With business returning to normal after the Easter holiday, base oil markets turned bullish with demand increasing while supply constraints persist in certain areas. Prices have started moving upwards again as producers and sellers cite increasing raw material costs.
This may be a result of base oil prices finally catching up with a run-up in crude and feedstocks costs some weeks back. All groups of base oils have been affected, as API Group I oils remain extremely short in export markets, Group II is coming under pressure from Group I hikes and feedstock increases, and Group III grades rise due to demand.
Crude values have stabilized the past three weeks. Dated deliveries of Brent crude posted at $68.50 per barrel Monday for June front month, while West Texas Intermediate continued treading water at $63.50/bbl for May front month settlement. ICE LS gas oil has also plateaued at around $614 per metric ton, still for April front month.
European Group I export prices are higher this week and are now defined as firm as availability problems exist for some grades. Light solvent neutrals appear most affected, with SN150 being sought after by many buyers. Light solvent neutrals are now between $820/t and $840/t, while heavier grades are $875/t-$895/t and bright stock is seen in offers at $955/t-$1,020/t. Note that the deltas between SN150 and SN500/600 and between heavier grades and bright stock are both smaller than usual. These prices pertain to large cargo-sized parcels available on an FOB basis from mainland European supply points.
Group I values for sales within the region have also firmed since the beginning of the month, and the picture for them is now clearer. Traders and resellers throughout Europe described having to replace current stocks with more expensive material and therefore having to impose hikes. Buyers are reluctantly accepting these increases, finding solace only in the fact that at this early stage in the year they may be able to raise prices of their own finished products in order to recoup costs.
There are still some major gaps in the supply chain, with a particular shortage of availabilities for light solvent neutrals. As a result, some blenders have issued inquiries for rerefined base oils. Some claimed they were prepared to switch to Group II grades, but with Group II prices also climbing, that option is also losing attractiveness. The differential between export and local sales prices is unchanged at 40/t-65/t.
Group II European prices rose around $20/t the past week, though it is unclear whether this was in response to production cost increases or rising Group I values. Light-viscosity oils are $920/t-$940/t (740/t-755), heavier grades at $990/t-$1,015/t (795/t-820), all on an FCA basis. It must be mentioned however that there may be variations to these prices with larger buyers able to command lower levels.
Group III values across Europe remain relatively stable with only a few instances of increases applied to the lower end of the market. The low numbers that were being quoted for Russian Group III appear to have moved closer to the European norm. Prices for locally produced Group III oils with full slates of finished lubricant approvals are unchanged this week, perhaps because suppliers want to maintain market share against lower priced imports.
Imported prices are assessed at $910/t-$930/t, basis CIF, for 4 centiStoke and 6 cSt grades with partial slates of approvals discharging into Antwerp-Rotterdam-Amsterdam and Northwestern Europe, while FCA sales are pitched at 865/t-880/t for the same grades. Group III with ACEA and European OEM approvals sell at premiums and are priced at 895/t-920/t for the 4 and 6 cSt grades and 880/t-895/t for 8 cSt, basis FCA from Antwerp-Rotterdam-Amsterdam.
The latter prices are in respect of FCA or truck-delivered, smaller lots of Group III base oils sold to local blenders. They do not pertain to material delivered in bulk cargoes to large users such as major blenders or additive manufacturers.
Baltic and Black Seas
The Baltic scene remains tight with only contractual trades being regularly transacted and some traders still struggling to lay hands on all the base oils they could sell. Most of the maintenance turnarounds at Russian refineries are completed, and this theoretically should release more barrels for export. Domestic demand is strong, however, and some output that normally leaves the country could be diverted to stay at home.
This scenario has largely ruled out offers for shipments to deep-sea to locations such as West Africa, as many distributors and re-sellers in the Baltic region say they can achieve better returns by selling into destinations such as Antwerp-Rotterdam-Amsterdam, Scandinavia and the United Kingdom. There are still a couple of large inquiries on the table for Nigeria.
Prices for material being delivered into Antwerp-Rotterdam-Amsterdam, netted back to FOB levels, are assessed higher this week at $750/t-$785/t for SN150, $800/t-$840/t for SN500, $885/t-$920/t for SN900 and $955/t-$1,000/t for various forms of bright stock.
In the Black Sea, export cargoes from Kavkaz, Russia, continue to be prominent due to their size and regularity. These parcels are being assembled to go either to Far East, the United Arab Emirates and India, or to Rotterdam. They consist mainly of Russian SN500, though there are reports of SN150 and SN900 also being loaded. Prices were not not disclosed, but they appear to be competitive with rates in the U.A.E., India and Singapore, and more information is being sought.
