Base oil markets in Europe, the Middle East and Africa are moving across the board toward potential oversupply, mimicking global markets that are following the same trend.
This was not the outlook forecast during the last quarter of 2018, when many predicted that API Group II and Group III demand would expand fast enough to take up new production coming on the scene. Group I was seen as the one category susceptible to weaker demand due to long-term declines in usage.
Forecasts of recovering demand have not borne out yet. Some suppliers insist supply-demand balances will still tighten when several plants close for maintenance turnarounds during the first half of the year.
Crude oil and feedstock prices remained buoyant this week, with dated deliveries of Brent crude rising $2.50 the past week to $62.90 per barrel, for March front month. West Texas Intermediate crude climbed almost $3 to $54.20/bbl, also for March settlement. The above prices were established from ICE London trading on Jan. 14.
European Group I export prices remain difficult to gauge despite producers looking to move large swathes of material quickly rather than waiting for local markets to absorb available material. To achieve this end, prices are being discounted for prompt sales and shipments of these base oils.
Light solvent neutrals have fallen to $590/t-$610/t, and the low end of the range for SN500 and SN600 is now coming in below that for the lighter grades at $580/t-$610/t. This is not to say that all suppliers are adopting this stance, as many are still pitching offers around the higher end of the ranges. Bright stock prices, however, were unchanged at $810/t-$845/t.
There are some reports of Group I export levels being higher than those above, but any such levels are not generating genuine interest from buyers, and are merely being quoted in line with some of the larger domestic offers that are currently around the market for resellers and distributors.
The above values refer to large cargo-sized parcels of Group I available on an FOB basis ex mainland European supply points, always subject to availability.
European domestic base oil prices are now in retreat with sellers offering lower levels for February at an earlier point in the month than normal. Many sellers expected that the markets would not just recover, but would compensate for the poor demand at year-end and earlier part of this month. This scene is not being played out with buyers reticent to make significant purchases, perhaps realizing that a weaker market means lower prices, at least in the short term.
With more than adequate availability of Group I grades buyers have discounted any fears of a short market once a number of turnarounds get underway. Some Group I buyers are using the rationale that they could have the option to move the Group II should Group I become shorter, although with the current price differential between the two types of base oils, there is a distinct temptation for Group I users to continue using these grades for large section of their blending portfolio.
Prices are reflecting lower numbers being offered for spot and contract sales, although the dip in levels does not yet compare to the rapid discounting that is being applied to some export offers. This has widened the spread between domestic and export prices with the differential now being assessed between 75/t-95/t. This variance differs from grade to grade, with the neutrals being noticeably wider apart, with bright stock being closer to parity in both markets.
Group II prices throughout Europe have inevitably started to become weaker. There are a number of factors at work, with Europe still being one of the higher realization markets for Group II within the global sphere, hence an attraction for imported material from East and West, with and without full European approvals. These imports have started to erode prices by sellers trying to buy markets share at the expense of incumbent suppliers, who in defending their business, have had to commence battle by using prices as ammunition.
Approvals within the European arena remain very important, hence those holding full ACEA accreditation will continue to be able to exact a premium on price. In addition the differential between Group I and Group II selling prices was becoming an issue for many Group II buyers, and with simultaneous source price discounting by major suppliers, further price pressure is applied.
As with Group III, any dilution to the status quo can have an effect on the whole, and Group II prices are starting to feel the effects of an ingress of alternative supplies which in some cases are even competing on price with Group I avails. Suppliers are commenting that the market will become shorter as and when turnarounds kick-in, however with the major new Rotterdam supply source about to come on-stream, albeit replacing imported material from external in-house sources, there may be further pressure exerted on the Group II pricing scene.
Prices are showing lower with FCA and truck/barge delivered levels for the light vis grades 100N, 150N and 220N, in dollar terms between $855/t-$885/t (755/t-790), and with 500N and 600N now between $945/t-$980/t (830/t-865). These prices cover all Group II grades, non-approved, partly-approved, and fully-approved.
