The European base oil market appears to have calmed, but availability remains scarce and an increasing number of buyers are looking to make purchases that will tide them over until supply eases.
The pressure on availability is being exacerbated - especially in Europe - by maintenance turnarounds at a number of plants. Most of the output from those plants has been marked for contract sales, leaving the spot market exceptionally tight. Few sellers are offering any significant parcels of API Group I base stocks at this time.
Crude oil and feedstock prices climbed the past week, driven by the increasing tensions between Iran and Saudi Arabia and weakening of the U.S. dollar. The developing diplomatic spat between Russia and many other nations is also having an effect.
Dated deliveries of Brent crude cleared another psychological hurdle, topping $70 per barrel for the first time in many months and posting yesterday at $70.20 per barrel. West Texas Intermediate also rose, hitting $65.40/bbl yesterday. Both benchmarks are trading for May front month. ICE LS gas oil, a gauge for petroleum products prices, increased some $30 per metric ton over last week's level to $615/t for April front month.
Group I export prices remain stable to firm, due primarily to short availabilities still underlying the market. If anything the lower ends of ranges have risen, since few players are prepared to offer material at the existing lows. Light solvent neutral prices are now heard between $810/t-$825/t and heavier neutrals such as SN500 at $855/t-$885/t. Bright stock has become extremely short, at least in large quantities, with only a couple of sellers able to entertain offers for sport barrels, mainly for sale into West Africa. Prices show signs of hardening further, with offers now pitching at $975/t-$995/t.
The above levels also pertain to larger cargo-sized parcels of Group I base oils being offered on an FOB basis from mainland European supply points.
If there is peculiarity in the European Group I markets, it is that trading within the region appears largely unaffected by the shortages in export markets, with no reported problems for supplies getting through to buyers. These markets tend to be more focused on contracted quantities, which have been allocated well in advance of any potential supply outages. Most buyers have expressed satisfaction at receiving full allocations of base oils from suppliers.
The differential between export and local sales prices is maintained this week at 10/t-45/t, though there will be pressure for the latter to rise around April 1.
European Group II markets also remain stable to firm but with lesss upward pressure after multiple recent price hikes. Supply and demand remain balanced, with material moving out of hub storage on a progressive basis, and no complaints from resellers of having too much or too little access to material.
Group II FCA prices are again maintained at $900/t-$920/t (725/t-740) for light-viscosity neutrals and $970/t-$990/t (780/t-800) for heavier grades. There may be discounts and additions to these ranges depending on the individual buyer and the commercial relationship with the seller.
European Group III markets are said to be stable to firm, with some reports suggesting that prices are starting to move upward even before the run-up in crude can take effect. Market share is still paramount in this market, since sellers realize there is a global surplus of supply at the moment.
Imported prices rose slightly to $910/t-$930/t on a CIF basis for 4 centiStoke and 6 cSt grades discharging into northwestern Europe. Euro FCA sales levels are now around 865/t-880/t for the same grades of oils with partial slates of finished lubricant approvals. Those with approvals from ACEA and European original equipment manufacturers are estimated to sell at premiums and are priced between 895/t-920/t for 4 and 6 cSt and 880/t-895/t for 8 cSt on an FCA basis, Antwerp-Rotterdam-Amsterdam.
The latter prices are for smaller FCA or truck-delivered lots of Group III sold to local blenders, and do not pertain to material delivered in bulk cargoes to large users such as major blenders or additive manufacturers.
Baltic and Black Seas
Sources in the Baltic region said it is turnaround season for a number of refineries exporting Russian base oil barrels. This situation is affecting overall availabilities from this region, with some sellers experiencing major shortfalls. Some suppliers who managed to stockpile are still moving cargoes or have access to other refineries not presently in turnaround. Sources said the situation is becoming easier and that more trains are leaving refineries.
Prices have not been adjusted this week since there have been few deals on which to base any change. SN150 is assessed at $720/t-$755/t and SN500 at $785/t-$825/t on an FOB basis. SN900 is estimated to lie between $865/t-$895/t but sales were reported this week. Bright stock from producers in the southern Baltic is assessed at $945/t-$985/t.
Black Sea trade may change dramatically with the announcement that the Turkish refinery in Izmir is coming back onstreamto produce Group I base stocks for the local market and which can be purchased in local currency. Cross Black Sea traffic appears to have declined, with Russian exports being concentrated in STS loadings out of Kavkaz, Russia, instead of the smaller cargoes that traditionally supplied Turkish ports like Gebze, Izmit and Aliaga.
Cargoes loading STS out of Kavkaz, Russia, are routinely being assembled for export to the United Arab Emirates, the West Coast of India, the Far East and Antwerp-Rotterdam-Amsterdam, with sellers keen to establish routes taking base oils out of the local or regional markets and strategically placing them into export destinations that may prove to be simpler and more effective trading.
