Base oil prices continue to slide, with demand rated as poor and no sign of positives that might lift an otherwise dull market. The annual upswing in demand that normally precedes driving season has not yet materialized, and some sources have started to suggest that it may not this year if the market doesnt begin to turn by the end of February or early March.
This ICIS World Base Oils & Lubricants Conference, scheduled to begin in a few days in London, is contributing to a particularly quiet week.
Crude oil prices did strengthen, as dated deliveries of Brent rose to $66.50 per barrel for April front month settlement, some $5 higher than a week ago. West Texas Intermediate climbed to $56/barrel for March settlement. ICE LS gas oil kept pace, rising to $620 per metric ton for March front month settlement, some $40/t higher than last week.
The above prices were established from ICE London trading late Monday.
The upswing in crude focuses attention on base oil prices, which typically track crude but with a lag. If demand fails to support base oil markups, refiners may eventually divert production to distillates that offer better returns.
Suppliers are struggling to maintain the flow of API Group I exports from Europe to deep-sea markets, and prices are coming under renewed pressure. Price appears to be the only tool that can stimulate sales, since buyers have plenty of options.
Values for light solvent neutrals fell around $5 to $10 per ton to $565/t/t-$585/t, while heavier grades were unchanged at $580/t/t-$620/t. There does not appear to be quite so much pressure on the heavier grades, perhaps due to slightly healthier demand. Bright stock prices dipped to $785/t/t-$810/t.
The above price levels refer to large cargo-sized parcels of Group I base oils offered on an FOB basis ex mainland European supply points, always subject to availability.
Local Group I prices in Europe have also started to slip from previous levels negotiated at the end of January which were to be fixed until the end of February. This erosion was perhaps to be expected since larger buyers were being enticed by numbers attached to export offers and sales, which were much lower than contracted monthly prices set last month.
Sellers are still hanging their hat on the premise that the market will soon start to upturn, with availabilities tightening and subsequent price rises kicking in. Quite when this event is going to start is unclear at this time, but the belief is positive with a number of producers.
The differential between domestic and export prices has diminished this week, due to price adjustments coming for domestic buyers, the assessment being that domestic levels are between 65/t/t-100/t higher than export numbers.
Group II prices remain a subject for debate with some buyers able and willing to accept non-approved material from Far East and U.S. which carries local approvals, but not ACEA or European OEMs. These smaller supplies are generally being made in flexi-bags, and although they for a very small part of the API Group II market, they are having an influence by exposing the market to lower priced material, and this does have an impact, albeit small. With the new Rotterdam facility about to start commercial sales, the market is waiting and watching to see what effect, if any, this new operation will have.
Although prices are relatively stable they are being expressed as slightly softer this week with FCA and truck/barge delivered levels in respect of the light vis grades 100N, 150N and 220N, between $840 per metric ton/t-$870/t (740/t/t-775), with 500N and 600N between $930/t/t-$965/t (815/t/t-850). These prices are in respect of the whole range of non-approved, partly-approved, and fully-approved Group II grades.
The European Group III market continues to produce a two-tier selling approach with both fully approved and partly-approved base oils sharing the market. With a potential oversupply hanging over the market, suppliers are wary to try to retain customers with whom they have built up relationships over the past few months and years. There is always a suggestion that supply may outpace demand and it is vital to maintain relationships to retain market share when times get tough.
Prices relating to the partly-approved Group III grades are slightly lower, now between 710/t/t-730/t in respect of 4 centiStoke grades, with 6 cSt grades between 740/t/t-765/t, and 730/t/t-750/t for 8 cSt base oils. Prices are based on FCA sales in Northwestern Europe
Fully-approved material have also dipped by around the same $10/t, with the ranges between 845/t/t-880/t for 4 cSt, 870/t/t-890/t for 6 cSt and 850/t/t-885/t for 8 cSt, all on an FCA basis 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 reports suggest further weakening for prices in that market, particularly for the lighter grades such as Russian export SN150. The main European market also shares this glut of SN150, which is exactly the opposite scenario from one year ago when light neutrals were short.
A partial cargo was loaded out of a Baltic port for onward shipment to Nigeria, This parcel has been the subject of discussion for some time, and whilst not loading the full quantity out of the Baltic, a sizeable part of the 15,000 tons cargo was put aboard, with the vessel having options to two-port load to take additional material from a mainland European source.
This week has seen only one 5,000 tons cargo moving out of the Baltic into Antwerp-Rotterdam-Amsterdam, possibly indicating that there is sufficient Group I material around the main market at acceptable prices, thus ruling out the necessity to import Russian export barrels from the Baltic.