Group III trade is holding up against a rising tide of plentiful supply and weakening prices in regions other than Europe. The outlook is that prices may come under pressure as spring arrives, due in the main to growing availabilities of alternative supplies. Looking solely at the European scene, it could be that sellers can mitigate the influx of alternative material coming on the market and may be able to maintain prices at acceptable contribution levels.
However should there be larger quantities of material becoming from markets in Far East and Middle East which are locally becoming saturated, there may be difficulties in maintaining selling levels in the longer term. The two-tier market may become multi-tiered with various Group III grades holding differing approvals or not at all.
Price levels are maintained this week, with expectations that levels may fall around the month-end with February prices being realigned. Levels remain between 735/t-750/t in respect of 4 centiStoke grades, with 6 cSt grades between 765/t-785/t, and 755/t-770/t for 8 cSt base oils. All prices are in respect of FCA Antwerp-Rotterdam-Amsterdam sales.
Fully approved base stocks accredited with ACEA and European OEM approvals are between 860/t-895/t in respect of 4 centiStoke grades, 6 cSt material between 885/t-910/t, with 8 cSt material between 865/t-900/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 reports contain news of the end to a long running saga regarding a large cargo completed for Nigerian receivers. This goes against the perception that Baltic prices had been uncompetitive against alternative sources such as United States Gulf and East coasts. This supply perhaps proves that Russian export prices can be acceptable, and that levels within the Baltic may have been adjusted to reflect opportunities in the export markets.
Obversely there have been fewer short-sea trade cargoes this month, perhaps due to mainstream European Group I prices becoming very competitive, and also the large numbers of movements which were carried out prior to year-end which will have bolstered stocks for receivers in Antwerp-Rotterdam-Amsterdam, Scandinavia and the United Kingdom.
Prices remain stable, but there are deals to be done if parties can successfully move quickly to move cargoes out of shore storage on a prompt basis.
FOB levels are adjusted slightly to around $575/t-$595/t in respect of SN150, with SN500 around between $555/t-$595/t. Bright stock ex southern Baltic is considered to be competitive with current price levels between $810/t-$845/t.
The Turkish market in the Black Sea region is being flattered by the numbers of sellers who are trying to place Group I material into the arena, with Mediterranean suppliers competing with both local Turkish production and also Russian avails which are available ex Kavkaz, Russia,. CFR/CIF prices for the two main grades SN150 and SN500 are estimated at $585/t for both grades.
With domestic prices being subject to formula based numbers it is a guessing game as where the local market is heading. Mediterranean sources have cut prices in offers over the past two weeks to reflect the competitive nature of the local pricing. As mentioned lat week, the special terms offered by some suppliers appears to have worked and cargoes of Mediterranean Group I grades are moving into ports such as Gebze and Derince, Turkey.
Sources have been as pains to point out that it is not merely a question of being able to match prices. Credit terms and exchange rate costs also have to be taken into account when evaluating whether to purchase locally in Turkish lira, or to import in dollars or sometimes euros.
Prices in respect of the Group I base oils ex Mediterranean have been discounted further, with levels now at $580/t-$599/t for quantities of SN150 and with SN500/600 also between $575/t-$590/t, the heavier neutrals in two offers being lower in price than the lighter grade. Bright stock, where offered from Mediterranean sources still remains uncompetitive, although some blenders have suggested that there may be limitations on the quantities of this grade available locally.
Middle East Gulf
The Red Sea enquiry in respect of the parcel of 1,000 to 3,000 tons to load ex Red Sea for discharge into the Marmara region in Turkey appears to be still on the cards. It is not apparent what this parcel will comprise of, although conjecture would suggest either a quantity of Group II grades and/or bright stock. Large quantities of around 35,000 tons of base oils are programmed to load out of Saudi Arabian ports during second half of January, with usual destinations in the west coast of India and United Arab Emirates.