The latest movement inquiry is for a medium-sized parcel of 6,000 to 7,000 tons to bridge to Rotterdam for onward shipment to South America. A 10,000 ton parcel loaded last week, bound for India or the U.A.E. Given the continuing apparent shortage of Iranian material coming out of Middle East Gulf, Black Sea barrels could be seen as an alternative source for heavier Group I grades such as SN500 and SN900.
Mediterranean suppliers continue to place contracted supplies into receivers in Gebze and Derince, even after the Izmir refinery resumed normal operations.
Offered prices for material delivered under contract are said to have climbed due in no small part to increases elsewhere. Exact levels are not yet available but are assessed at $845/t-$865/t for light solvent neutrals and $890/t-$920/t for heavy grades, basis CIF. There are no reports of new Group III sales from the Mediterranean this week, but levels were previously established at $890/t-$920/t, basis CIF, for 4 and 6 cSt oils.
Middle East Gulf
The Aqaba inquiry in the Red Sea appears to still be uncovered, but sources who suggested contracts would be fixed last week still predict trade will be completed. Exports froom Yanbu, Saudi Arabia appear to be prolific with a large shipping inquiry for some 15,000 tons of base oils to be loaded from this port and Jeddah for discharge into the U.A.E. and Mumbai anchorage. This cargo is possibly for supplies of both Group I and Group II base stocks.
Small Iranian Group I cargoes may appear out of Bandar-e Emam Khomeyni for receivers in Sharjah, but the mainstay larger cargoes for India and Pakistan do not appear to be be forthcoming. No information is being offered from Iranian producers, although U.A.E. sources suggested they are concentrating on the domestic market where demand appears to be rising. Based on local shipping rates, prices for smaller parcels landed into Sharjah are estimated to be around $835/t CIF.
A Black Sea cargo is under negotiation at this time with U.A.E. receivers, and a final decision on destination will be forthcoming during first week in April. With U.S. cargoes missing from the trade at this time and Iranian material slowing to a near standstill, Russian supply options may be welcomed for the second tier type Group I products that can be readily utilized in the Middle East Gulf.
Premium Group I grades are still flowing from Mediterranean and Red Sea sources for contracted trades in the U.A.E.
Export prices for Group III from Al Ruwais, U.A.E. are maintained this week although they face upward pressure because of raw material cost increases. The exception to this scenario may be the Indian and U.A.E. markets where competition from new Group II supplies may take a toll.
Group III oils marketed by Bapco, which carry only partial slates of approvals, are estimated to sell on par with oils from Neste that carry full approvals, at $820/t-$845/t, basis FOB.
Group II from Yanbu, sold on an FCA or truck delivered basis, are maintained at $895/t-$920/t for 100N, 150N and 220N, with 500N and 600N at $1,000/t-$1,045/t.
Cross-Mediterranean and North African trading is still awaiting news on the EGPC bright stock tender for supply into Alexandria, Egypt. Other North African markets are quiet this week, with no further news on new supplies moving into Morocco from either Italy or Portuguese suppliers.
South African agents described another large Group I cargo being planned from Mediterranean sources by an oil major for importation into Durban during May. This regular trade has re-established participation in the South African market after this major withdrew from this region some years ago.
A U.S. Gulf Coast cargo mentioned previously was confirmed this week for 12,000 tons of Group I grades that will discharge into Nigerias Apapa port around mid-April. With only one smaller parcel of bright stock being touted from European sources, the signs are that the West Africa and Nigerian markets have slowed down and do not have the requirements for large parcels of Group I base stocks at this time.
However, in spite of the availability problems in Europe, it is believed that additional supplies of small Group I quantities will be added to the Ghana tender, which is being protected under contract. The idea is that the additional quantitites would be allocated to receivers in Guinea and Ivory Coast, though a final decision has not been confirmed.
Local sources in Lagos confirmed that they are sitting on sufficient stocks to take them through the end of April and even into May. This does not apply to all players however, since others said they are desperately looking for material to arrive during April. Without their usual Baltic availabilities, they are struggling to find suitable cargoes from other sources.
The problem in West Africa is exacerbated by the fact that these trades are almost always performed on a spot basis, and few contractual Group I barrels are ever found in this region. This is leading importers and receivers in Nigeria to think again about structuring some form of contracted supplies with traders or other sellers who can accommodate regular supplies of Group I grades into this market.
CFR and CIF Prices for Group I base oils now on the high seas and moving into Nigeria have been heard this week from local agents and are indications only. Values landed into Apapa unchanged from last week: $895/t-$920/t for smaller quantities of SN150, $955/t-$995/t for SN500, SN600 and SN700, and $1,055/t-$1,085/t for bright stock.
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.