FOB levels have dipped this week and are now indicated at $535/t/t-$565/t in respect of quantities of SN150, with SN500 between $545/t/t-$575/t. Bright stock ex southern Baltic is deemed lower this week between $785/t/t-$820/t FOB depending on quantity, spec and destination.
Mediterranean suppliers are trying to place Group I grades into Black Sea and East Mediterranean Turkish ports, but Turkish buyers have indicated that the market is very slow and that they options for procuring Group I base oils either from the local supplier, or by importing from Mediterranean sources. Local Turkish prices and avails are an attractive alternative to Mediterranean supplies, and sources have indicated that prices have been trimmed to boost local sales. Sellers are offering attractive lower prices to compete with local supplies and prices relative to cargoes into Derince or Gebze, Turkey, have CFR/CIF prices for SN150 and SN600 around $580/t and $595/t respectively.
Prices for Russian Group I base oils FOB Azov are assessed between $535/t/t-$565/t in respect of SN150 with SN500 between $550/t/t-$585/t.
Middle East Gulf
Red Sea sources report a number of shipping enquiries and movements from Yanbu and Jeddah for the supply of Group I and Group II grades for receivers in India, United Arab Emirates and Oman. In addition a large parcel of some 20,000 tons has loaded, covering the Sudanese tender and also supplies into United Arab Emirates and the west coast of India
Iranian base oil exports are missing from the Middle East Gulf scene, with no shipping reported coming out of Bandar-e Emam Khomeyni or Bandar Bushehr going into U.A.E. ports or the west coast of India. Testament to the fact that U.S. sanctions are curtailing the trade of base oils from Iran to traditional outlets.
Group I offers into U.A.E. are being made by traders looking to import from the Baltic, Black Sea, and USG as options. In addition Mediterranean sources confirm that they have also made offers for the supply of Group I heavy grades into U.A.E. CIF prices heard are between $575/t/t-$590/t in respect Group I heavy neutrals, along with offers for Group II grades from U.S. sources. Bright stock quantities also figure as part of the cargoes being offered into U.A.E., with prices heard around $835/t/t-$860/t delivered CIF, ex U.S. Gulf Coast or USEC.
Middle East Gulf Group III exports are moving from Al Ruwais and Sitra with a large cargo of some 12,000 tons loaded out of Sitra for European distribution. Most of the Al Ruwais cargoes are moving into China and India. Notional FOB prices in respect of Group III grades are lowered this week with new levels between $740/t/t-$790/t ex Al Ruwais and Sitra in respect of 4, 6 and 8 cSt partly-approved base oils. Eight cSt grades moving to India and Far East will produce lower netback values due to local selling prices being less than those achievable from Western destination markets. The differential can be as much as $125/t lower than Western exports.
Branded base oils from Neste ex Sitra refinery, which hold European OEM and ACEA approvals, are also realigned to between $895/t/t-$935/t for 4, 6 and 8 cSt material moving to European, U.S. and other Western markets.
Prices refer to notional FOB levels established on a netback basis using published freight rates, local selling prices, and additional notifications of bulk CIF/CFR cargo prices from various representative and reliable sources.
Group II base oils ex Yanbu refinery are being made available at prices which compete with Group I light and heavy solvent neutral levels. Group II grades sourced from Far East and U.S. carrying full OEM approvals are also being sold either delivered or FCA ex hub within Middle East Gulf. Prices in respect of the range of Group II base oils are higher than the bulk supplies ex Yanbu and are assessed between $950/t/t-$985/t in respect of the light grades 100N/150N/ 220N, with 500N/600N between $1010/t/t-$1025/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.
Local agents in South African have reported that a cargo will arrive from USG, this parcel would normally be sourced from northwestern Europe and/or the United Kingdom.
West African reports include notification of the Baltic origin cargo for receivers in Nigeria. The 15,000 tons parcel is due to arrive around end March. No news has been gleaned as yet regarding prices in respect of Group II grades destined for Nigeria ex USG, although this may become apparent during the large conference running during this week in London.
Group I grades are currently assessed at existing levels remaining around $$720/t/t-$745/t in respect of the range of light neutrals, with heavier SN500/600 landing between $730/t/t-$750/t, with bright stock between $920/t/t-$940/t. SN900 is indicated at between $775/t/t-$795/t CIF/CFR.
These prices refer to large cargoes in excess of 6,000 tons total 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 email@example.com.