Base oil markets were mixed this week as API Group I stocks showed some signs of stability while Group II and Group III markets seemed to be on rollercoaster rides.
The European scene is feeling what some described as an assault on the Group II assault on the market, with sellers actively pushing sales to gain or protect market share or in efforts to convince formulators to replace Group I oils with Group II. Whatever the motivation, the effect is more downward pressure on Group II prices.
This scenario was perhaps inevitable given the surge in Group II production within the region of Group II base stocks. Meanwhile, competition within the Group III segment was ratcheted by the return of one supplier to the European market.
Crude and feedstock prices steadied over the past week. Dated deliveries of Brent crude posted at $67.15 per barrel for May front month delivery, while West Texas Intermediate treaded water at $59/bbl, now also for May settlement. ICE LS gas oil was unchanged at $606 per metric ton, for April front month. These prices are from ICE London trading late Monday.
Group I European export prices remain unaltered this week as sellers put on a good face while buyers attained discounts for prompt firm sales of these grades. There is still plenty of material available around the market, and this hampered seller efforts to raise prices. Availability has not been impacted by maintenance turnarounds now underway. With full production scheduled to resume in a couple weeks, Europe may see Group I availabilities increase, particularly against the surge in activity on the API Group II front.
Prices are maintained with light neutrals offered and sold between $560/t-$580/t with SN500 ranging between $575/t-$610/t. Bright stock also remains firmly in the same ballpark as last week with FOB levels assessed between $775/t-$810/t.
The above price levels refer to large cargo sized parcels of Group I base oils FOB from mainland European supply points, always subject to availability.
Group I domestic prices throughout Europe also remain unchanged. Sellers are being compromised on the one hand by abundant avails of premium Group I products, without having to resort to buying Russian export Baltic material, since these grades are not currently required to fill any space in the market, and on the other hand the Group II surge with new production being touted at attractive levels with lower cost imported Group II material from the U.S. in flexitanks with prices which can be lower than domestic Group I levels.
Some buyers are positive, not from the sense that prices are about to fall further, but that there appears to be an element of stability in the market which is being 'controlled' by a number of independent factors, all of which have a bearing on holding prices within current ranges. With a stable market for their raw materials, blenders are able to plan finished lubricant prices more efficiently.
The differential between domestic and export prices is maintained, neither category moving this week, with domestic levels remaining between 65/t-100/t higher than export numbers.
Group II prices are starting to find new market levels within the European markets, with temptations to move to these grades more prevalent than before. Supply of these grades has taken a forward step in that the new production to an extent guarantees availability of approved base oils going forward, but also incumbent suppliers who were perhaps foremost in introducing these grades into the European scene, are also benefitting from established ACEA and OEM approvals reaping the rewards from a market which is starting to grow exponentially.
The price readjustments to European Group II grades arrives in the face of some announced source increases from major producers in the U.S. where selling prices have traditionally been lower than European levels. These increments are said to be in response to higher feedstock costs but it is not anticipated that U.S. increases will have any retro effects on where the European scene is heading.
The European outlook is one where Group II prices are being adjusted to reflect a global market rather than existing regional variations which have traditionally been a function of all base oil markets. Perhaps Group II markets are the first step to embracing a truly global perspective on pricing for base oils, which may be echoed in the future by Group III. This move by producers whether intentional or not, may boost contributions from some markets, whilst negating others.
Group II prices are left unchanged with FCA and truck/barge delivered levels in respect of the light vis grades 100N, 150N and 220N, between $765/t-$840/t (675/t-745), with heavier grades 500N and 600N between $785/t-$910/t (695/t-805).
The Group III scene reports that some prices for fully approved grades are being worked upwards with demand for these products gaining impetus around some European markets. A two-tiered format is still very much in existence, but in practice this could be extended to a three-tiered development where some suppliers carry some major approvals for their grades but do not have the full slate of all European OEMs. Others are termed partly-approved this being where these suppliers are relatively new in the market, having as yet no European OEM appros but continue to supply on a /second/third tier basis which will change as approval progress takes place.
