Base oil prices throughout Europe, the Middle East and Africa are facing renewed upward pressure from firming crude oil costs that are now in view of $80 per barrel.
Buyers of all types of base oils are bracing for mark-ups, with some trying to beat the system by bolstering inventories wherever possible. Many are being thwarted however, as tight supplies are affording very few pockets of prompt spot availabilities. Grades that are being made available face less upward pressure, such as Group III grades.
Dated deliveries of Brent crude reached $74.50 per barrel last week were down to $72.25/bbl in trading yesterday for June front month. West Texas Intermediate crude posted yesterday at $67.25/bbl, also for June settlement, after approaching $70/bbl earlier. ICE LS gas oil rose last week then reverted $642 per metric ton, almost exactly the same as one week ago, for May front month.
The OPEC production cutbacks led by Saudi Arabia have been effective, and with U.S. stocks coming out of surplus for the first time in recent history and much geo-political wrangling continuing, the scene is set for a turbulent and bumpy ride for crude, feedstocks and base oils over the next few months.
European API Group I export prices are adjusted upwards this week, with sellers seizing the opportunity at every turn to hike levels higher than previously seen. The approach from many is to show very much higher numbers in offers, await counteroffers and then finally to sell to the highest bidder.
Light solvent neutral oils are between $845/t and $870/t, while heavier solvent neutrals rose some $25/t-$30/t to $895/t-$920/t. Bright stock is also showing strength and is now $970/t-$1050/t depending on loading location and relative distance from disport. These levels pertain to large cargo-sized parcels of Group I base oils sold on an FOB basis from mainland European supply points, always wherever and whenever available.
The outlook for Group I oils sold within Europe is mixed as some buyers said they expect large price increases to take effect May 1 while others said they can still purchase at prices set at the beginning of April, and that they do not expect markups. Availability remains a primary concern.
Some buyers said that if they would consider buying Group II in place of the light and heavy Group I neutrals, since prices for Group II grades may start to fall below those applying to Group I base stocks.
The differential between export and local sales prices is narrowed this week due to export prices promptly having higher tariffs applied, whilst there will be a delay until the month end for local prices to follow suit. The differential is assessed between 0/t-45/t.
Group II levels throughout mainland Europe are likewise facing upward pressure, perhaps moreso because of clouding of the premium over Group I grades. Industry sources report light-vis Group II grades being priced and sold below the corresponding Group I material. Prices for FCA sales are assessed at $945/t-$965/t (760/t-775) for light-viscosity grades and $995/t-$1,025/t (805/t-825) for heavies. Larger buyers may be able to command better levels.
The Group III scene in mainland Europe is lively with more material being made available from both established and new suppliers. It is difficult to say whether this is in response to increasing demand or suppliers and distributors simply trying to infiltrate the markets. Europe as a whole is perceived to be a huge growth market for Group III base oils over the next 10 to 15 years.
Producers of these grades, both local and importers, said they are reviewing selling prices in line with other types of base stocks whilst also considering upward swings in feedstock costs. Imported prices are raised this week to $945/t-$970/t on a CIF basis for 4 centiStoke and 6 cSt grades discharging into Antwerp-Rotterdam-Amsterdam and Northwestern Europe. Euro-based FCA sales are around 875/t-890/t for 4 and 6 cSt grades with partial slates of finished lubricant approvals. Those with full slates of ACEA and European OEM approvals are assessed between 895/t-925/t for 4 and 6 cSt, closer in pricing terms to non-approved products than previously reported, with 8 cSt material at around 880/t-895/t, FCA Antwerp-Rotterdam-Amsterdam.
The latter prices are for FCA, or truck-delivered smaller lots of Group III base oils, and do not pertain to material delivered in bulk cargoes to large users such as major blenders or additive manufacturers.
Baltic and Black Seas
There is still not a clear picture as to whether Baltic availabilities have returned to normal or whether there are still gaps in the supply chain that may be preventing a number of sales of Russian exports coming out of this region. There are a few reports of routine cargoes moving from Baltic ports to the United Kingdom and Antwerp-Rotterdam-Amsterdam, but no further mention of large parcels being assembled for West Africa.
The fears are that traders and buyers looking for material to move into markets such as the Middle East Gulf and West Africa may have missed the boat in terms of low-priced material, since numbers are moving upwards for supplies from the Baltic, in line with mainstream Europe. Buyers from West Africa have intimated that with prices moving higher from European and Baltic sellers, other sources such as the U.S. Gulf Coast are preferred. These comments however, may be based on old numbers that are no longer relevant.
Baltic FOB levels, established from netback calculations, have been moved upwards to reflect new Group I levels, with SN150 raised some $40/t to $795/t-$820/t and SN500 now at $845/t-$865/t. SN900, where available, is estimated at $920/t-$955/t and bright stock at $935/t-$1,020/t.
In the Black Sea there are also reports of two more large parcels of Russian heavy solvent neutrals being organized on an STS basis out of Kavkaz, Russia, to load at the end of April or early May. It is believed that one parcel is allocated for Rotterdam whilst another is being described as going either into the United Arab Emirates or the West Coast of India. Prices are being kept strictly confidential but are estimated here to be $775/t-$795/t for SN500, basis STS loaded.