Mediterranean supplies of Group l and III are moving into Turkey, as receivers in Gebze and Derince still prefer this material, which is available year round, to Russian exports that are subject to the vagaries of winter. The Mediterranean material is delivered under contract with prices index-linked and heard to be around $865/t-$885/t for light neutrals and $900/t-$935/t for SN500 and SN600, basis CIF. Mediterranean Group III delivered into Gebze are said to be landing at $945/t-$970/t, CIF.
Middle East Gulf
Red Sea shipping reports reveal a large number of inquiries that invariably materialize into cargoes fixed firm from Yanbu and Jeddah, Saudi Arabia. New Group II output from Yanbu appears to be moving prolifically into the West Coast of India and to Middle East Gulf receivers, and with plenty of inquiries coming in, the uptake of that output appears to be assured. There are also parcels being delivered overland to the Saudi market and other GCC countries.
Iranian Group I appears to be available from Bandar-e Emam Khomeyni, but parcels are being sold only on a delivered basis, not FOB. Fewer cargoes are coming out of Iran, with only around 5,000 to 10,000 tons of SN500 being loaded every month. Sources advise that availabilities will go to the West Coast of India. FOB prices were not revealed but reported CIF levels would suggest prices of $830/t-$850/t on an FOB basis for SN500. U.A.E. receivers are currently looking to purchase SN150 and SN500, but no deal has been struck as yet.
A large Black Sea cargo reported here earlier is understood to have been sold into Mumbai, although local sources have yet to confirm it. This means that receivers in U.A.E. were either unable to accept the offered price or had alternative supply options.
Prices for Group III oils from Al Ruwais, U.A.E., rose this week, as sources suggested that Adnoc increased delivered and FOB prices to distributors and other purchasers. But sources also confirmed examples of values on parcels delivered into India being discounted to compete with Group II availabilities. The latter pricing seems to be a temporary strategy to maintain market share and allows Adnoc to review said prices without notice.
Otherwise Group III prices appear to have risen, to $785/t-$800/t, FOB, for partially approved 4 and 6 cSt grades marketed by Bapco from Sitra, Bahrain, and to $845/t-$870/t for fully approved grades for the same oils Neste. These nominal FOB levels are established on a netback basis using published shipping rates plus landed prices from a variety of sources.
Group II base oil grades from Yanbu are becoming more available throughout the region with some buyers acting as distributors serving the smaller end of the market. There are doubts as to whether this has been approved by Luberef, but it does provide an alternative to Group II imports that small buyers in the region have traditionally had to rely on. The price range for local sales, which are being struck mostly from the U.A.E., has broadened to $855/t-$940/t for 100N, 150N and 220N and $945/t-$1,065/t for 500N and 600N.
In addition to regular supplies in flexi-tanks and drums, East African buyers are looking to take a large quantity of Group I from European Mediterranean suppliers. Availabilities and perhaps prices are favouring Far East sources, though, so this second option may be invoked.
Meanwhile, South African sources have revealed that another Northwestern European shipment of Group I and Group II grades is being readied to load for Durban, This cargo is expected to have around 12,000 tons of base oils and will be due for arrival into Durban during May.
In West Africa there is news of another large cargo purchased from the U.S. Gulf Coast following a 12,000 ton cargo of Group I due to arrive into Lagos later this month. It is believed that the Ghana base oil tender supply has been organized from the usual supplying source in Italy and will be delivered either during second half April or the first part of May. Receivers in Guinea and Ivory Coast are poised to confirm later this week when the next supply will be arranged, but it is believed that this will happen in conjunction with a shipment of premium Group I base oils going into Nigeria.
Nigeria buyers who were considering using Group II material have reconsidered after evaluating prices for these grades and finding them too expensive. Group I cargoes are still the main priority for receivers in Nigeria, and some said they are willing to look for material from almost any source, including the Far East. This option has obvious downsides in terms of freight rates and also length of voyage time, but is by no means impossible.
FOB prices from Far East suppliers currently appear more attractive than notional prices coming out of Europe, and with a lack of availability from European sources, cargoes may be very difficult. The favored options, however, are still the Baltic, the U.S. Gulf Coast and the U.S. East Coast. The Black Sea option has been sidelined due to the lack of availability of heavier grades such as bright stock and SN700, for example.
Pricing for Group I base oils going into Nigeria are re-assessed this week and now estimated at landed into Apapa at around $895/t-$935/t for SN150 and SN180 or other light neutrals, $965/t-$995/t for SN500, SN600 and SN700 and $1,025/t-$1,095/t for bright stock.
These prices refer to large parcels of Group I base oils delivered into Apapa port, Nigeria.
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.