Base oil markets throughout Europe, the Middle East and African appear to be easing into their summer layoff. After a small spike in buying activity the past few weeks, trade has stabilized ahead of the traditional August lull.
There are limited opportunities for producers and other sellers to move prices higher since supply and demand are in balance. This is the case for all grades of base oils, although different grades have taken different routes to this point.
Demand for API Group I oils is slowing in Europe, and export opportunities are also limited, perhaps due to the summer slowdown in the northern hemisphere. Prices are stable, and availability is excellent for all viscosities. Aggressive spot and contract trade for Group II has softened the past couple weeks. Group III oversupply appears to be overstated, and most players are reporting that while demand is slowing for the summer, supply is also declining.
Crude oil retreated during the week, despite the Iranian seizure of a British registered tanker in the Straits of Hormuz. Dated deliveries of Brent crude fell to $63.25 per barrel, around $4 lower than last week, for September settlement. West Texas Intermediate crude also weakened at $56.25/bbl for September front month. ICE LS gas oil dipped some $20 to $585 per metric ton, still for August front month.
Prices were obtained from London ICE trading late Monday.
Group I export prices in Europe are steady this week, although there was strong buying interest in lighter grades. Some heavier neutrals are now priced below numbers being offered for solvent neutral 100 and SN150. It would appear that supply of heavy-viscosity material now exceeds demand.
Prices for SN150 are between $565/t and $585/t, SN500 at $575/t-$595/t and bright stock at $700/t-$735/t. These levels refer to large cargo-sized parcels of Group I base oils sold on an FOB basis ex mainland European supply points, always subject to availability.
Values for Group I sales within Europe are stable with the recent buying spike now over. Numbers firmed slightly due to this buying spree, but have now retreated to levels from the start of the month.
The differential between pricing for intra-regional sales and exports is unchanged, with the former assessed 65/t-90/t higher.
Whether due to the holiday season or not, Group II values are stable even though imports could be coming from the Far East and the United States. Given lower prices in source markets and plentiful availability, there may be opportunities for sellers to offer supply into the more lucrative European market. Some buyers have opted for imported material from distant sources, and these will not arrive into Europe until September or later, thereby fixing prices ahead to take advantage of competitive levels for Group II base oils.
European prices for Group II base stocks are unchanged at $720/t-$815/t (640/t-730/t) for 100 neutral, 150N and 220N, while 500N and 600N are at $750/t-$825/t (665/t-740/t), all on an FCA basis. These values pertain to all Group II base oils, including those with full slates of finished lubricant approvals and small parcels delivered in flexitanks from regions such as the Far East.
Group III demand is growing, although there is always the specter of over-supply haunting the market as additional capacity continues to enter the pipeline in regions like the Far East and India. With some of these markets at saturation point, and with European prices being pitched that much higher, it seems obvious that some new suppliers will try to export to attractive markets.
Group III values remain stable at 665/t-710/t for 4 centiStoke grades and 675/t-720/t for 6 and 8 cSt oils with partial slates of approvals, sold on an FCA basis ex hubs located in Northwestern Europe.
Fully approved Group III prices also remain unchanged at 710/t-840/t for 4 centiStoke product 800/t-865/t for 6 cSt and 775/t-835/t for 8 cSt, basis FCA Antwerp-Rotterdam-Amsterdam.
Baltic and Black Seas
There has been a small revival of trade from the Baltic with announcement of a large 12,000 ton cargo loaded earlier in July for Nigerian receivers. Sources said the Nigerian cargo had been discussed for some time and that supplies of Russian export grades had been specifically procured for this requirement.
Another cargo of 7,000 to 8,000 tons was loaded in two ports for shipment to Nigeria, and two smaller parcels are moving to the east coast of the United Kingdom and Antwerp-Rotterdam-Amsterdam. There has also been a sale of 4,000 tons of Russian export grades out of Riga, Latvia, going into storage in Eastham on the west coast of the U.K. These Group I supplies are important to maintaining a flow of Russian exports through the Baltic, where trade has been limited by both the availabilities of competitively priced oils coming out of Western and Central European refineries and by increased demand and higher prices in Russian domestic markets and Ukraine.
There are also reports of intra-Baltic movements from Poland into Scandinavia and Riga, possibly containing bright stock.
Prices for Russian export grades remain balanced between traders and resellers paying high enough levels to attract refinery gate or CPT border supplies, while at the same time being able to compete against attractive European values in Western and Central Europe. SN150 is priced at $475/t-$500/t and SN500 at $485/t-$520/t. Polish bright stock is indicated at $695/t-$725/t, FOB Gdansk.
The alternative Russian outlet market in the Black Sea is trending in the opposite direction at the moment, with large quantities of Group I exports available to load either ex Sea of Azov ports or STS loadings at Kavkaz, Russia. Prices at Kavkaz remain low at around $470/t for SN500, $455/t for SN150 and $515/t for blended SN900. Prices out of Kavkaz are so low that a number of export inquiries have been placed, including another large parcel to move to Singapore and also a cargo of 6,000 tons to load for the U.K.
