Faltering demand, increasing availabilities, and a directional move toward oversupply of all types of base oils is leading to across-the-board price erosion throughout Europe, the Middle East and Africa.
All base oil groups are showing longer supply positions, and upcoming maintenance turnarounds at a number of plants offer the only suggestion of potential reversal. Producers have prepared, however, by boosting stocks to cover contract obligations, and even spot opportunities seem safe.
Predictions from some corners that prices would rise appear to have missed the mark. Even some buyers expected values to firm early this year and reacted by laying in stocks during December, when deals were achievable. This has contributed considerably to poorer demand is fuelling the rationale for producers to divert feedstock toward distillate output in light of the latest resurgence in crude and oil product prices.
Multiple Group II importers have announced markdowns in their source markets, and these often get passed through to Europe. API Group III availabilities are growing, particularly for oils lacking full slates of finished lubricant approvals, which cost less.
Crude oil and feedstock prices have leveled off after post-holiday gains, and global demand is perceived as stunted with economies in China, Japan and Germany showing signs of slowing.
Dated deliveries of Brent crude are now priced at $60.30 per barrel, some $2 higher than last week, for March front month, and West Texas Intermediate is at $51.55 for February settlement. ICE LS gas oil rose around $75 per metric ton to $569/t, for February front month. These prices were established from late ICE London trading Monday.
Interestingly, European Group I export prices remain largely unchanged with offered prices consistent with December. Whether these levels are sustainable or realistic enough to initiate sales is debatable. Alternative sources in United States, for example, are less expensive based on deep-sea inquiries from regions such as West Africa, India and the Middle East Gulf. Heavy neutrals are coming under particular pressure, with some offers for solvent neutral 500 falling below offers for SN150.
On several occasions now, operators of European refineries have made large intra-company shipments of Group I oils to Far East locations, thus rebalancing their supply slate across global affiliates.
Prices for light solvent neutrals are unchanged at $595/t-$620/t, while SN500 and SN600 are at $585/t-$620/t after dipping on the low end. Bright stock remains relatively robust with limited availabilities of larger parcels, so prices are stable to firm at $810/t-$845/t in offers heard the past week.
The above levels refer to large cargo-sized parcels of Group I sold on an FOB basis ex mainland European supply points, always subject to availability.
Prices for sales within Europe have not shown any inclination to move in either direction, although from a buyer perspective, the markets could be described as soft with many blenders not requiring major quantities so soon in the new year. Some lubricant companies contacted this week confirmed that with flexible year-end accounting, the pressure to reduce inventories by Dec 31 had been removed, allowing purchases of material at opportunistic prices late in the month.
There appears to be plenty of material available around Group I markets, and sellers are trying to optimize offtake from storage at every opportunity. Some resellers have introduced discounts for firm commitments to take stocks out of storage during January. Despite recent increases in feedstock costs, the lack of demand and greater availability for all Group I grades could exert upward base oil pricing pressure for February and March.
For now, prices remain unchanged, and the differential between domestic prices and export numbers remains in the same ballpark as last week at 55/t-85/t.
European Group II prices have started to fall amid discussions about how far they will gravitate. Availabilities are plentiful, and an influx of grades without finished lubricant approvals is causing prices to vary widely and in some cases to sink below Group I levels. In this respect, the Group II segment is mimicing the Group III camp, though availability of non-approved Group II is significantly less than quantities of partly-approved Group III.
Prices for FCA and truck- or barge-delivered sales dipped to $865/t-$890/t (765/t-800) for 100 neutral, 150N and 220N and $955/t-$985/t (835/t-870) for 500N and 600N.
Group III prices are weaker oils with partial slates of approvals are continuing to pressure those with full slates of approvals. This two-tier market situation may be benefitting suppliers of the former but is doing no favors for those with full ACEA engine oil approvals. Many blenders around Europe are producing a variety of finished lubricants, leaving scope for all Group III base stocks to play their part. Some larger blenders are holding stocks of both fully and partly approved Group III, alternating depending on the requirements of each finished product.
Prices for all grades fell this week on declining demand, though suppliers called it a temporary calendar effect that will resolve over the next few months. Oils with partial approvals are reassessed at 735/t-750/t for 4 centiStoke grades, 765/t-785/t for 6 cSt and 755/t-770/t for 8 cSt, all prices on an FCA basis at Antwerp-Rotterdam-Amsterdam.
Grades with full slates of ACEA and European OEM approvals dipped to 860/t-895/t for 4 cSt, 885/t-910/t for 6 cSt and 865/t-900/t for 8 cSt, basis FCA Antwerp-Rotterdam-Amsterdam. These do not apply to material delivered in bulk cargoes to large or major buyers, which may be priced lower.
Baltic and Black Seas
Sentiment in the Baltic regions appears to be positive with distributors and resellers able to negotiate with Russian refiners on prices allowing attractive FOB and CIF sales into European and deep-sea export destinations. The ability to access Group I base oils at competitive levels may re-establish the region as a prime source for markets in West Africa and beyond. Having exported larger than normal quantities during December, the region is set to continue in this vein given the right ammunition from Russian refiners. Many smaller cargoes loaded during December for Antwerp-Rotterdam-Amsterdam and the United Kingdom.
