EMEAs base oil market continues to be driven by short supply of all types of material, in addition to demand which has suddenly enveloped the market. Producers are allocating supplies, almost no large spot sales are reported, and prices are rising.
Prices for API Group I base oils have risen and are continuing to rise, due to high demand for the scant availabilities from traditional local suppliers. Light solvent neutral grades are now trading between $940 and $965 per metric ton, with heavier neutrals such as SN 500 and 600 between $955 and $985/t. Bright stock has been a major gainer over the last ten days; prices now lie between $1,065 and $1,100/t. All are based on FOB sales, which are few and far between.
Demand is coming from two fronts. European blenders are requiring more Group I base stocks to meet local finished lubricant needs, and import demands from South America, India and Far East are growing. The pressure is on European producers to satisfy these requirements.
A number of traders have stated that it is becoming so difficult to put cargoes together for receivers in deep-sea locations, that no avenue, however logistically challenging was being left out of considerations. For example a large cargo of three grades being exported under a sell tender from Pakistan was being evaluated for delivery into Nigeria, whilst exports from Iran and UAE were considered for import into South Africa and South America.
In Iran, international sanctions are having a major effect on base oil exports. Further political and economic pressure has been exerted following an international statement last Tuesday which all but bans Western nations from directly trading with Iran. As mooted last week this will have a stifling effect on base oil trade from this area. One cargo lot of some 5,000 tons of SN 650, has been sold for loading in the first ten days of August, at $870/t, basis FOB BIK, but destination has not been disclosed. With this relatively low FOB price, this may be a candidate for UAE import and re-export.
Saudi Arabian producers have hiked FOB prices to new highs, but with regular buyers in the Gulf Cooperation Council areas under contract, it is not clear where these new levels will settle over time. Prices are now estimated to be in the range of $925 to $970/t for solvent neutrals with the light grades such as SN 100 and SN150 lying at the lower end of the scale and SN 500 reaching $970/t or higher. Bright stock is priced around $1,085/t, but with little availabilities for any spot trades.
Mainland European buyers in the Mediterranean have been making enquiries for purchasing material from other than their usual sources, but all supplies must be REACH compliant. This effectively rules out supplies from Russia, Belarus, Ukraine and North Africa. Local shortages and high prices have forced these buyers to look elsewhere, and it is difficult to see where this material could be found.
Russian supplies ex Baltic ports have been sporadic at best, with few cargo-sized availabilities coming to the market. Two export traders have indicated that they have managed to arrange direct deals with refineries within Russia and Belarus, using local contractors to move and store the material to FOB status in the Baltic. Prices from the refineries on an FCA basis would equate to around $855 to $870/t. With transportation and storage costs of around $48/t, the new FOB levels for standard SAE 10 and SAE 30 grades can be established. Some lower spec material is being offered at $955/t FOB for small quantities (200 to 500 tons), but these numbers make little sense given the poor quality of these grades.
West African buyers have all but disappeared, citing high prices that are unachievable in their markets. One Nigerian importer said if they had to pay the new tariff imports levels, the loss would equate to $100/t by the time they had blended and formulated the base oils into finished lubricants. There are still many enquiries floating around the market, but most suppliers are no longer treating these seriously, since these same enquiries have been seen time and time again.
Prices into West Africa must now be established at European export levels plus freight, which for bulk cargo lots would be around $1,050 to $1,070/t for light neutrals, $1,065 to $1,085/t for SN 500, and $1,175 to $1,200/t for bright stock, all basis CFR West African ports.
Group II European trade has been brisk with many new players interested in moving over to use these grades, but availability is again the name of the game, and most importers do not have sufficient material to entertain all of the enquiries. Price have been lifted again this week following July1 increases, and are now in the range of $990 to $1,085/t, basis delivered mainland European locations. Importers are suggesting that further increases are to be applied to these grades, even as soon as this week.
Group III grades have surged upwards in price and are now $1,200 to $1,280/t for 4 cSt and 6 cSt material respectively, basis ex tank Antwerp and Rotterdam in Northwest Europe and Genoa in the south. Demand is strong for these grades, and availability can only improve with added imports from Malaysia and Korea over the next few months. Domestic production has been stretched to its limit in the Balkans, and with blenders under allocation, extra production and availabilities cannot come to the European market too soon.
Fundamentals remain relatively stable, with perhaps a small $2 mid-week firming on crude numbers to around $77 per bbl for WTI, and Dated Brent showing at about $75.50. Feed stocks such as vacuum gas oil are still exhibiting strength in the crack. Sellers are relieved that refinery margins are the best for some time, whilst buyers ponder the improbability of the base oil/crude oil price relationship, and how much longer this seeming imbalance can continue.
Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in East Grinstead, U.K. Contact him directly at pumacrown@email.com.