Base oil prices are coming under pressure from a variety of factors that differ depending on category. API Group I prices are being squeezed by demand reductions that may be part of a seasonal cycle or signs of economic downturns in major markets such as Germany, Italy and Spain.
Group II prices are relatively stable, with one major producer trying to impose increases for October, although this move is being met with resistance from buyers saying they have ample choice in the Group II market and will change suppliers if needs be.
Group III prices are weakening due to the number of supply options available in the market and the competitive nature of this segment. Buyers are spoilt for choice of grades with and without full ranges of finished lubricant approvals.
It seems clear by now that the drone attacks in Saudi Arabia have not had any real effects on crude markets, and that supplies of Saudi sourced crudes are finding their way into refineries as normal. Whether this will change over time is unknown, but that has been no word of allocations or force majeure.
Crude prices eased the past week, with dated deliveries of Brent crude falling $3 to $61.00 per barrel for November front month settlement. West Texas Intermediate slid to $55.20/bbl, also for November front month. ICE LS gas oil fell back to $592.00 per metric ton for October front month. These prices were obtained from London ICE trading late Monday.
Group I export prices in Europe appear to be weakening as sellers lower offered prices in order to move stocks held in storage. Demand is weak, with a limited number of export markets open to the European arbitrage at this time. Traditional outlets in West Africa and South America are being tapped by suppliers taking material out of the United States Gulf Coast, whilst only one large export cargo to the Caribs has been indentified moving out of a number of Mediterranean supply points.
Maintenance turnarounds are having little effect on the overall availability of Group I grades, and sellers are trying to line up sales for October as early as possible.
Prices are possibly $10/t-$20/t lower this week, particularly in the case of bright stock, which could be described as long on supply. Prices for solvent neutral 150 are assessed between $565 per ton and $590/t, while SN500 is at $575/t-$595/t, both on an FOB basis. Bright stock values definitely moved lower to $650/t-$675/t.
The Egyptian General Petroleum Corp. tender for the fourth quarter has been awarded for smaller quantities than recent quarters. This will only exacerbate the length of the bright stock supply situation within Europe since other sources such as Red Sea suppliers are now competing for this tender.
The prices above refer to large cargo-sized parcels of Group I sold ex mainland European supply points, always subject to availability.
Values for Group I sales within Europe are also coming under pressure, with suppliers complaining that demand has not approached normal levels following the holiday period. Prices are adjusted lower this week, but the differential between domestic Group I levels and export pricing is unchanged, with intra-regional sales now 85/t-100/t above export levels.
European Group II prices remain stable but an inherent weaker sentiment is creeping into this part of the base oil market. This against a backdrop where one major producers has tried to push prices higher for October sales, possibly unsuccessfully, but nevertheless with prices firming in other parts of the world perhaps they can be excused for trying to lift the European levels at the same time.
However European Group II prices are much higher than Group I and are still regarded as the highest around all the global markets, these factors not being lost on buyers of these grades throughout Europe. Demand is weaker than forecast and this is also tempering any suggestions that prices are about to rise.
Group II prices are therefore maintained with FCA levels at $700/t-$815/t (625/t-730) for light-viscosity grades and 500 neutral and 600N at $720/t-$825/t (640/t-740). These prices cover grades with and without finished lubricant approvals.
Group III prices are under pressure from the sheer number of competitors vying for position in the European arena, which promises potential for enormous Group III growth over the next 10 to 15 years. Material produced locally is competing with imports from the Far East and the Middle East Gulf, and there is a sense that the segment is headed for oversupply.
Prices for partly approved oils are assessed a bit lower this week, at 645/t-690/t for 4 centiStoke grades and 650/t-700/t for 6 and 8 cSt, on an FCA basis ex hubs in Northwestern Europe. Fully-approved grades are mostly higher, although it must be stressed that in some cases net values can be almost aligned with partly-approved oils. Prices dipped this week to 785/t-850/t for 4 cSt, 820/t-910/t for 6 cSt and 790/t-865/t for 8 cSt, FCA Antwerp-Rotterdam-Amsterdam.
Baltic and Black Seas
Baltic availabilities appear to be improving, perhaps due to seasonal slowing of East European and Russian domestic markets. Thus Baltic distributors and resellers are able to secure volumes at prices that were turned down not long ago. Once again this trade can compete for export destinations such as West Africa and also for European mainland, the United Kingdom and Scandinavia.
An inquiry for Nigeria that was previously reported is still in negotiations, and no further news is available regarding total quantities or the timing for this cargo to load. One cargo of around 5,500 tons is moving into Antwerp-Rotterdam-Amsterdam from Kaliningrad, Russia, and the U.K. inquiries for material to be delivered prior to the Brexit date of Oct. 31 are in progress.
Prices dipped the past week to $470/t-$495/t for SN150 and $475/t-$510/t for SN500, both on an FOB basis. Bright stock ex Gdansk is also assessed lower, in line with the European oversupply of this grade, and is now gauged to lie between $660/t-$675/t.
