Base oil markets in Europe, the Middle East and African regions are viewed as soft across the board now and many believe they could remain so into next year.
Prices for all products are lower than three months ago, although there have been mini-spikes during that period. The general forecast is that base oils will face further downward pricing pressure through November and December and possibly through the first quarter of next year. Thereafter some pundits believe that crude oil and feedstock values will strengthen, switching base oil pricing pressure upward. Of course, this outlook is subject to change and variation, depending on a multitude of factors that could affect the markets.
Crude prices receded this week, with dated deliveries of Brent crude trading at $47.90 per barrel yesterday, even against the backdrop of a possible OPEC agreement to cap production. Cynics say an accord is unlikely, given Irans desire to hike its production from 3 million barrels per day to 4.7 million b/d and the level of animosity between the Islamic republic and Saudi Arabia. The kingdom and Russia are determined not to lose market share.
West Texas Intermediate crude traded at $46.35/b yesterday, maintaining a crack of around $2 with dated Brent. With crude prices falling around $3 this week, ICE LS gas oil, representing petroleum products prices, retreated some $25 per metric ton $436/t in November front month trade.
Some European Group I prices are showing a slightly softer nature, falling around $5/t. Market sources attributed those decreases to rising inventories and a lack of opportunities to move large slugs to traditional export destinations such as West Africa, the Middle East Gulf and Indias west coast. Those arbitrage markets have closed for a variety of reasons, including financing problems in Nigeria and availability of cheaper Group I material from U.S. suppliers.
Light solvent neutrals are now assessed between $480/t-$490/t, with SN500 and SN600 at $575/t-$585/t. Bright stocks have also weakened to around $805/t-$840/t, possibly due to reduced demand from Nigeria, which preference is shifting toward lower-priced bright stock from U.S. sources. These prices refer to large cargoes of Group I base oils supplied or offered on an FOB basis ex mainland European supply points.
Domestic prices within Europe have also moved lower, again on a softer note than seen last month. With ample availabilities of Group I around the market, buyers are spoiled for choice. The only problem is that buyers still arent rushing to top up inventories before the year ends. Many small blenders are buying on a hand-to-mouth basis because they can do so at this time. Prices have dipped by 5/t-10/t, effective Nov. 1 for many suppliers.
These adjustments might have been larger if not for one reason. Exchange rate fluctuations have raised costs of base oils bought in local currencies such as euros and British pounds. In the United Kingdom, base oil price cuts have essentially cancelled the impact of the pounds devaluation against the U.S. dollar, yielding a zero net effect. The differential between higher local prices and those applying to export sales has shrunk to 55/t-75/t.
Group II prices throughout Europe appear unchanged with no obvious downward pressure. However, with more cargoes of Group II arriving in European hubs, and suppliers keen to retain market shares, markdowns before the end of the year are possible. In addition, the European market has yet to absorb the impact of new local Group II capacity. Group II cargoes of 25,000 tons to 40,000 tons are reportedly arriving into Antwerp-Rotterdam-Amsterdam ports from U.S. Gulf Coast. Shipments from the Far East are also arriving.
CIF prices for Group II were unchanged this week, with light-viscosity grades at $555/t-$585/t and 500N and 600N at $725/t-$785/t. Ex-tank prices were said to be around $20/t higher, in euro equivalent. Bridged stocks moving from Antwerp-Rotterdam-Amsterdam into southern Europe and the Balkans incur additional costs.
For Group III suppliers the demand-supply outlook becomes ever more depressing. A glut is affecting the global market, and downward price pressure seems to mount daily. Group III customers range from integrated oil majors buying large cargoes to smaller blenders purchasing on an ex-tank or truck delivered basis from northwestern Europe. Prices for smaller volumes were reported between 715/t-770/t for in respect of the 4 centiStoke and 6 cSt grades, with 8 cSt oils around 705/t.
