The EMEA base oil market is feeling pressure from more than one side, including markets that were recently seen as cheaper or safer sources of supply.
Far Eastern base oil prices have risen dramatically during January, after a long spell in the doldrums. As a result, buyers in areas such as India, U.A.E. and East Africa are looking for alternative supplies. Mainland European, Black Sea and Baltic supplies are consequently scant, and where products are available in pockets, prices are moving up to take account of the increasingly short market.
Some European suppliers this week expressed concern that regular buyers requirements will go unfulfilled, and that large supply gaps may start to open up in traditional spot market areas such as the Middle East Gulf, West Africa and Turkey. Bearing this out, earlier this week several receivers made serious enquiries to substitute API Group l material with Group ll grades, whose supply is perceived to be more sustainable than Group l solvent neutrals from mainland Europe.
For the first time since 2008, there have been rumours of two or three European refiners taking steps to increase production of Group l base oils. These are early days to gauge what influence any additional quantities may have on the market, but at least recognition that the EMEA base oil arena is short of Group l material appears to have filtered through. Producers are convinced that any small increase in production would have no negative effects on current pricing.
Mainland Europe supplies are being squeezed, with some traditionally locally-supplied areas acting as drains for any available northwestern European and Mediterranean base oils. South America is showing a healthy demand for European Group l material, whilst Iranian supplies appear to have all but dried up, leaving regions such as U.A.E. and the west coast of India extremely short of base oils.
In Europe, Group l light solvent neutrals, predominantly SN 150 since SN 100 is largely unavailable, are selling between $1,090 and $1,135 per metric ton. Heavier neutrals, SN 500/600, are $1,120 to $1,155/t — higher numbers than accepted published prices. Bright stock, where availability can be confirmed for February, March and April, is priced based on levels ruling on the date of loading, with large premiums added, sometimes in excess of $100/t. All these figures are FOB, ex mainland Europe and North African refineries.
Russian Group l material ex Baltic and Black Sea continues to attract a number of traders, mostly looking to take larger cargo lots to deep-sea locations, or to supply local markets in Benelux or U.K. Prices have moved with SN 150 now at $995/t and SN 500 at $1,020/t. In the Black Sea delivered prices have risen in line with FOB values, and Russian SN 150 is offered at $1,065/t delivered to northern Turkish ports. Uzbek light neutrals are also offered on a similar basis, with slightly higher specification material sold at $15 to $20/t above normal tariffs.
Group ll/ll+ base oils are once again making inroads to the traditional supplies of Group l, perhaps not for the reasons of technological improvement but as economic alternatives. Buyers are looking not just at delivered prices, but also at sustainability of supply and longer term blending patterns yet to emerge.
Prices for Group ll are steady and are maintaining the all-important differential with Group l. Some of the heavier Group l grades are priced above lighter Group ll material, but most Group ll base oils are priced between $1,125 and $1,185/t for the lighter grades, with heavier vis material coming into the European supply chain around $1,150 to $1,220/t. The advantages of Group ll material with higher VI and oxidation stability properties can more than offset the higher prices, when compared to many Group l based blends.
In a similar vein, Group lll base oils are still very much in demand. However, should there be problems with availability of Group l, this could impede Group lll usage. Prices for 4 cSt and 6 cSt grades of Group lll base oils are now 1,385 to 1,420/t and 1,430 to 1,460/t, basis delivered within European mainland by truck. It has been reported that Group lll grades are also being delivered in containers and iso-tanks to a number of locations within the EMEA region. Prices for these types of delivery will be some 60 to 90/t higher than above.
In the Middle East Gulf region, U.A.E. is experiencing shortages of SN 500 in addition to making enquiries for SN 150. A couple of weeks ago, buyers in India and U.A.E. declined large quantities of Baltic-supplied SN 150 as being too expensive, and now the same buyers are looking for similar quantities at the original prices offered of $1,110/t. Needless to say, these levels are no longer possible, basis CFR delivered U.A.E. or west coast of India.
Saudi producers will be reviewing prices in light of SN 150 that was reportedly sold into the Middle East Gulf at $1,050/t, with the level increased by some $50 to $75/t now to take account of market movements over the last couple of weeks.
In East Africa and South Africa receivers are beginning to fear that escalating price levels for imported base oils will preclude the buying of large cargo lots due to restrictions on bank and credit lines. These instruments ultimately control the importation of material from outside the region.
A similar pattern is also emerging in West Africa where regular importers are struggling with new prices for February cargo arrivals and are more inclined to look at lower specification material, available at more attractive numbers. Prices for new mainstream imports into Nigeria, Ghana and Cameroon are now approaching $1,175 to $1,220/t for the range of light to heavy neutrals, with bright stock, where cargo sized parcels are available, estimated around $1,500/t, all basis delivered CFR.
Heavy grade SN 900 is being assessed by many buyers in this region, due to the heavy dependence on bright stock grades. Although this option is not a panacea for all blenders in West Africa, it may give some flexibility at lower cost, albeit with different additive contribution and separate handling. Prices for this grade, on CFR basis West African ports, are currently $1,225 to $1,250/t for February discharge.
Crude futures for dated Brent have come tantalisingly close to breaking $100 per barrel during the last few days, but appear to have retracted this week to around $94.90/bbl. WTI has lingered some $10 below Dated Brent peaks, and is now showing at $85.50/bbl. Levels are relenting, as OPEC may increase production, whilst at the same time main consumers such as the U.S. appear to have sufficient stocks in hand to avoid a run on crude buying. ICE gas oil still shows highs on front month trading early this week with levels near $819/t. Vacuum gas oil trades closely followed these movements, with fuel oil throughout Europe being on the short end of a bullish market.
January has seen a slow start for the base oil market, but picked up speed. Both sellers and buyers expect prices will move further before any levelling out occurs, either from raw material costs being reduced or by demand requirements falling back below supply and production. Neither of these scenarios appears to be on the horizon just at the moment.
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.