Black Sea reports suggest that there will be another one or perhaps two cargoes loaded from the STS facility at Kavkaz, Russia. There will also be other Russian exports out of Temyruk going into Turkish ports. Prices for Kavkaz cargoes and other Russian exports remain at extremely low levels of around $455/t for SN500 and $435/t for SN150.
Mediterranean Group I base oil cargoes appear to have made a comeback into Turkey, with a couple of Greek offers accepted by buyers. There may be some additional requirements for imported Group I cargoes to go into Turkey since the local refinery at Izmir has ceased production. The Turkish situation is anything but positive, with the economy torn between low interest rates as proposed by the president and realistic rates as suggested by the Central Bank. If the low interest rates are adopted, the economy could implode, bringing back many problems for exchange rates against major currencies such as the dollar. In an otherwise dull market, this could tip the country into a massive decline that would not be easily or quickly escaped.
Mediterranean Group I is being offered at $569/t for SN150 and $575/t for SN500, basis CIF. SN600 has been heard at $587/t and smaller parcels of bright stock at around $730/t.
Quantities of Group II and Group III base oils are being made available on an ex-tank basis in Turkey, and smaller Group III cargoes are arriving from Spanish producers. There are also a number of resellers touting Group II avails, some acting as distributors for major producers while others are taking material in flexitanks from suppliers and traders in the Far East.
Prices for Group II avails ex-tank are around $790- $825/t, and Group III grades with partial approvals are reported to be at $785/t-$845/t, depending on payment terms and quantities purchased.
Middle East Gulf
Red Sea sources confirm that the Jordanian requirement for around 3,000 tons of Group I to be delivered into Aqaba has been covered by the Saudi Arabian producer. Another large parcel of 15,500 tons will be loaded this week for discharge into the West Coast of India. There will also be a follow-up cargo of a similar size loading for various receivers in the United Arab Emirates and both the west and east coasts of India, again on a prompt basis. There are also two separate inquiries for smaller cargoes into Egypt, which may suggest coverage of the EGPC contract.
Group I trade in Middle East Gulf still contains pricing reports for Iranian SN500 and SN150, although no reported cargo movements have come to light through normal channels. U.A.E. sources still claim that base oils are still being moved out of southern Iranian ports using small vessels delivering these quantities into local U.A.E. receivers. Prices for these supplies of premium Iranian SN500 are said to be around $525/t, FOB. There are rumors that Iran is short of SN150 and would normally look to import material to supplement local supplies, but doing so may be difficult, despite interest to take material through the U.A.E., possibly from Black Sea sources.
Coincidentally an offer for a Russian Group I cargo ex Kavkaz for receivers in U.A.E. is heard at around $548/t for SN500 and $528/t for smaller quantities of SN150.
Group III numbers ex Al Ruwais, U.A.E., and Sitra, Bahrain, dropped this week due to the erosion taking place in destination markets such as China and India. Grades with partial approvals are assessed at $680/t-$720/t for all three viscosity grades. Eight cSt grades going into India and Far East locations will yield contribution levels around $100/t lower thanks to local selling prices. These partly-approved Group III base oils are being sold on an FOB basis through Adnoc and both FOB and CIF by Bapco.
Group III base oils loaded and marketed ex Sitra by Neste hold the full range of European OEM approvals and therefore are achieving higher selling prices. Notional FOB levels have dropped to $780/t-$885/t for 4, 6 and 8 cSt grades. Nominal FOB values on a netback basis are based on prices derived from regional selling levels, less marketing, handling and freight costs.
Prices are adjusted this week for Group II base oils going into the Middle East Gulf from the U.S., the Far East, Saudi Arabia and Europe. With Far East prices rising by some $10/t and with one major importer trying to push levels higher for October, resale levels for FCA sales ex U.A.E. hub storage are now considered to be at $785/t-$890/t for 100N, 150N and 220N while 500N and 600N are at $795/t-$910/t.
North African reports suggest that some of the coverage for the EGPC tender may issue from Red Sea sources. This is not yet confirmed, and traders may still be involved. There are no reports regarding the start-up for the Egyptian refinery that has been closed for some two years, although market sources close to this project have indicated that some progress will be made during October.
South African sources confirm that the large cargo of mixed Group I Group II and Group III base oils is loading this week and will arrive into Durban during early November with a total quantity of 12,000 tons. Loading out of two Mediterranean ports, this cargo will include 5,000 tons of Group I to be delivered into Tema, Ghana.
Another cargo loading out of an Italian port is being assessed for some 7,000 tons of Group I base oils to be delivered into West Africa, probably Nigeria. No more cargoes are reported coming out of the U.S. Gulf for Nigeria, although with another Baltic inquiry on the table, the cargo out of the Mediterranean may be a substitute for the Baltic supply. The first of the three large cargoes loaded from the Baltic, the U.S. Gulf and Antwerp-Rotterdam-Amsterdam should be arriving into Apapa port in Lagos, Nigeria, during the next week.
Prices for Group I base oils are unchanged this week at $695/t-$720/t for SN150, $695/t-$720/t for SN500 and $875/t-$910/t for bright stock. SN900 is indicated at $715/t-$725/t.
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.