Base oil sellers continue moving prices forward, but at the same time, demand has declined in areas such as Turkey and West Africa — areas where continued expansion was thought possible.
The truth of the matter is that demand for finished lubricants in all sectors is dwindling. Poor economic growth throughout Europe is only one of the factors affecting the lubricants markets. Recent events within Cyprus have highlighted again the precarious knife edge on which a number of EU countries are balancing. Other effects are felt from the Middle East, where civil strife continues to grow and is spreading.
Dated Brent is showing a shade over $109 per barrel, a marginal $2 higher than one week ago. ICE gas oil front month closed at $911 per ton in Tuesday trading. Feedstocks such as vacuum gas oil are still much in demand, but a number of refiners are unwilling to take long positions.
According to some refiners there is still a way to go for base oil numbers to advance to acceptable netback and realisation levels, but action has slowed, and with curtailed demand, prices may flatline.
API Group l prices are still being ramped up by sellers who cite low availabilities and positive demand. This may have been true some weeks ago, but markets have changed and demand is diminishing. FOB levels for light solvent neutrals are now $1040-$1085/t, with heavier neutrals opening up a gap in pricing due to lower availability. SN 500/600 grades are now offered at $1060-$1100/t for prompt avails. Bright stock, in short supply, is $1155-$1215/t.
These prices refer to cargo sized parcels of Group l offered ex mainstream supply points in Northwest Europe, the Mediterranean and North Africa.
Local distribution of Group l has seen prices remain the same as last week, around 90-130/t higher than export prices noted above. Many blenders in Benelux, Germany, and France are sitting on the fence, insisting that prices may start to fall again due to low demand. Sellers are finding it tough to maintain differentials with export trades, and a number of larger blenders are taking their own small cargoes into storage, particularly from Baltic and East European sellers.
Baltic & Black Seas
Baltic prices appear to have marked time this week within a band of $985-$1045/t basis FOB Baltic ports. No new cargoes have been reported from this region going to West Africa, although is it understood that negotiations are in progress. Receivers in Nigeria and Cameroon are resisting price increases. Distributors have posted avails for April with new price ideas which reflect the market moving further ahead on prices.
Black Sea trading has been mixed. Some Turkish buyers are waiting for new government regulations on importation of base oils to be declared effective from April 1. One cargo of SN 150, totalling some 3000 tons was moved from Nikolaev port to Gebze at around $1010/t CIF, some $25-$40/t below current market levels for this grade.
SN 150 and SN 500 parcels have been outlined for April delivery, at prices which reflect the possibility of Turkish buyers returning to the market. A large parcel of SN 900 has been offered, which may generate interest from West African as well as Turkish buyers. Levels are $990-$1020/t basis FOB Black Sea ports such as Nikolaev, Batumi and Azov, with a couple of larger deep-sea cargoes being tried from Theodosia out to Fujairah and/or Singapore. These parcels of 6000 or 7000 tons may attempt to open the arb between Black Sea and Middle East Gulf and Far East, but economics are uncertain.
Middle East
A Mediterranean cargo of some 4000 tons of two grades is being considered for delivery into Lebanon and Jordan, whilst a Far East supply of some 3000 to 5000 tons of Group II/III material is bound for Aqaba. A large cargo of 9000 tons of bright stock and SN 600 is earmarked for arrival into Alexandria from southern Italy, fulfilling the latest requirement under the EGPC import contract.
Middle East Gulf Group l business still appears to be flourishing, with the import of 2000 tons of solvent neutrals from Pakistan being touted whilst a number of cargoes of Iranian origin are to move from U.A.E. to the west coast of India. Some 10000 tons of these grades is to move to Mumbai before end of March. These may be the remainder of the relatively low-price material coming out of Iran, where prices have been escalated by some $50/t for FOB sales ex BIK. These increases take FOB levels to around $1055/t for SN 500, with SN 150 around $10/t higher.
One small cargo of SN 500 has been reported moving from U.A.E. to Durban, possibly loaded prior to the Iranian price hikes which reached the market this week. Estimated price for this cargo would compete with flexi deliveries previously sent from U.A.E., around $1155/t landed CIF into Durban.
Africa
West Africa has retreated from its prominent buying role. Quite how the market will continue unless blenders raise prices to take account of raw material cost increases is a mystery. Nigeria in particular is almost totally dependent on imports of base oils.
Some shrewd purchasers have bought forward using the auspices of a newly formed exchange, which allows tranches of material to be bought forward in a rising market, allowing fixed prices for up to six months ahead. This innovation appears to catching on in base oil markets such as Turkey and West Africa.
Prices for material landing now in Nigeria have not changed since last week. Group l solvent neutrals landed CFR are around $1165-$1195/t. With bright stock relatively short in large parcels, prices rise to around $1325/t.
Bright stock is a major grade for this region, and it has a profound effect on finished lubricant prices. More buyers may look at taking very heavy neutrals such as SN 900 and SN 1200 from Baltic and Black Sea suppliers, estimated to be around $1225/t basis CFR.
Group II/III
European Group II prices are starting to rise in line with Group l movements and also due to increases to FOB numbers from Far East and U.S. sources. Far East producers have awakened from their pricing slumbers with a vengeance and have levied increases of more than $50/t in some cases for Group II grades.
At this time European Group II prices are $1135-$1190/t for the light vis grades, with the heavier range of products such as 500N and 600N sold ex tank between $1265-$1290/t.
The Middle East Gulf Group II market has seen prices for April rising over current levels. Levels are now $1090-$1110/t for the light grades, with 600N around $1170/t, all basis CIF Middle East Gulf ports.
Oversupply of Group III grades continues unabated, but sources are trying to raise FOB prices. At least until April 1, 4 cSt and 6 cSt grades of Group III base oils, basis ex tank, are reported at 1000-1065/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.