Turkish importers in the Black Sea and East Mediterranean regions have been busy with a large raft of imported cargoes, carrying mostly Group I and Group II, making their way into the local market. Mediterranean and Northwestern European supplies are confirmed moving into ports such as Gebze and Derince, with Group III material from Spain discharging into Gebze and Israel.
Group I Mediterranean supplies are now indicated at around $885/t-$920/t for light neutrals, SN600 or SN500 at $935/t-$960/t, basis CIF. Fully approved Group III ex Mediterranean delivered into Gebze is assessed at $975/t-$995/t, CIF, though reports indicate some Group III sales are being transacted in euros.
Middle East Gulf
Red Sea reports are focused on the large cargoes being loaded out of Yanbu and Jeddah, Saudi Arabia, for the U.A.E. and India, with mention of parcels as large as 20,000 tons being moved from these sources. There are also further inquiries for around 20,000 to 25,000 tons of base oils loading during May for Sudanese receivers and U.A.E. buyers. With the advent of the new Group II production at Yanbu, this region has seen large quantities of both Group II and Group I base oils moving into traditional and new markets.
In the Middle East Gulf region, Iranian Group I cargoes are announced as possibilities coming out of Bandar-e Emam Khomeyni and Bandar Bushehr bound for India and Sharjah, U.A.E. The absence of Iranian cargoes over the last month or so has not yet been fully explained, and with more Black Sea cargoes on the horizon for the same U.A.E. receivers, it is not confirmed whether Iranian supplies will be available on an ongoing basis or whether there will be another hiatus.
With possible U.S. sanctions on the horizon and with other Western states also possibly participating, the outlook for exports of Iranian base stocks seems in doubt. Sources suggest a certain amount of Iranian base oils and finished lubricants has been, and perhaps still is, being transported into Syria by road. It is unclear whether this activity was based on a commercial arrangement or a governmental edict.
Group III exports from all sources in the Middle East Gulf are back on the menu, with large export quantities being announced once again from Al Ruwais, U.A.E. The Far East appears to be the main target, but there are also replenishment cargoes for the U.S. and Europe, and shipments to India are being negotiated.
Notional FOB prices are adjusted upwards this week, since the effects of higher feedstock values will have had an effect on the production of material from Al Ruwais, Sitra, Bahrain, and also on base oils from Ras Laffan, Qatar, though the Pearl gas-to-liquids installation there is subject to different feedstock. Levels are assessed at around $800/t-$835/t, basis FOB, for 4 and 6 cSt grades with partial approvals and $865/t-$890/t for fully approved oils of the same grades. FOB levels are established on a netback basis using published shipping freight rates and taking into account advised landed prices from a variety of sources.
Saudi Arabian suppliers are now firmly establishing themselves on the Middle East Gulf map with supplies of Group II from Yanbu to U.A.E. receivers. As mentioned above, large parcels of both Group II and Group I grades are moving into the eastern parts of the Peninsula, in Fujairah, Sharjah and Jebel Ali.
Other traditional supplies of Group II base oils within Middle East Gulf, which would originally have been sourced out of U.S. or Far East but are now mainly supplied ex U.A.E. on an FCA or truck-delivered basis, are assessed at $895/t-$965/t for 100N, 150N and 220N, with 500N and 600N at $1045/t-$1100/t. These prices are based on imported material being sold ex rack or by truck.
There was news from South Africa this week that ExxonMobil appointed a new distributor to handle its base oil and lubricants business for sub-Saharan Africa. This operation has been in trials the past few months, with large cargoes being exported from Europe going into Durban for storage and redistribution.
East African sources report that the Tanzanian government will be issuing permits for importation of base oils and that only licensed parties will be allowed to indulge in this trade. This action is being taken to cut out the quantities of sub-standard base stocks that have been tainting the lubricants trade in this country for many years.
In addition to a Baltic cargo that will be arriving into Apapa, Nigeria, in the next couple weeks, a parcel of some 15,000 tons of Group I base oils has been loaded out of the U.S. Gulf Coast for discharge into Lagos during May. The U.S. Gulf is being touted as the favorite source to obtain base oil cargoes that are reasonably priced, according to sources in Nigeria. They said European and Russian exports have become too expensive for the local lubricant market and that this is preventing further purchases from those regions.
The same receivers are looking to take a cargo out of the Baltic, in addition to other options such as Spanish and Italian Mediterranean loadports. The local Nigerian market will always be subject to the FOB prices that are achievable for imports of Group I base oils to flow into this region. The markets will adapt as they have done before, and prices for locally produced finished lubricants will be raised to accommodate the new raw material costs.
Group I base oils landing into Nigeria are now being indicated by sources in Apapa at around $895/t-$925/t for SN150, SN180 or other light neutrals and $955/t-$985/t for SN500, SN600 or SN700. SN900 ex Baltic is pitched at $995/t-$998/t and bright stock at $1,020/t-$1,100/t. These prices refer to large parcels of Group I base oils delivered into Apapa port, Nigeria.
The latest prices for quantities under offer from Baltic sources have not yet been released, but suffice to say that they may be some $50/t-$70/t higher than those prices related above, since the market has moved considerably in the past few days.
Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly email@example.com.