Resumption of activity has seen sellers gathering information as to what base oils are available and when, while buyers have been bombarding suppliers with enquiries. API Group I prices are moving upwards again.
Group I solvent neutral grades appear to be $10 to $20 per metric ton higher than previously quoted, perhaps due to anticipated acceptance by buyers, in what remains a tight market from the supply viewpoint. Negotiations have not been finalised on many new cargoes, but with a number of supply tenders looming, such as to Egyptian General Petroleum Corp. and receivers in Ghana, and others being just completed, such as to receivers in Syria, these drains on material will keep the market relatively short. At the same time they could introduce an element of price negotiation. Some producers may become competitive to secure these large pieces of regular business, and to protect their market share.
Group I prices are now in the range of $945 to $985/t for light solvent neutral grades, with SN 500 and SN 600 showing slightly larger gains and ranging between $980 to $1,035/t. Bright stock remains in very short supply for sizeable cargo lots, due to demand in the Middle East Gulf, East Africa and South African; prices have risen substantially and are now between $1,100 and $1,160/t. All these price levels are based on FOB sales, ex mainland Europe and North African terminals.
A number of enquiries have been received by Group III suppliers outside the EMEA region from blenders and traders within. On the one hand enquiries are being made for straightforward regular imported material, and on the other hand, on the basis of supplies being purchased FOB from outside the EMEA boundaries.
It appears that many users of Group III grades have reacted to the shortage of this material within the European arena by engaging with producers to evaluate whether the two main grades of 4 cSt and 6 cSt can be made available at source. Buyers are testing the feasibility of importing these products using traders or even trying to purchase and import themselves.
This is a new phenomenon in the market, which until now has been reliant on source producers shipping, storing and distributing Group III material. This move could lead to a weakening in the direct marketing of these grades, should some manufacturers break ranks to accommodate such procedures. Apart from the few major players, some new refiners producing Group III material may be attracted by the higher margins achievable in the EMEA market, and may be inclined to try to sell at higher FOB levels to third parties, both in bulk and in containers.
Group III prices have changed somewhat over the last few months, and where the original process was to use Group I prices plus a premium to sell these grades, Group III contracts now have evolved in their own right. Prices are established independently, losing all relation to other types of base oil.
Prices for Group III are now firmly around 1,120/t for 4 cSt base oil, and 1,135/t for 6 cSt material. Where 8 cSt is available, the price is reported around 1,165/t. These prices apply to products delivered by road tank wagon within the European mainland.
Rumours are filling the market that large tonnages of Russian and Belarus production have been flowing from Baltic loading ports over the last couple of weeks, but without substantiated cargoes and shipping information this export of some 60,000 to 70,000 tons of base oils is difficult to comprehend. There could be associated products which have been confused with and reported as base oils exported from Latvian and Russian ports. Further information is being sought. Prices for material available ex Baltic ports which has been verified are slightly ahead of last weeks figures, with SAE 10 and SAE 30 around $965 and $980/t respectively.
In the Middle East Gulf region there are reports that Saudi Arabian producers have dramatically increased the price of bright stock, with levels of up to $1,400/t quoted by receivers in the Eastern province. Other grades have also been hiked in value, possibly to take account of the shortage of Iranian material.
Three Iranian cargoes have been reported this week, the first of 5,000 tons being sold ex works Tehran plant at the end of September, at $810/t. Another of some 3,000 tons of SN 150, also for end of month lifting, is quoted around $860/t basis FOB BIK, with the final quantity of 3,000 tons of SN 500 being sold at $885/t FOB Bander Boushire. This shows that trade is possible, but is becoming more difficult as more financial institutions apply sanctions to any Iranian deals.
Group III is gaining ground in the Middle East Gulf area with large quantities imported from Korea and Malaysia. Prices are somewhat indistinct, due to the many ways that this material is delivered, by container, in bulk, and occasionally in drums or other small receptacles. Levels are similar to European sales, between $1,450 and $1,500/t basis delivered.
In West Africa the annual Ghana tender will be issued for bids within the next few weeks, which will no doubt bring a plethora of prices and qualities from various supply locations. With strict specification levels required to service this contract, it is envisaged that the supply will come again from one of the major European supply sources. One interesting point will be to see if any Group II or Group III material is included.
Nigeria remains relatively calm this week, with regular cargoes being worked for late September and October arrivals by the usual players. The main importers will be looking for a new raft of enquiries within the next week or two for fourth quarter supply. Prices for solvent neutrals are now reflecting the slightly increased European FOB levels, falling into a band around $20 to $30/t higher than previously, but bright stock may be hiked to new highs with shortages for large cargo sized lots of this material being reported throughout the EMEA region.
Group II base oils in Europe have been noticeable by their low key appearances in the market, with few new contracts signed by importers and their distributors. Prices are maintaining the delta versus Group I grades, even after the recent small Group I movements, and are between $1,025/t at the lowest point and $1,140/t for the heavier vis grades. Prices are on a delivered basis.
Crude has remained stable against last weeks values, having dropped to around $71.50 at one point last week, then rallying to $77 at the weekend. Levels now are showing at $76.70 per barrel for Dated Brent, which has been posting around $2 per bbl more than WTI. This reflects the crude oversupply which is evident in the West at this time, but strangely some products have not followed suit, with ICE gas oil showing increasing values through front and next two months, moving towards the winter heating oil season. The ICE gas oil crack was reported at a high this week at over $11 per bbl, which could maintain the pressure on feedstocks such as vacuum gas oil, which ultimately will affect base oil numbers.
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.