with a number of deep-sea cargoes announced this week. Two cargoes, each of 3,000 tons, are moving to U.S. Gulf Coast from the Baltic load ports Riga and Liepaja. These are in addition to a parcel of around 5,000 tons, which is being planned for loading during this week for Nigerian receivers in Apapa.
There is also a shipping enquiry on the market for a large slug of possibly up to 12,000 tons to load out of Kaliningrad for Singapore. This operation was spotted previously with the supplier often loading out of the Black Sea as an alternative.
Only one short-sea trade was identified loading out of Svetly terminal for a Northwest French port. The parcel of 3,000 tons loaded around a week ago, and although no other smaller parcels are nominated for Antwerp-Rotterdam-Amsterdam, there is understood to be two Baltic inquiries for United Kingdom buyers.
With four Russian base oil producing refineries going into turnarounds, the flow of base oils from these sources may always be in question, although with the lift in FOB selling prices, refinery gate levels have become much more acceptable to producers.
Baltic numbers have had dramatic rises since last reported, with FOB prices moving upwards in line with mainstream European levels, sending FOB number to their highest for many years. Levels are assessed higher, with SN150 moving upwards to $925/t-$975 per metric ton, SN500 now offered at $995/t/t-$1,065/t with small availabilities of min 95 viscosity index bright stock rising to around $1,380/t. Quantities of blended SN900, if at all available, is placed at around $1,100/t.
In the Black Sea region there are some strange potential cargo movements. A Turkish cargo was mooted as moving from Gebze, Turkey, to Singapore, although quite how this figures remains a mystery at this stage. One suggestion from a local source was that material coming out of Izmir refinery could be relatively low in price and thus attractive to traders as an export opportunity for a quantity of some 4,000 tons. This could not be confirmed for this report.
Other Black Sea news had a cargo loading out of Batumi that is expected to be Uzbek Group I grades which have been purchased by receivers in United Arab Emirates. Three thousand tons of base oils loaded during the first week of this month, and April 5 is the estimated time of arrival at Sharjah.
There are no reported Mediterranean cargoes going into the Marmara ports of Gebze, Turkey, and Derince. Buyers suggested that prices have extended too high for them to consider taking material that would take the price of finished lubes to a point where they would not sell in the Turkish market. How long this situation can persist is not clear since Turkish blenders cannot rely on local supplies from Izmir, although production from that unit is reported to be fully back on line after the stoppage in January and February.
Local prices could have remained at the same levels as when production first re-started, which would now make these levels very attractive against Mediterranean imports. Prices set in Turkish lira, using dollar equivalent numbers, were set with SN100 at $900/t, SN150 around $865/t, with SN500 at around $915/t, with bright stock at $1,000/t. These prices were net FCA, with extra loading fee of $16/t. It is rather surprising that prices from this source have not risen in line with European levels.
Offers, although not accepted, for Group I base oils from the Mediterranean pushed higher to around $1,045/t for SN150 with SN500 at around $1,150/t. These levels increased significantly since last reported, taking account of new mainland European FOB numbers. Prices are for offers basis CIF Marmara ports.
The local prices for Group II and Group III base oils on basis of ex-tank Gebze, Turkey, are also moved higher, although there are reports that traders holding stocks bought these quantities at lower prices some time back and that they would still consider selling at what would now be very attractive levels. These are now established at €895/t-€945/t in respect of the low vis Group II grades, with the higher vis 600N at €1,045/t-€1,100/t, although how long these levels will remain valid is uncertain.
Group III grades are price advised by importers to distributors hence these levels have been increased and are assessed at €1,095/t-€1,145/t for partly-approved and fully-approved 4 centiStoke material, with 6 cSt and 8 cSt grades between €1,155/t-€1,175/t.
Red Sea news is thin this week with only one movement announced for a cargo loading out of Yanbu and Jeddah for delivery of 5,500 of Group I grades into a Sudanese port. This cargo was loaded during the last few days. No large cargoes have been reported for the west coast of India or U.A.E., perhaps indicating that prices have moved to levels that are resisted.
There are no reported Iranian cargo moves this week although sources in U.A.E. maintain that material is still moving out of the southern Iranian ports, some going into Hamriyah and some moving into the west coast of Indian ports such as Mumbai and Hazira.
Prices are difficult to assess without firm evidence of material being moved but an estimate would put SN500+ at around $1,065/t, basis CFR Hazira port, equivalent to an FOB level at $995/t/t-$1,015/t. This range may be on the low side, since the reference prices are somewhat historical.
The Middle East Gulf is the export hub of the week, with news of an extremely large cargo which will load out of Ras Laffan in Qatar for a major. This parcel will apparently discharge into three ports, one in the west coast of India, expected to be Mumbai anchorage, the second is located in East Africa, the final port being Durban. A total of 35,000 tons of gas-to-liquid produced Group III+ grades will form this cargo.
Other Group III base oils from Al Ruwais in U.A.E. and Sitra in Bahrain are planned with a large 12,000 tons parcel loading out of Abu Dhabi for European distributors in Dordrecht. Another smaller parcel of 6,000 tons will load from Bahrain for receivers in Singapore.
Netbacks are indicated higher this week at around $1,105/t/t-$1,210/t for 4cSt, 6 cSt and 8 cSt partly-approved Group III base oils. Grades out of Sitra in Bahrain carrying the range of full-approvals will netback higher due to the pricing differential in export markets. These grades may netback at $1,165/t-$1,275/t in for 4cSt, 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 oil prices FCA U.A.E. storage have to be raised to reflect higher re-supply numbers and are now placed in ranges at $1,020/t-$1,045/t for the light vis grades 100N, 150N and 220N, with heavier 500N and 600N grades at $1,135/t-$1,175/t.
The wide range takes account of various base oils supplied from different sources such as U.S. Far East and Red Sea, and which have been delivered into U.A.E. in both bulk and in flexies.
Apart from the large cargo moving out of the Middle East Gulf for East Africa and South Africa with Group III base oils, no further large parcels are loading from Europe at this stage for discharge into Durban, although two cargoes are presently on the high seas for this destination.
West African reports that the supply into Tema has loaded and sailed. The Group I cargo of around 5,700 tons loaded from Rotterdam and Fawley with SN150, SN500 and bright stock.
Another cargo will load out of the Baltic at the end of March following the first 5,000 ton-parcel, which should arrive in Apapa sometime next week. Prices for the second cargo will certainly be at higher levels. The large cargo loaded out of Aghio during the last week of February should shortly discharge in Apapa. This parcel of some 13,000 tons total Group I grades will be followed by another similar sized cargo loading on a prompt basis from the same source. The two cargoes will discharge some 26,000 tons into the Nigerian market. The current demand for SN900 is particularly high, outstripping availabilities by a factor of 10.
SN500 is also tight. Since these cargoes will be received by multiple buyers there may have to a proportionate allocation of the grades in demand.
CFR/CIF offer levels for Group I base oils landing into Apapa in Lagos during April are now around $1,175/t for SN150, SN500 at $1,375/t, with higher specification SN900 with minimum viscosity index of 95, at around $1,450/t. Bright stock remains unavailable in any large quantity.
These days sellers have options for various markets in which to sell the cargoes they are able to procure. So there are suggestions that if Nigerian buyers do not accept the prices offered, there may be alternative destinations for large slugs of API Group I base oils.
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.
Historic and current base oil pricing data are available for purchase in Excel format.