Middle East Gulf trade remains positive during January with large quantities of all types of base oils moving into and out of the region. The flow remains that Group I grades ae imported into the region, whilst Group III forms the mainstay of exported base stocks from the Gulf States.
Iranian exports are once again missing of the radar this week, with no news of any movements taking place out of Bandar-e Emam Khomeyni or Bandar Bushehr in the southern Gulf region. Local sources in U.A.E. have been unable to comment on availabilities of Iranian SN500 and SN150 for January, although sources have reiterated that exports are continuing even against the latest round of sanctions imposed from the U.S. With only a further three months left under the U.S. concession to continue supplies of material ex Iran, plans are being drawn up by refineries in India and Far East regarding crude supplies, but little news has emanated regarding supplies of base oils.
Local U.A.E. sources have suggested prices of around $685/t CFR in respect of small quantities of SN500+.
Group III exports from all three Middle East Gulf sources continue with open trade announced from Al Ruwais, comprising of a large 10,000 tons cargo to be moved either into receivers locally in U.A.E., or alternatively for this parcel to go out to Far East.
Netback values attached to notional FOB prices in respect of the quantities of Group III grades are lower this week as a result of local pricing reports from markets in India, Far East and Europe. Whilst local pricing may not have an immediate effect on current netbacks, however for this exercise it is assumed on a continuous basis that local selling prices will affect netback values immediately.
Levels are assessed between $765/t-$835/t ex Al Ruwais and Sitra in respect of 4 centiStoke, 6 cSt and 8 cSt partly-approved base oils. Material holding full European ACEA approvals ex Sitra refinery are assessed slightly lower between $915/t-$960/t in respect of 4 centiStoke, 6 cSt, and 8 cSt material moving to European, U.S. and other western markets. 8 cSt grades moving to India and Far East will produce lower netback values due to lower selling prices.
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 sold ex hub storage in U.A.E., on basis of being fully approved, are delivered with the Middle East Gulf either on a basis of FCA or delivered by truck or flexies. Prices are deemed lower this week with many of the global supply sources moving prices downwards. Prices are assessed between $985/t-$1025/t for the light grades 100N/150N/ 220N, and 500N/600N between $1040/t-$1075/t.
These prices refer to 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.
South African news this week from local sources reports that the refinery in Durban lost production during an outage which lasted a few days last week, although it would appear that no interruptions to supplies of local base oil were incurred. With large stocks of Group I base oils being imported through Durban by majors the regions is not solely dependent on local production to cover the Group I market. Group II and Group III use in South Africa and neighbouring territories is expanding with many local blending operations now carrying all three grades for various finished lubricant blends.
West African reports are that the Ghana supply is due during January or early February withe incumbent supplier sourcing from usual channels in the Mediterranean.
Nigeria continues to receive cargoes of Group I base oils ex U.S. Gulf Coast and now as reported from the Baltic. The latter is the first parcel to load out of the Baltic since November, although it has been suggested that two further cargoes are being worked presently. One comprising of a large quantity of bright stock which may be loaded ex Gdansk during February. Other Russian export grades may also make up this parcel with quantities of blended SN900 and SN500 loading from northern Baltic ports.
CIF/CFR prices in respect of cargoes of Group I base oils going into Nigerian ports are maintained this week, since the Baltic loading will have had to compete against other alternative material ex U.S. Gulf Coast which was priced in last week's report. levels are expected to range between $740/t-$760/t in respect of light solvent neutrals SN130-SN180, heavier cuts SN500/600/650 between $775/t-$799/t and bright stock between $945/t-$965/t. SN900 may be slightly lower, but as an indication only is now at $810/t-$825/t CIF/CFR.
Rerefined European SN150 is now indicated at around $683/t delivered CIF Lagos in minimum lots of five containers with flexi-bags.
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.