Levels in respect of partly-approved Group III grades are maintained between 765/t-775/t in respect of 4 centiStoke grades. 6 cSt and 8 cSt base oils are offered between 775/t-785/t. Prices relate to FCA sales ex various hub locations in northwestern Europe. Fully-approved material is moved slightly higher and is now assessed between 845/t-880/t in respect of 4 centiStoke product, 6 cSt material is between 870/t-890/t, with 8 cSt material between 850/t-880/t, basis FCA Antwerp-Rotterdam-Amsterdam.
The prices above do not reflect prices for material which is delivered in bulk cargoes to large or major buyers. Prices in respect of these trades may be lower than FCA levels above.
Baltic and Black Seas
Baltic through putting is at its lowest for some time, with distributors and resellers in that region expressing their concerns regarding the longer term viability of representing Russian and Belarussian exports of base oils. At a normally busy time of year and with Russian export quantities declining due to domestic markets picking up, there still appears to be large quantities of Group I base oils available for sale and export.
Russian barrels are still relatively highly priced compared to European prime avails, thus not permitting the arbitrage between Baltic and mainland Europe, Scandinavia and the United Kingdom to remain fully open. In fact is it noted that a large parcel of some 6,000 tons of base oils has been sold out of Antwerp-Rotterdam-Amsterdam moving into the Baltic region.
There are talks of the business being rekindled into West Africa if U.S. producers of Group I and Group II base stocks start to move prices higher, thus allowing Baltic suppliers an opening to move their products into receivers in locations such as Nigeria. Having said this, the U.S. levels will have to be pushed much higher to allow the Baltic arbitrage to open. Against this scenario is the threat of further lower cost Group I availabilities out of mainstream production within Europe.
FOB prices are slightly weaker at the low end of the ranges this week, with levels for SN150 between $485/t-$520/t and SN500 lying between $490/t-$525/t. Bright stock ex southern Baltic remains at levels between $775/t-$810/t FOB.
Black Sea and East Mediterranean regional news is that an Israeli refinery will not restart base oil production after a fire at the wax plant in January 2018. Haifa Basic announced that they would continue to import base oils for local requirements since due to capital investment costs, feedstock issues and local planning consent, it was deemed unviable to re-open the base oil plant.
Turkish trade is exceptionally slow with buyers sitting on the fence awaiting the elections which will be held at the month end. The implications of changing government, currency unknowns and fluctuating import tariffs are causing Turkish buyers to stay away from import markets, relying on local supplies to maintain most of the blending plants. In addition, distributors are selling Group II and Group III base oils on an ex-tank basis, and although low-cost offers are being directly being touted by traders looking to exploit the recent Group II availabilities, few takers are reported to be keen on considering offers.
Russian export cargoes are out of favor even with prices going to the lowest levels seen in respect of this trade for some years. Numbers for FOB avails ex Azov are assessed at around $475/t-$500/t in respect of SN150 with SN500 between $495/t-$520/t. Still no Turkish buyers are interested at these levels which would mean landed levels for a 3,000 tons parcel at around $530/t and $545/t respectively for the two main grades
There are no reports of further Kavkaz, Russia, STS cargoes, although the large parcel of some 15,000 tons for Singapore has been confirmed as loading this week. Sources in United Arab Emirates are said to be looking at further possible supplies along with the receivers in Singapore assessing further parcels.
Mediterranean offers continue to be posted by sellers despite the reluctance of Turkish buyers to respond positively, with material offered CIF Gebze, Turkey, heard at around $555/t for SN150 and $565/t in respect of SN600. These levels would provide very low netbacks for FOB suppliers who may only be going through the motions of offering and supplying to maintain relationships for the future.
Middle East Gulf
Current issues at Yanbu refinery are starting to affect spot offers for Group I and Group II base oil going into U.A.E. and the west coast of India, although contracted parties supplies are being honored with a large cargo planned for receivers in Sudan and the balance being delivered into U.A.E.. Buyers have informed this report that enquiries are being turned away for any additional supplies at this time, although no confirmation of how long the problem will continue is available. There have been rumored offers regarding Group II from Yanbu to be supplied to receivers in the Mediterranean, although again this has not been confirmed, merely suggested by potential buyers.