Prices are stable, though sellers indicated there is flexibility for firm and tangible inquiries that can be negotiated and loaded on a relatively prompt basis. SN150 is at $580/t-$599/t and SN500 at $575/t-$595/t. Bright stock ex southern Baltic locations is unchanged at $810/t-$845/t FOB, and quantities of this grade are being shipped to other Baltic ports for use by blending operations within the area.
Black Sea trade has declined the past couple of weeks, due mostly to the Turkish market being thrown into turmoil by recent prices changes at the Tupras refinery in Izmir. In November the company hiked prices far beyond the levels possible for imports from Mediterranean Group I sellers, but then it promptly slashed values to move stocks. Those prices have since been reduced repeatedly and are now at levels that rule out imports from Greek or other Mediterranean producers. Some sellers have offered special price and credit terms in an attempt to compete.
Prices for European Mediterranean Group I oils are $595/t-$620/t for SN150 and $595/t-$620/t for SN500 and SN600 against normal trading terms. Bright stock from Mediterranean sources is uncompetitive versus local supplies.
There is news from Kavkaz, Russia, that a smaller, yet a significant quantity of SN500 was loaded on an STS basis from this facility for Gebze, Turkey, but that prices are now not realistic for the Turkish market. Larger cargoes being planned for later this month or early February, although as usual destination for these barrels has not yet been disclosed. These parcels are expected to be between 6,000 and 10,000 tons.
Middle East Gulf
There are inquiries for a small parcel of around 1,000 tons to load ex Red Sea for discharge into Turkey. This is expected to be a quantity of Group II oils, with a view to longer term supplies into this region. Other Red Sea trade includes the usual large movements of Group I going into the West Coast of India and the United Arab Emirates.
There are rumors around the U.A.E. market that Iranian exports have been making their way out of Bandar-e Emam Khomeyni and Bandar Bushehr to local receivers in Sharjah, although this is denied by reputable importers who perhaps fear reprisals due to U.S. sanctions. No prices have been openly discussed, but information gleaned this week suggested the trade is being conducted in local currency with an equivalent value of around $700/t on a CFR basis.
There are also a number of offers from traders using the FOB auspices of the U.S. Gulf Coast or U.S. East Coast suppliers where quantities of Group I grades are being simultaneously offered to receivers in the U.A.E. and India. Saudi Arabian suppliers are also covering contracted trades into the U.A.E., where higher-spec Group I oils with finished lube approvals are required for international formulations.
Group III exports from all Middle East Gulf sources are reported as moving out of the region as normal with the majority of the cargoes moving to the West Coast of India and the Far East, although exceptionally large quantities are being arranged for delivery into other U.A.E. receivers from Al Ruwais. Although in close proximity to the supplying source, the optimum method of delivering these large quantities of Group III grades is by sea, with voyage times of only hours in some cases.
Notional netback values for Group III grades dipped a little this week judging from landed prices on the West Coast of India since Jan 1. Partially approved oils from Al Ruwais and from Sitra, Bahrain, are assessed at $775/t-$855/t for all grades, although levels from the latter source were not verified. Group III oils from Sitra with full ACEA approvals are unchanged but weakening at $925/t-$970/t for all viscosity grades for shipments to European, U.S. and other Western markets. Sales of 8 cSt oils to India and the Far East will yield lower netbacks due to selling prices in those markets.
These prices refer to notional FOB levels calculated 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.
Fully approved Group II base oils sold ex hub storage in the U.A.E., either on a basis of FCA or delivered by truck or flexitanks, are reassessed lower this week at $995/t-$1,045/t for 100N, 150N and 220N, and $1,055/t-$1,095/t for 500N and 600N. These prices refer to small quantities of less than 25,000 tons per load, delivered around the Middle East Gulf, and they may vary depending on destination and distance from hub supplies.
Cargoes European Mediterranean and North African sources are reportedly moving into Egypt, Morocco and Algeria. Questions have arisen about whether the pending acquisition of the ExxonMobil refinery and base oil plant on Sicily by Algerian state oil company Sonatrach will affect supply or Group I base oils from this source. The companies have offered scant information, but it has been suggested that the plant will continue making base oils for the foreseeable future, supplying the outgoing owners with Group I base stocks for local Mediterranean and international markets.
In West Africa, Nigerian receivers are to take another traders' cargo sourced both from the East Coast of U.S. and the U.S. Gulf Coast. The parcel of some 11,000 to 12,000 tons of Group I grades will arrive into the Lagos port of Apapa during the second half January.
In addition to the news above, there are two inquiries for large cargoes to be loaded out of the Baltic, although one involved party has issued inquiries previously without following to complete the trade.
CIF/CFR prices for Group I base oils discharging in Nigeria rose to $740/t-$760/t light solvent neutrals ranging from SN150 to SN180, $775/t-$799/t for SN500, SN600 and SN650 and $945/t-$965/t for bright stock. SN900 remains at $825/t-$855/t.
Rerefined base oil has been offered firm to Nigerian buyers in flexi-bags at around $687/t delivered CIF Lagos. This offered price is for SN150 with a viscosity index of at least 115 and is rumored to be negotiable.
Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly email@example.com.