The availability of European grades appear to be forming with bright stock showing length, while SN 500, and to an extent, SN 150, are becoming less available in larger quantities, particularly for export sales.
In the Baltic and Black Sea regions, recent large discounting by one major player has attracted much attention to supplies, causing a trend reversal that affords the incumbent distributors an opportunity to discuss selling prices to a wider spectrum of buyers. This in turn has opened up a window to push for small increases in FOB numbers.
In a strange twist, the supplier that caused the furor on discounted prices has now changed tack, and has cut production of base oils in favour of higher yielding cuts such as vacuum gas oil, resulting in fewer available base stocks for February and March loading.
More serious is the increasing tension between Iran and the West, accentuated this week because of a multinational naval task force entering the Middle East Gulf through the Straits of Hormuz. Iranian crude has now been sanctioned by all European refiners
Even with these events, crude oil values have remained relatively stable with Dated Brent showing at $109.55 per barrel, some $2 lower than last weeks level. International Commodity Exchange gas oil has fallen back some $15 per metric ton during the last seven days, but these movements are not seen as significant and could be reversed or accelerated at any time. Showing strength is vacuum gas oil, which as a primary feedstock for many base oils, can be used as a barometer for possible future movements within the base oil markets.
API Group l prices in Europe are under discussion, with sellers looking to regain some lost ground incurred over the last few months. Most European suppliers are positive regarding future pricing, and believe that the market will rise over the next few months. Quantifying these increases is another question altogether, with a number of sellers content with numbers at the high ends of the ranges posted last week.
Group l light solvent neutrals are between $1025 to $1060/t with the heavier neutrals in a spread of $1030 to $1085/t. The lower ranges have been bolstered by higher feedstock levels, and also the Baltic/Black Sea effect which has seen prices rebound a little during the week. A few sellers intimated that the levels quoted this week would not hold, with the anticipation that prices will rise again, given the perceived relative shortages of SN 500 and SN 150 in the European arena.
Bright stock prices plough a very different furrow, with most producers carrying ample stocks. This grade appears to have gone long during the period from year-end until present. Prices have fallen some $35 to $60/t with offers for this grade showing at $1180 to $1240/t. Delays to deliveries under the Egyptian General Petroleum Corp. tender, and the virtual closure of Nigerian outlets may have affected the balance of supply for this grade, albeit on a temporary basis. Producers say that they will not sell below the level at the foot of the range, and will rather hold stocks and wait rather than sell at what is considered to be a loss.
As mentioned, the Baltic market is seeing a turnaround. Prices are starting to recover to levels which will encourage the procurement from Russian refineries, and the transportation and storage to allow distributors to sell FOB. The interest generated by the low prices from this region has produced many enquiries, with buyers who had never ventured into this market looking to test availabilities. With Lukoil restricting production of base oils in favour of optimising available vacuum gas oil, this market may now come back into balance, and could go shorter over the next couple of months.
Prices have firmed by some $10 to $30/t depending on the starting point, and realistic offers for SN 150 and SN 500 are between $940 to $960/t for FOB sales. With less availability, sellers are committed to pushing prices higher, trying to align with mainland European levels now that they perceive that blenders within Europe and beyond can accept the slightly lower specifications for some of these grades.
The Black Sea regions have not quite responded in the same manner, but there are signs that buyers have recognised that the market has bottomed out and that they should replenish inventory sooner rather than later. Turkish enquiries are foremost, but as has happened in the Baltic regions, many outside buyers have awoken to the possibility of purchasing base oils from this Russian and Uzbek outlet. While these buyers are mainly talking very low numbers with offers under $900/t for cargoes of SN 150 and SN 500, suppliers are using this plethora of enquiries to try to bolster the market and play one enquiry off against another. This market is starting to respond by attracting higher bids, and of course resultant higher prices. Prices offered this week are between $965 to $985/t basis CIF Gebze for SN 150 and SN 500.
The Middle East Gulf is on tenterhooks with growing tensions concerning Iran. The situation could affect the flow of Group I Iranian material loading from the southern Iranian ports, along with Group l and Group ll products coming into the Gulf from Far East and Europe
At the same time, the new production of Group lll material from Qatar and Bahrain could be interrupted. The effects could be far reaching and potentially cause major supply problems for producers and receivers alike.
Iranian base oils are still being offered with FOB prices established over the past few days at levels between $1010 to $1025/t, with interest from Indian buyers who have opted for these supplies as opposed to the super-discounted Black Sea offers at around the same CFR prices. Delivery periods are shorter, with ultimate benefits to cash flow for the Indian buyers.
Because of the Lunar New Year holidays in the Far East, there have been no reports this week of new sales of Group ll grades being offered into Middle East Gulf buyers. Prices for these grades remain stable after the early January increases, and are levied at $1155 to $1185/t for the light grades such as 150N, with 500N selling at $1265 to $1310/t, basis CIF Middle East Gulf ports.
There have been a number of enquiries from East and South Africa for quantities of Group l material, which are in process of being addressed by a number of European and Far Eastern traders. Prices for bulk deliveries are being offered at $1085 to $1130/t in respect of the solvent neutrals, with bright stock at around $1335 to $1370/t, all basis CIF Durban.
West Africa, and Nigeria in particular, continue to be almost closed to base oil traffic presently due to the civil strife. As reported last week, there are problems for vessels awaiting discharge of cargoes of petroleum products, base oils being among those affected. On cessation of the problems, a new round of prices will be considered for this region.
Group ll material imports within Europe are prices marginally above last weeks levels at $1140 to $1160/t in respect of the lighter grades, with higher vis products showing between $1235 to $1265/t all basis ex tank, either Northwest Europe or Mediterranean storage.
Group lll prices within Europe remain stable, but with impending problems from export sources in the Middle East Gulf, a number of planned turnarounds for major importers, and production problems for one domestic producer, a number of suppliers have commented this week that there could be moves to increase prices with effect from February 1. It would appear that no decisions have yet been made by any of the importers as yet.
Prices remain as per last week at 1365 to 1390/t and 1380 to 1425/t for 4 cSt and 6 cSt material respectively.
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.