The Turkish market remains subdued, although there are reports of reasonably large parcels of Group I base oils being sold into Gebze and Derince, Turkey, from sources in Greece and Italy. Additionally, there will be Russian material appearing in the Turkish market.
Buyers are still reticent to commit to large, imported parcels given the ongoing availabilities ex the local refinery at Izmir. Prices from the local refinery are steady, but local sources have said that this outlet is under pressure now to impose markups due to currency fluctuations that are almost always going against the Turkish economy.
Group II and Group III base oils are still being offered from the Far East directly to blenders in flexies as an alternative to material available ex tank from distributors representing the majors.
Group I oils ex Mediterranean sources are heard this week at $590/t for SN150 and, strangely, are lower for SN500 at $585/t. SN600 is priced at around $600/t and bright stock at $755/t, all on a CIF basis. There have been confirmed trades completed at around these levels.
Middle East Gulf
Red Sea cargo moves are announced by Saudi suppliers with large cargoes of 8,000 to 10,000 tons loading for receivers on the West Coast of India. These cargoes may be made up of both Group I and Group II base oils.
Middle East Gulf news brings further escalation to the Iranian situation with the arrest of a British registered vessel sailing through the Straits of Hormuz bound for a Saudi Arabian port to load. This action appears to be in retribution for the arrest of an Iranian tanker in Gibraltar, believed to be carrying crude oil for Syria. At this point the ruck remains in the political domain, although both the U.S. and the U.K. have not ruled out military intervention should matters become worse.
Additional U.S. and new U.K. sanctions have been announced against Iran, hitting foreign funds and the Iranian economy as well as preventing banking transactions, which will limit the exports of crude and petroleum products from Ian to neighbouring states. Base oil exports are no longer reported from the southern Iranian ports of Bandar-e Emam Khomeyni, Bandar Bushehr and Bandar Abbas, although some local sources still maintain that material is finding a way out of Iranian ports with prices indicated at around $590/t, or equivalent in local currencies.
Offers for Russian export grades ex Kavkaz are still traveling to receivers based in the United Arab Emirates, priced at around $544/t for SN150 and $558/t for SN500. These prices appear tailored to the local market rather than being based on FOB values plus freight plus a margin.
Group III base stocks continue to load from Al Ruwais, U.A.E., with a large cargo of 12,000 tons moving the short distance to Sharjah. This is still the only means of transporting large quantities of Group III base oils from that source to nearby receivers. Smaller quantities are delivered around the country by truck, but in quantities of only around 25 tons per load.
Assessed FOB levels for Group III base oils with partial approvals are unhanged this week at $685/t-$725/t for all three viscosity grades. Eight cSt grades moving to India and China will achieve lower contribution levels due to lower local selling prices. These prices apply to oils loading out of Sitra, Bahrain, and Al Ruwais.
Branded Group III Nexbase base oils ex Sitra refinery, which carry full slates of approvals and which are marketed by Neste, will attract higher FOB levels due to premium selling prices in destination markets. Prices are unchanged at $700/t-$865/t for 4, 6 and 8 cSt grades delivered into European and U.S. markets. Nominal FOB prices on a netback basis are based on prices derived from regional selling levels, less marketing, handling and freight costs.
Industry sources report the ingress of Group II cargoes from the new ExxonMobil plant in Rotterdam, going into storage in the U.A.E. It is not known whether this is a distributor operation or a direct sales effort.
Group III base oil prices within Middle East Gulf regional markets are stable at $795/t-$900/t for 100N, 150N and 220N and $815/t-$920/t for 500N and 600N, all on an FCA basis ex U.A.E. hub storage.
With the steady import of Group II material from Far East sources, there are reports that the heavier-vis Group II grades may be priced some $10 less than the lower-vis material. This appears to be a reflection of the FOB levels attributed to these grades.
Mediterranean and North African trades appear to be prominent this week, perhaps taking advantage of the last few movements prior to the summer recess taking effect in those regions. There are cargoes moving from Livorno to Mohammedia, Morocco, and also to Algerian ports.
West Africa reports described the arrangement for the most recent supply under the Ghana tender: 5,000 tons of three Group I grades being loaded out of Livorno in Italy. An additional 2,500 tons of Group I grades was loaded on the same vessel for discharge into Tarragona, Spain.
Prices for material moving into Apapa, Nigeria, are assessed unchanged from last week, estimated using the latest Baltic FOB indicators plus freight costs. SN150 is at $685/t-$710/t, SN500 at $695/t-$720/t, bright stock at $885/t-$925/t and SN900 at $710/t-$720/t.
These ranges cover all specifications of base oils including those requiring a guaranteed viscosity index of at least 95. This specification is required by some blenders for SN150 and SN500, and oils achieving it are priced at the higher end of the spreads. All prices are on the basis of CIF/CFR Apapa, Lagos. The prices above refer to large cargoes of at least 10,000 tons, landed into Nigerian ports.
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.