With an almost unanimous voice, sellers in the EMEA base oil regions declared that prices have reached bottom and should at least stabilize within the foreseeable future.
Most European producers have signalled an end to any further discounting to move quantities of material out of storage. Those sellers who refused to lower prices prior to the holiday period have been vindicated in their assessment of where the market should lie, and are now reaping the benefits of added contribution on sales which have been planned over the last four or five weeks.
A few buyers are still in the market looking for lower prices, but are finding that sellers are plainly not interested in discussing numbers which would yield loss-making business. Prices have not moved upwards by any measured amount, and would seem to be stable at levels which are acceptable to producers and are now being adopted by sellers as the norm.
The missing factor that could have reversed the market is demand. Without any real positive resurgence entering the market, the scene could be set for a period of both production and price stability. The problem with forecasting a stable market is complicated by the various problem areas within the region, such as the conflict in Syria, the ongoing threats from Iran, and the civil unrest and strikes in Nigeria caused by the removal of fuel subsidies by the government. These areas can only dampen economic recovery and also infect other areas where normal trade would otherwise be implemented.
Fundamentals remain buoyant with Dated Brent crude oil posting around $111 per barrel, only a couple of dollars lower than last week. ICE gas oil, however, has retreated in front month pricing, falling back some $20 per metric ton from last reported numbers. The vacuum gas oil crack remains positive at around $7.85 per barrel, reinforcing demand for this important base oil feedstock. With little change this week, the base oil market is stable to positive from a refiners perspective.
Prices in relation to Group l grades within Europe have settled at levels around $1010 to $1055/t for the light neutrals such as SN 150, with heavier neutrals SN 500/600 being offered at between $1020 to $1075/t. Bright stock pricing has now gone into reverse with adequate supply of this grade, with a number of suppliers considering offering prices close to $1200/t, or even less, for prompt lifting of large cargoes of this grade. The range for bright stock is now firmly established at between $1190 to $1295/t.
These prices refer to FOB offers and sales out of mainland Europe or North Africa.
Price parity with export offers is being levied on local sales within the European mainland, where prices have been realigned over the past 10 days. Many distributors have been forced to cut delivered prices by some $25 to $30/t. This adjustment has only brought local prices into line with export numbers.
Group II/III
Group ll imports remain under scrutiny with reports that some source producers are looking to increase prices by some $10 to $20/t equivalent, which ultimately would have a knock-on effect for material being brought into Europe and Middle East.
Prices remain unaltered this week, with lower viscosity grades selling out of tank at around $1100 to $1135/t, with heavier grades such as 500N being offered at between $1225 to $1260/t.
Group lll prices remain unaltered within Europe, although some price erosion is starting in the Far East, particularly at the lower end of the pricing bands. However it is not expected that this slight movement will affect prices in Europe or Middle East Gulf, since demand is still healthy and growing. Some importers in Europe have commented that they may try to increase prices for Group lll grades due to the exchange rate between the euro and the dollar which has softened to around 1.27 over the last few weeks. Others are prepared to leave the current prices alone, perhaps recognising that levels are sufficiently high with a premium of some $750/t over Group l levels.
Prices remain as reported last week at 1365 to 1390/t for quantities of the low vis 4 centiStoke material out of tank, and for 6 cSt grades between 1380 and 1425/t.
Baltic/Black Sea
Some clarity appears to be emerging from the Russian Baltic market, where most traders and distributors have been forced to hold prices for Group l grades at levels significantly above some reported deals done over the last month. Most parties reported this week that they were offering at levels between $920 to $965/t, basis FOB Baltic ports for SN 150 and SN 500, with quantities of SN 900 being levied at around some $25 to $35/t higher. These levels are still marginal according to sources, but are being tolerated by suppliers, given the prices which were offered by one party, which were some $40/t lower than current levels.
Levels for Baltic FOB prices must still be stated in bands which are between $880 to $965/t since there are rumours of further large cargoes being offered at the lower end of the range.
Black Sea prices have adopted a similar stance with resistance to ultra low prices being discussed in this market in respect of export business to deep-sea locations out with the European and Turkish arena. However, the overall effect of this contagion has been to drive Black Sea prices downwards by some $5 to $10/t, for SN 150 and SN 500 which is currently being reflected in offers being made on a CIF basis to Turkish buyers. Black Sea prices are therefore assessed in the range of $895 to $980/t, basis FOB, with freight for the regular movements of 3,000 to 4,000 tons to be added at around $30 to $45/t.
In spite of threats to block the Straits of Hormuz, there have been a number of Iranian base oil cargoes coming to the market over the last few days. The problem for sellers has not been the availability, or the trading restrictions, but the lack of any demand for these products in the regular markets such as India and UAE. Prices have been circulated at anything between $960/t to 975/t FOB in respect of SN 150 and SN 650, with SN 500 between $985 to $1000/t FOB. The problem is that there is very little interest from Indian buyers where exchange rate movements between rupee and dollar have affected local prices.
Some Iranian producers believe that the market is about to move upwards (which could occur if Western sanctions, or Iranian counter activity is actioned). One refiner has put a cargo of some 5,000 tons of SN 150/500/650 on hold, until the situation becomes clearer.
Saudi Arabian prices have regained some strength over the past couple of weeks, with supplies into Gulf Cooperation Council areas and areas to the north adding $10 to $20/t to existing levels. FCA or FOB levels are gauged at between $1025 to $1045/t for Group l SN 150 and SN 500, with bright stock being sold at levels around $1245 to $1270/t.
Africa
East Africa remains subdued after a raft of material was bought immediately before year end and is now being delivered into these regions. Inventories are running high, and it will probably be towards the end of February or March before buying interest is stimulated.
South Africas local Group l production is being augmented by imports of Group ll and Group lll grades, but no interest appears to have been generated by offers of Russian material from both Baltic and Black Sea sources.
West Africa is still reeling from the effects of the major problems in Nigeria, with severe delays now affecting vessels arriving to discharge base oils. Many receivers have expressed concerns for the immediate future of business.
Prices for base oils, once discharged, will not be affected by the problems, since there has been no government subsidy for this particular product group. What will certainly be affected is the demand for finished lubricants within the country, with fewer vehicles taking to the roads due to the doubling of gasoline and diesel prices. Quantifying this downturn in demand is impossible at the moment until the situation settles down, and the effects of the price increases can be evaluated. Already two receivers in Apapa have declared that they will not enquire nor request any further supplies of base oil until the situation is resolved.
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.