The run-up for base oil prices throughout Europe, the Middle East and Africa slowed the past two weeks, but there are few signs of downward pressure. With refineries still operating at reduced rates because of curbed demand for transportation fuels, availability of feedstocks for base oils remains constrained.
Some producers have stated that they are more than happy with the current situation, since base oil shortages have yielded margins rarely seen before in this market.
There are rumors around the markets that crude oil prices may get a further boost from strong economic recoveries taking shape in the Far East and key Western markets. Dated Brent has started to firm early this week with levels moving beyond $67 per barrel. Dated Brent has risen by around $1 per bbl since the last report and now records at $67.70/bbl, now for July front month settlement. West Texas Intermediate rose to $64.55/bbl for June front month.
ICE LS gas oil has moved in the same direction, climbing $10 to $543 per metric ton. These prices were obtained from London ICE trading late Monday.
Prices for API Group l exports from Europe may have stabilized but at very high levels. Availability has certainly not improved, and traders are having to accept smaller cargo quantities from suppliers who are constrained by the tight availabilities for large spot parcels of these grades.
Inquiries are flooding the market, and regular traders are relying on long-term relationships with sellers be able to lay hands on material. Prices are not being negotiated; numbers in offers are being accepted, and those costs are being passed on to receivers in regions such as West Africa and the Middle East Gulf. One trader explained that they are holding inquiries for ten times the available barrels currently in the European market.
Some buyers and receivers are having difficulty passing on current prices. Traders and sellers are placing very limited validities on offers where buyers have to respond rapidly, with no extensions to dates being possible. Quantities are not always what receivers require, and grade selection is currently on a take-it-or-leave-it basis.
Prices for solvent neutral 150 are being seen between $1,395 per ton and $1,465/t, while SN500 has risen to $1,545/t-$1,675/t. Levels continue to firm, although the rate of increases has slowed somewhat. Bright stock remains tight with the only availabilities being those contracted quantities which form part of a regular supply scene. Values have risen around $25 since the last report to $1,925/t-$2,075/t.
Bulk Group l export prices refer to cargo-sized parcels of at least 2,000 tons, available on an FOB basis ex mainland European supply points, always subject to availability.
Prices for Group l sales within Europe rose from May 1. Sellers have notified some buyers of allocations being introduced because of limited availability. Some sellers have limited quantities of as much as 50%, and there is no hint that this picture will start to improve during the next couple months.
Sellers have commented that they do not see base oils becoming more available through the summer months, some stating that they will have limited quantities of material at least until September or October.
With prices rising fast, end users have been particularly unwilling to accept markups and are only paying up when they have little or no choice. Blenders have no option other than to pass on increases applying to all raw materials, not just base oils, Additive prices have also been affected, as have packaging and transportation.
Differentials between export and intra-regional pricing have not changed the past couple of weeks – export levels still remain higher, although from May 1 values are looking remarkably similar. The differential is now assessed between €5/t-€25/t.
Group II prices continue to show strength, reflecting strong demand and limited availabilities. There have been mentions of allocation plans for large buyers, although so far there is no evidence of them being put into place. Price continued upwards the past two weeks and are now selling at a premium to Group l numbers. Availabilities are tighter for Group II material, with some buyers having decided to switch permanently to Group II oils.
These actions could alter trading patterns throughout Europe, and new capacity due to come onstream in a number of Russian refineries could relieve some of the current snugness.
Group II 100 neutral, 150N and 220N are now priced at $1,585/t-$1,655/t (€1,365/t-€1,425/t), while 600N is at $1,695/t-$1,755/t (€1,460/t-€1,515/t). These prices apply to a wide range of Group II oils, including products from Europe and the United States with full slates of finished lubricant approvals as well as oils from the Middle East, the Far East and the U.S. with partial slates or no approvals.
Group III markets within Europe remain tight, with no spot availabilities reported for May and few, if any chances of additional barrels for June. All distributors and suppliers are full committed for these grades through the summer months. Large cargo quantities are bridging between source refineries and distribution hubs. For example, some 24,000 tons in two parcels have been simultaneously loaded from southern Spain for destination Rotterdam.
Prices have firmed again this month, with levels now assessed at €1,395/t-€1,465/t for the full range of Group III oils with partial approvals. Six and 8 cSt grades are at €1,420/t-€1,475/t, and 4 cSt is at €1,395/t-€1,435/t, all on an FCA basis ex Amsterdam-Rotterdam-Antwerp. The differential between partly- and fully-approved grades has largely disappeared as many buyers not overly concerned regarding approvals, so long as quality and specification are assured.
Group III base oils holding full slates of European OEM approvals are selling slightly higher at €1,465/t-€1,495/t for 4 cSt and €1,535/t-€1,565/t for 6 and 8 cSt.
Baltic and Black Seas
Baltic sources report few cargoes of Russian export barrels, although the regular supplier out of Kaliningrad has moved a large parcel of some 8,000 tons to be delivered into Rotterdam during the first half of May. This is a larger than normal cargo, perhaps taking advantage of buyers in the regi0n who are desperately looking for any available Group I material. A couple smaller cargoes are bound for the east and west coasts of the United Kingdom. These are loading now out of Riga, Latvia.
