Mainland European base oil availability has diminished to the point where spot buyers looking for cargo-sized parcels have little chance of laying hands on any supplies through the next three months.
Enquiries are being met with comments such as September prices have not been decided yet. Or Nothing is available for the duration of this year. Contracted and routine buyers are favoured by suppliers, who count on these lifters to maintain their position in the markets and to pay the ever-increasing prices demanded for base oil.
API Group I levels have moved upwards again by some $10 to $25 per metric ton in mainland Europe, across the board. Producers maintain that they are clawing back raw material costs which vaulted earlier in the year. Buyers are fed up with justifications for further price rises, but are ready to accept the new prices in return for supplies of base oils.
The range for Group I solvent neutrals is now $1425 to $1445/t for the lighter ends, with medium and heavy grades such as SN 500/600 around $1450 to $1485/t. Brightstock is selling between $1590 and $1650/t, and in some cases a premium is added.
One deal reported for 2,500 tons of bright stock has been concluded at a floating price equivalent to $1660/t FOB at todays levels.
Demand is not falling back, as some forecast for the summer period. If any players do not take up their allocation, there are more than enough substitutes on the bench to take any spare material which is available in the market.
Russian cargoes from Baltic loading ports are in place for second half June, but the situation is almost likened to an auction with the avails being advertised and prospective buyers assembling to bid either on FOB or in some cases, on a corresponding CFR/CIF level. Cargoes destined for West Africa are being offered on a CFR basis, whilst FOB prices are being quoted for material moving to Northwest Europe, United Kingdom, and further afield to locations such as the United States, Mexico and South America.
Prices are now comparable with mainstream grades from European majors, since the strict requirement for higher spec material has been cast aside in favour of attaining supplies of almost any type of base oil rather than having no oil at all. Russian SN 500 with slightly lower VI and colour specifications is now accepted by most buyers in West Africa, whereas previously any SN 500 material with a VI of lower than 95 and a colour of more than 2.5 would have been rejected by these receivers.
Prices for these streams of Russian material are now $1465 to $1480/t for SN 150 and SN 500, with the heavier SN 900 coming out at around $1570/t, based on FOB selling levels.
Black Sea supplies of SN 150, SN 300 and small lots of SN 500 are being offered at $1500 to $1525/t, basis delivered north Turkish ports, but buyers are reticent to pay the asking prices. They are firmly of the opinion that the market is at its peak, and that price levels will start to tail off in coming weeks. Nevertheless, buyers in that region are investigating whether they can buy quantities of light vis Group II base oil in place of the Russian supplies. This situation did occur some ten years ago, when a glut of Group II grades from the U.S was used to placate demand in locations such as Turkey.
European Group II imported prices have been the subject of price hikes over the past few weeks. Light vis Group II grades are available in limited quantities for $1430 to $1475/t, with the heavier grades offered ex tank at $1545 to $1615/t.
Group III prices have been steady this week after the mid-month increases imposed by European and Far East producers and importers. But from today, June 1, another round of increases will hit the market for the two main grades coming into the Mediterranean and Northwest Europe. This will bring prices for 4 cSt to 1350 to 1365/t, and to 1380 to 1390/t for 6 cSt material. This reflects increases of 10 to 15/t across the two grades.
In the Middle East Gulf activity has been slow this week, perhaps due to turnarounds just completed and under way. Receivers have been lifting their normal requirements, with no significant large movements of material reported. One additional cargo of Iranian SN 650 has been noted as a complement to last weeks announcements. The cargo, some 3,000 tons, has been offered at a price almost $60/t higher than levels reported last week.
This is significant since SN 650 is a lower spec material than SN 150 and SN 500. Were new availabilities for SN 500 to hit the market, prices would be around $1290 to $1400/t, basis FOB BIK port.
The 1,000 tons of SAE 40 cited last week has been identified as locally produced material from Pars refinery, close in specification to an SN 500.
Some 5,000 tons of SN 500 was offered at $1420/t basis FOB Jebel Ali. This price possibly included commissions of around $10 to $20/t, so an accurate FOB level would be around $1400/t, which concurs with the increases applied to the SN 650 grade above, given that there would be freight and storage costs involved in UAE whilst handling this product for re-export.
East African receivers in Kenya and Tanzania have floated enquiries for combination cargoes of SN 150, SN 500 and bright stock. These requirements have been sent as far as the Baltic and U.S. Gulf Coast, but both locations are ruled out due to distance and the fact that there are no avails of these grades. Red Sea suppliers and Iranian exports will possibly offer for these cargoes, but the issuance of these enquiries to new and untried supply points highlights the lack of available material for these receivers at this time. Prices are difficult to gauge, but further feedback will allow the offered prices to become known in due course.
South Africa sources say that after turnarounds and maintenance has been completed at two of the base oil units, supply will get back to normal in this region. There have been few calls for imported material, which may suggest that most local requirements are being met by local production, and even when prices for local supply are some $100/t above European FOB levels, there exist few opportunities for imports.
West Africa has been smarting from the recent increases in prices. With only one cargo arriving at something approaching discounted levels, receivers are coming to terms with a new round of prices which will exceed anything landed into this region so far.
There is interest in Baltic supplies, but without bright stock in those parcels, preference is given for mainstream European material. Traders, however, have few chances to increase their allocated supplies for West Africa. Some traders have indicated that they are willing to divert cargoes into this region away from other destinations such as India and UAE, since West Africa gives a better return. Whilst there are increased risks of demurrage and detention in these areas, these risks can be measured and contained.
Some importers will struggle to obtain their preferred options on cargoes being delivered over the next two months. Prices must now reflect European levels plus freight, so deals may be concluded around $1575 to $1600/t for light and heavy neutrals, with bright stock almost topping $1800/t.
Fundamentals are again showing positives. Crude oil is moving upwards to $116.50 per barrel for Dated Brent and $102.30/bbl for WTI. In the European arena, ICE gas oil has moved forwards some $40/t since last week, and perhaps due to the driving season arriving, vacuum gas oil is in demand on both sides of the Atlantic, with the crack in Europe showing around $11/t.
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.