Baltic and Black Seas
Russian Baltic exports encountering a mainland European market that is going long, so prices for those exports have fallen dramatically to stay competitive. Few deep-sea cargoes are disembarking for West Africa, and competition is coming from U.S. sources for Group I oils being sold into Nigeria. Reduced bright stock demand in Western Europe and the U.K. is a growing concern for Baltic distributors, and FOB prices have dipped. FOB levels for Russian exports are assessed at $395/t-$440/t for SN 150 and $505/t-$545/t for SN500. SN900 is now being offered at $585/t. Even with a turnaround underway in the southern Baltic, Polish exports remain strong, with two parcels moving to Antwerp-Rotterdam-Amsterdam and another to other northwestern European ports in combination with material loaded out of Riga.
Importers in Turkey have reported only one small cargo from the Black Sea this week, but shipments from Mediterranean Group I suppliers are entering the countrys ports. Romanian receivers have elected to buy a small cargo ex-Greece, suggesting there may be a lack of Russian exports coming through Kavkaz, Russia. Mediterranean Group I offers include prices of $508/t for SN150, SN600 at $594/t and bright stock at around $845/t CIF. Turkish buyers state that Russian SN500 is available at $475/t basis CIF Gebze, Turkey, for early November arrival, but there appear to be few avails.
The Middle East Gulf
Iranian base oils are moving again out of Bandar Bushehr and Bandar-e Emam Khomeyni to Sharjah and Indias west coast. FOB prices are confirmed at $595/t for Sepahan Oils SN500, which meets higher specifications than some other products. SN150 prices in Iran are estimated at $485/t, FOB, while they are pegged at $525/t in the United Arab Emirates. SN500 can be available ex-tank U.A.E. at offered levels around $620/t, depending on quantity and specification.
Group I grades imported to the Middle East Gulf have been discounted during the last few days of October and are now pitched around $540/t for SN150, $620/t for SN500 and around $845/t for bright stock.
One anomalous movement identified this week is a cargo of around 6,000 tons loading out of Hazira, on the west coast of India, for delivery into Hamriyah, U.A.E. This runs against the normal routing for base oil trade, and there is speculation that this cargo may be transformer oil feedstock for a new plant recently opened in Hamriyah.
New shipping enquiries have been reported for Group III oils moving from Al Ruwais, U.A.E. – site of a new Adnoc plant – into the west coast of India. It appears this has become a regular trade from that plant, along with larger volumes being transported to Le Havre, France. Prices for the cargoes to India are probably very keen, since those oils would be resold by distributors and since Adnoc is eager to gain market share. This logic is contrary to word heard around ten days ago that FOB prices would stand firm, but perhaps the truth depends on where the material is delivered. Estimates are that FOB levels for 4 cSt and 6 cSt base stocks may be priced below $600/t.
Blenders in Middle East Gulf have reacted to delays in the completion of a Group II upgrade in Saudi Arabia, saying the region is not ready to transition to Group II and that the plant in question may have difficulty selling near production capacity even if it does not open for another year. For now, shipments traveling from Far East suppliers to Indias west coast – and sometimes on to the Middle East Gulf – are priced at $495/t-$525/t for light grades ranging from 100N through 220N and $675/t-$700/t for 500N and 600N, CIF.
Africa
South African shipping agents have confirmed the imminent arrival of a 10,000 ton cargo of base oils sourced out of a major’s U.K. refinery. Meanwhile, Mediterranean and North African traffic has slowed after a series of cargoes booked during October. With Italian producers in turnaround, it may be another couple weeks before renewed activity takes over in the area. Offered prices for stocks supplied through the Baltic have been confirmed at low rates of $490/t for SN150 and $585/t for SN500, basis CIF North African ports.
West Africa trade remains bogged down by Nigerias currency issues, but at least two traders and one major have supplied cargoes both into Nigeria and also to Conakry and Abidjan.
While there were no reports of cargoes being loaded for Nigeria, there are enquires and negotiations ongoing with U.S. sources for substantial volumes of Group I base stocks in case the financial situation resolves. Word on the market is that one cargo may be delivered on an open credit basis.
Offers for API Group I base oils delivered into Nigeria and covered by some payment guarantee are now assessed at $525/t for small quantities of SN150 in bulk, or in flexitanks at around $628/t, both prices CIF/CFR. SN500 is potentially landed at around $645/t-$660/t, with bright stock at around $855/t and Russian SN900 ex Baltic at $728/t CIF/CFR.
Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly atpumacrown@email.com.