U.A.E. buyers are again looking to source large quantities of Group I material from the Black Sea, perhaps replacing reliance on Iranian supplies which appear to have dried up. Other CIF offers into U.A.E. in respect of Group I base oils are indicated between $555/t-$575/t for heavy neutrals, these offers coming out of sources in the Mediterranean. Contracted barrels for Red Sea suppliers appear to have been sourced ex Mediterranean, perhaps to supplement Yanbu shortfalls. The latter prices are expected to be higher, with levels around $610/t, $645/t and $825/t for the three main Group I grades, SN150, SN500 and bright stock.
AL Ruwais and Sitra reports suggest large Group III cargoes moving to the west coast of India, with further quantities moving to Far East at the end of March.
Assessed FOB prices in respect of Group III grades from Al Ruwais and Sitra are maintained for partly-approved material with levels between $725/t-$765/t in respect of 4 centiStoke, 6 cSt and 8 cSt base oils. Eight cSt grades sold into India or Far East will produce lower FOB prices due to local selling prices.
Nexbase the branded Neste base oil supplied out of Sitra refinery has FOB estimated levels raised this week to between $885/t-$935/t in respect of 4 centiStoke, 6 cSt, and 8 cSt grades moving to European, U.S. and other Western markets.
With the U.S., and now the European downturn in Group II prices have been adjusted last week to reflect new selling levels with Group II base oils being sourced from Far East and U.S.. These base oils carry full global approvals and are sold FCA ex U.A.E. hub storage.
Prices in respect of Group II grades in Middle East Gulf are therefore now maintained between $920/t-$965/t in respect of the light grades 100N/150N/ 220N, with 500N/600N between $885/t-$945/t. Prices are in respect of small quantities of less than 25,000 tons per load, delivered around Middle East Gulf. Prices may vary with destination and distance from hub supplies.
Mediterranean and North African trade includes a sizeable cargo of around 6,000 tons of Group I base oils loading ex Italy moving into Spain and also Mohammedia in Morocco. The Egyptian bright stock tender result has been announced during last weekend, and although exact details as to quantities contracted and physical supplier are not disclosed as yet, it is suggested that the award for the next quarter has gone to a European based trader.
Further confirmation has been received from South African sources that the large cargo loading ex Antwerp-Rotterdam-Amsterdam and U.K. on a prompt basis with around 13,000 tons of base oils, will discharge in Durban during May.
West African receivers are anxious to move quickly to secure further cargoes at the best rates out of the USG prior to any new of prices starting to rise< Group II levels are due to move upwards after the recent round of price hikes from that region, and traders are working to load further quantities prior to any suggested market moves. Other parties are investigating either a northwestern Europe or a Baltic + northwestern Europe cargo for future selling into Nigeria, although negotiations appear to be at an early stage.
Other alternative West Africa reports are that after completing a turnaround a European refiner will plan to load a large parcel of some 7,000 tons of Group I base oils for an affiliated receiver in Angola. The supply of base oils to this location happens infrequently.
Group I grades landed into Apapa are hereby maintained as per last report with still a lack of FOB prices and estimated freight levels to assess the last Baltic cargo landed CIF/CFR. Levels remain at $$670/t-$680/t in respect of SN150 with SN500 between $680/t-$690/t. Bright stock which has been sourced and loaded southern Baltic in Gdansk is estimated to be sold CFR/CIF between $900/t-$945/t along with SN900 indicated between $700/t-$720/t CIF/CFR.
Group II prices ex U.S. Gulf Coast are amended and are indicated landed into Apapa at around $695/t-$765/t in respect of both light and heavy vis material.
These prices refer to large cargoes with a minimum loaded quantity of 10,000 tons delivered CFR/CIF into Nigerian ports such as Apapa or Port Harcourt.
Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly firstname.lastname@example.org.