A flat week has passed in the EMEA base oil marketplace, with few buyers actively pursuing material. Producers are not concerned, claiming this is a seasonal adjustment to the market.
Most buyers are relaxed in the knowledge that should they need material, product will be available. In some cases refiners have adjusted production of base oils downwards, anticipating that this pattern would emerge.
This is certainly the case with API Group I base oils throughout the EMEA region, and whilst Group II/II+ and Group III stocks cannot be described as plentiful, blenders are not clamouring for these grades as was the case some few months back.
Fundamentals remain stable, with Dated Brent crude settling at $116.60 per barrel, and ICE front month gas oil showing at similar levels to last week, around $978 per metric ton, in early week trading. Volumes of products are down from the heights of Q1 and Q2, echoing the base oil trend of a stable yet lacklustre market. Feed stocks such as vacuum gas oil have followed the trend, trading around the same levels as last week at $865 to $890/t.
European mainland prices for Group l base oils remain in the same ranges as last week. Light solvent neutrals are between $1410 and $1435/t, and SN 500/600 are offered at $1420 to $1455/t. Bright stock remains the oddball grade of the Group l slate with prices staying high, between $1590 and $1675/t depending on parcel size and destination for end-use.
Some of the usual large parcel suppliers of bright stock commented this week that they are still overall short of this material. One producer suggested that output for bright stock might increase over the next few months, following a forecast that there would be widespread demand for this grade above all other Group l oils. How much slack is actually in the bright stock production system is difficult to assess, but this producer hinted that they could increase by some 10,000 tons per month, which could make a large dent in an otherwise short market. Returns are excellent for bright stock at this time, which may tempt others to extend production of this grade to the limits of the system.
With diminishing Group l avails from areas such as the U.S. and South America, there could be an excellent case for European refiners to extend bright stock production to fill the vacuums created around the world.
Russian Baltic supplies are back on stream, and traders are offering relatively large quantities for August lifting. Sellers are keen to turn around the inventory on these products quickly, so prices may take a southerly direction into August, during what could be a sticky time in the market, with mainstream supplies more or less readily available.
Prices are being suggested by buyers sub $1300/t, but suppliers are resisting and trying to move parcels of SN 150 and SN 500 between $1310 and $1345/t. Only small quantities of higher vis material from Uzbekistan, SN 900 and SN 1200, are available at the moment, and these grades are touted around $1425/t. These levels should entice buyers from areas West Africa and the Middle East, but with freight costs remaining high from the Baltic loadports, and with restrictions on cargo size due to draft limitations, sizeable cargoes are difficult to organise from some ports in this region.
Black Sea trades have dwindled with just a few reports of offers or buying interest. Turkish buyers say they have plenty of material in tank at this time, and they are not looking to extend expensive credit lines. They claim that the market could fall during the next two months bringing lower prices for all base oils to the region. The price for one cargo of SN 150 ex Azov, delivered into Gebze, was put at $1342/t, much lower than anything seen within the recent past.
Demand has all but collapsed in the Middle East, where business sees a normal summer downturn. Iranian exports are now regularly channelled through U.A.E., but the market is very quiet. Even exporters looking to take small quantities of Group l material from U.A.E. are finding it difficult to obtain realistic offers from the normal traders for flexibag lots for East Africa and the Far East, where all buying activity of Group l base oils appears to be exceptionally sluggish.
On the other side of the Arabian peninsula, Saudi Arabian producers appear to be successfully defending their prices against the effects coming from the Gulf. SN 150 through SN 500 are in the region of $1365 to $1410/t, with bright stock at lower levels than mainland Europe at $1560 to $1600/t.
The two Saudi refineries are mainly supplying contract and regular purchasers with few spot transactions, giving the producers a stable marketplace where production can be tailored to fit the market to a greater extent than in Europe or North Africa.
South Africa awoke this week with new enquiries for imported Group l and Group ll base oils. There is now firm interest in both Group II and Group III grades in this region, augmenting local production of Group l base stocks. Prices into South African ports have been quoted around $1420 to $1455/t basis CIF for the range of solvent neutrals, which can only come from Far East supply points at this time. Little bright stock has been heard landed into the area. Group II prices for the light vis grades such as N60/70 are around $1440 to $1475/t for Far Eastern material delivered by parcel ships along with the quantities of Group l.
Tropical West Africa is still experiencing the wet season, although this will end shortly. Enquiries are expected from Ghana, Nigeria, Cameroon and Angola. Nigeria has two cargoes marked for arrival before the end of the month, both from Northwest Europe with added material from Baltic suppliers on one cargo. With Russian Baltic numbers showing slight weakness, a number of Nigeria importers expressed interest to buy, but some traders are reluctant to lower future numbers in the face of material arriving into Apapa at this time.
Prices for Group l grades into Nigeria remain high, around $1535 to $1575/t for SN 150 and SN 500/600, basis CFR Apapa. Bright stock commands around $1750/t on the same delivered basis.
European Group II/II+ imports have maintained their prices in the face of softening Group l numbers due in the main to consistently high prices from production sources in the Far East and U.S. The delta between Group II and Group l grades is now around $125 to $160/t, depending on viscosity. Light Group II grades are now selling at $1475 to $1555/t, and heavier grades and the small range of available Group II+ are $1560 to $1675/t, all on the basis of ex tank supplies.
Group III prices have not risen, perhaps due to the new competition coming in the next few months. Levels have not varied much since June, with lighter 4 cSt sold ex tank Northwest Europe at 1360 to 1410/t, and the heavier 6 cSt material at 1390 to 1425/t. Prices in the Mediterranean are similar, although one report pegs Far East material at 75/t lower. This report is unconfirmed and may only apply to two large receivers.
The market is slow, with expectations rather than actions this week. Refinery and raw material costs remain high, which could explain producers decisions not to discount price levels in the face of falling demand. Reduced demand with consistent production is the buyers hat peg, and is where that fraternity see the market heading over the next few weeks.
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.