Base oil prices in Europe, the Middle East and Africa are starting to rise again after a couple weeks spell when markets appeared to stabilize. The upward movements appear to be in response to increased demand for export barrels, tight availability of API Group I stocks, and slight upward momentum for crude oil costs.
The period of stability on the base oil scene did not last as long as some anticipated. Many buyers are calling the new increases unnecessary but are having to accept them in order to secure volumes that they need.
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Dated Brent crude oil prices have moved back up to around $59 per barrel, with West Texas Intermediate rising to around $53.50. There does not, however, appear to be any immediate impetus for these prices to advance further. ICE gas oil rallied in line with crude increments, showing at $548 per metric ton for front month settlement.
European Group I base oil prices have increased by around $10/t-$25/t this week depending on grade and availability. Light neutrals have moved less than heavier-viscosity material, perhaps due to lower demand for these grades and the wide availability of Group II light vis grades that can compete with light Group I oils. Group I light solvent neutrals are contained in a spread between $610/t and $635/t, with heavier grades such as SN 500 being hoisted higher, to a range of $645-$660/t. Bright stock has firmed this week to $835/t-$875/t.
The prices above refer to large parcels of base oils exported from Europe, and are available from mainstream producers based in Europe and North Africa.
Domestic sales seem to be occurring at approximately the same prices as last week. This may be due to mid-month pricing syndrome, where adjustments are only made toward the end or the beginning of each month. At the start of April there was little pressure on domestic European sales, but the increases for exports could exert some tug near the end of the month. Export prices are now an estimated 55/t-75/t higher than local transactions.
European sellers of Group II imports are breathing some sighs of relief after production sources hoisted markups upon them. This weeks push on Group I prices has the Group II increases easier to absorb. Buyers are still skeptical, claiming these hikes cannot be justified by current crude and feedstock costs. Producers in the Far East and the United States blamed price increases on rising demand and tightness resulting from maintenance turnarounds and production cuts.
The end result is that Group II prices have moved forward by some $25-$45/t over the past few weeks, with levels now between $645/t-$665/t for light grades but with larger increments being applied to heavier grades that now range between $710/t-$760/t.
Group III base oils appear to exist in their own niche, largely unaffected by changes to Group I and II pricing. Group III availability appears to be adequate, with no reports of shortages after a number of large turnarounds at big European and Middle Eastern plants. Customers seem to be getting the volumes they require, and prices have stabilized. Prices for 4 centiStoke and 6 cSt oils are 870/t and 910/t, from Antwerp-Rotterdam-Amsterdam.
Baltic and Black Seas
With supply loosening around the Baltic Sea during the past 15 days, sellers may face pressure to retreat from increases applied in February, when oils were scarce. For the moment, prices are sustained as levels reported last week. SN 150 is being offered this week $565/t-$575/t, FOB, while SN 500 is $575/t-$585/t. These prices apply to standard export grades from Russian refineries, with Belarus SN 500 being priced around $25/t-$30/t higher due to higher specification.
SN 900 availability is sporadic with buyers queuing to bid for sizeable parcels of this grade. Markets in Western Africa and the Middle East are keen to lay hands on this grade, which is used as a partial substitute for bright stock. Prices for FCA supplies of SN 900 are around $645/t-$655/t.
The Black Sea has seen a raft of enquiries issued, particularly from Turkish receivers who are in the market for Russian and Uzbek SN 150 and SN 500. One large enquiry for 3,000 tons of each grade generated offers in the range of $570/t-$580/t, basis CIF Gebze port. These levels net back to FOB expectations at around $530/t-$545/t.
A number of parcels are being loaded from Azov, Ukraine and Port Kavkaz, Russia, between now and the end of April, destined for the United Arab Emirates and Nigeria. Three or four weeks ago cargoes were being discussed around $510/t for SN 500 and $585/t for SN 900. Prices for both grades have escalated $30/t-$40/t since that time.
Parcels of Group I base stocks are being sold from Mediterranean suppliers into Turkey, but with FOB prices starting to firm, these alternative supplies may not be deemed competitive against Russian export levels.
Middle East Gulf
Sources around the Middle East Gulf report Group I prices starting to firm in line with European and Far East FOB levels. Iranian exports of SN 500 are offered this week on the basis of FOB U.A.E. ports for $665/t $680/t. Prices in Oman and nearby countries for imports from suppliers in Saudi Arabia have also firmed by around $20/t, taking Group I solvent neutral prices for deliveries to these receivers to $690/t-$725/t. Bright stock has been offered at $985/t, basis CIF/CFR U.A.E. ports, but the source for this offer has not yet been disclosed. The European arbitrage is marginal, hence this may be an offer for material from U.S. suppliers through traders.
The large cargo of 15,000 tons of three grades loading from Kavkaz in the Black Sea will be moving this week towards U.A.E. and is expected to discharge around mid-May. These movements may become routine since the arb between the Black Sea and U.A.E. is certainly open at this time, with Middle East Gulf prices starting to rise more than the FOB levels from Kavkaz. Levels for SN 500 and SN 150 are expected to be around $610/t and SN 900 around $755/t, basis landed U.A.E.
Group II prices continue to move higher for cargoes coming into Middle East Gulf receivers, since source FOB prices have risen again this week. Lighter grades such as 100N and 220N are also undergoing markups, but not as large. Group II prices on a CIF/CFR basis are $665/t-$680/t for light grades, $725/t-$775/t for heavier.
A number of large operators in the base oil and finished lubricants business are targeting markets in Eastern Africa, South Africa and Western Africa. These markets still produce low volumes of quality finished lubricants, and some companies are planning to take over existing smaller units and construct larger blending plants and the storage facilities needed to handle the greater ingress of base oils that will be needed for these regions.
Some of these companies are looking to pursue such plans by using flexitanks to deliver base oils to remote landlocked locations in the continent. With new players establishing themselves in areas such as Tanzania, Botswana and Gabon, a number of recent enquiries have been issued from those regions.
West African trade has grown extensively during this month with imports arriving into Ghana under the annual tender and smaller parcels in flexies going into Cote dIvoire and Senegal. Receivers in post-election Nigeria will have imported an estimated 60,000 tons to 75,000 tons of base oils over the next six weeks, with additional cargoes being assembled out of northwestern Europe and the Mediterranean, Baltic and Black seas.
Delivered prices are showing some signs of upward pressure, but the main increases will not become evident until current negotiations are finalized for cargoes loading between now and mid-May. Two large parcels have been fixed out of the U.S. Gulf of Mexico in addition to cargoes being assembled out of European sources.
Current landed prices into Nigerian ports such as Apapa are assessed at $635/t-$720/t for Group I solvent neutrals sourced from any one of five regions. Bright stock, where available, has been sold at $885/t $913/t, but is now being offered at higher levels of around $950/t. Offers for SN 900 are unchanged from last week at around $775/t.
Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly at email@example.com.