Prices seemed to have peaked a couple of weeks ago, but levels have risen again and there are no reports of any material going unsold. Numbers have firmed a little on the back of the few deals noted, although freight rates are higher for the parcels bound for the U.K. since their volumes are smaller.
Russian export barrels are assessed at $1,345/t-$1,400/t for SN150, while SN500 is offered at $1,475/t-$1,540/t. Subject to availability, SN900 is priced around $1,595/t.
Turkish trading is sparse, with little Group II availability from sources such as Livorno, Italy, and Agio Theodoroi, Greece. It is heard that Turkish buyers are unable to purchase imported barrels from these sources due to limitations on finance and access to U.S. dollars. The Turkish economy is struggling with rampant inflation, and its lira has lost heavily against the U.S. dollar. It has not been possible to check activity at the Izmir refinery to establish whether the local producer, Tupras, has availabilities of Group I base oils or not, as the case may be. A handle on this source will be sought prior to the next issue of this report.
Mediterranean-sourced oils are offered at around $1,485/t for SN150 and around $1,695/t for SN500, both on a CIF basis, but there are no takers.
Local prices for imported Group II and III base oils being sold ex-tank Gebze and Aliaga are higher: €1,520/t-€1,560/t for Group II 110N, 150N and 220N and €1,555/t-€1,625/t for 600N. Group III grades sold by distributors have risen to €1,510/t-€1,565/t for partly- and fully-approved 4cst and €1,555/t-€1,575/t for 6 and 8 cSt.
Middle East Gulf
There is little news of Red Sea – just one small cargo moving from Jeddah, Saudi Arabia to Pakistan. The 2,500 ton parcel will consist of SN150 and SN500 for receivers in Karachi. Perhaps a lull in exports from this source is to be expected following the large quantities of Group I and II exported from Saudi Arabia last month. With the coronavirus situation in India, this market may go through a quiet spell, particularly affecting large cargoes of base stocks coming from Yanbu’al Bahr and Jeddah.
No further reports have been gleaned about Iranian base oil cargoes moving out of the gulf. The large cargo reported in the previous report is confirmed. Iran is reportedly undergoing a surge of COVID-19 infections similar to the Indian outbreak, putting Iranian hospitals and health-care under enormous pressure. News is thin on the ground however, as Iranian authorities remain tight lipped about the latest situation.
There is news of one cargo loading out of Al Ruwais, United Arab Emirates, for receivers in China: Large quantities of Group III+ are being moved out of Qatar for receivers in the Far East, Europe and the Americas. One large Group III base oil cargo is moving out of Sitra, Bahrain, for distributor hub storage in Houston. This 8,000 ton cargo includes 4, 6 and 8 cSt grades.
Netbacks for Group III grades have risen to $1,435/t-$1,540/t for all three of the main Group III viscosity grades. Fully approved oils sold by Neste ex Sitra will netback more due to higher pricing in export markets, perhaps $1,475/t-$1,595/t for 4, 6 and 8 cSt. Notional FOB prices on a netback basis are informally assessed based on regional selling levels, less marketing, handling and estimated freight costs.
Group II base oil values ex U.A.E. storage have risen to $1,545/t-$1,660/t for 100N, 150N and 220N and $1,585/t-$1,695/t for 500N and 600N. The wide ranges take account of various base oils supplied from different sources in the U.S., the Far East and the Red Sea, which have been delivered into the U.A.E. both in bulk and in flexitanks.
South African shipping sources report one large cargo of drilling fluids, chemicals and base oils to load out of two European ports and sail to Abidjan, Cote d’Ivoire, where presumably part of the base oil cargo will be discharged. Thereafter the vessel will complete the voyage to Durban, South Africa.
West African news centers around the large number of inquiries issued by buyers and receivers in Nigeria. There are inquiries for some 45,000 tons of Group l base oils going into Nigeria although it must be added that not all of these inquiries are firm. Some are extremely flaky. Sales to this region would also face extra complex finance requirements. Prices for available Group l cargoes have trebled within the last two months, making foreign currency transactions extremely difficult for some of the local buyers and traders.
Unfortunately, only one confirmed cargo has been nominated – a 7,000 ton parcel of Group l grades to load out of Agio this week. There had been talk of another parcel to be loaded out of Algeria at the end of last month, but as far as can be confirmed, this 4,000 ton loading has not yet completed.
There are no Group I base oils available to cover the market, hence the local Nigerian market is in a pickle with insufficient funds to buy dollars to make the purchases and local buyers unable resell the product in the local markets even if they could procure it due to prices being too high.
Offer levels for Group l base oils landing into Apapa port in Lagos reflect the latest FOB levels available at source, and are assessed to be around $1,495/t for SN150, $1,695/t for SN500 and around $1,745/t for SN900 with viscosity index of at least 95. Bright stock remains unavailable, but an estimated price for this grade would be above $2,100/t.