This week has seen very little activity of any note after the flurry of enquiries and potential business which was talked over the last month or so. Lacklustre describes the market at the moment, and there would appear to be nothing on the horizon to change this situation.
Perhaps the fact that some of the planned turnarounds have started has detracted from buyers looking to purchase at this time. Many producers were warning of higher price levels which would reflect the netback value of base stocks, and subsequently they would be seen not conceding to the familiar trend of falling base oil numbers.
Prices are difficult to establish this week for any sizeable cargoes, and for contracted domestic European business they are being seen largely the same as last week, in the range of $350 to $420 per metric ton for API Group l solvent neutrals. Brightstock may be showing a little weakness due to pressure exerted during recent cargo negotiations, and sub $600/t basis FOB, would be entirely possible for a reasonably large quantity.
Small quantities of Group l are being sold ex Baltic at prices around $360/t FOB, but generally there has been a hardening of attitude by all suppliers and producers in this area against pulling prices down further. When it comes to losing money by selling base oils, the writing is on the wall. Whilst this can be rationalised away within major producers to an extent, when a supply chain player finds himself in the middle making a loss on cost of supply, transportation, storage and handling, then it is the time to stop selling base oils or else raise the selling prices, sources insist.
With the turnarounds started, this could have an effect on the availabilities in the market, although some producers report they have made inventory arrangements which will allow them to continue to sell throughout the downtime. This may be another way of saying that their inventories were relatively high anyway due to lack of demand, and that this allows them the slack to downsize their stocks during the next few weeks.
Whilst repeatedly mentioning feedstock prices in this report, they do form an important part of the equation when the market is in this particular pricing situation, i.e. at or near the bottom of a downward spiral. Crude in the form of Dated Brent and WTI has been showing slight signs of hardening, and both these markers have come off perceived lows and are trading in the mid to upper $40s. Product prices are again spiking back upwards, as we come out of the winter period from a heating oil viewpoint, and are now approaching the driving / gasoline season. Low-sulfur VGO prices are therefore buoyant and expected to continue in this vein for this base oil feedstock.
Given the material cost scenario, base oil prices for Group I material typically would start to rise by some $40 to $60/t over the next few weeks, but of course, as always there is the controlling negative demand factor which overtakes all else.
Group II prices were heard to be falling from suppliers in the Far East going into markets such as the Indian subcontinent and China, and whilst this does not directly affect the European or African markets, the Middle East Gulf area could see some price trimming for these grades. These levels were based on prices of about $585 to $600/t basis CFR UAE and India. There are also availabilities from Iran which have to compete with these supplies, so there will be price pressure on the Group II grades and above, but there appears to be a resurgence in prices for Group I SN 500 and SN 650 at around $490 to $530/t, FOB Iranian ports, perhaps due to more demand eventually filtering through for the heavy neutrals.
This could have an effect on some of the European importers, however, in that they may have to realign pricing particularly in the Mediterranean region, where there could be a knock-on effect from the Far East. Group II and Group II+ levels are still being maintained in the range of $660 to $740/t delivered in Northwest and Central Europe.
There are increasing enquiries for Group III material in the Middle East and South and East African markets, albeit for small container quantities for pilot blending at high prices of $1,200/t and higher, but this may mean that the quantum step is beginning to take place. Given that the large automotive sector in these areas is populated by more modern vehicles than ever before, this is the direction of the market.
West Africa, notably Nigeria, again has been quiet; a few enquiries, but with no banking substance or credibility behind them, many are perceived as flakish. There will be a cargo en route to Ghana in the near future, along with the usual supplies to Northwest Africa, Tunisia and Libya. South Africa will have a planned turnaround by the Engen refinery and this may open the door to some lower-priced imports which would have to arrive at prices around $560/t for SN 150 and SN 500.
All in all, a rather frustrating week for everyone in the base oil market, with few discussions and communications taking place. Directionally, the regional economic news is not taking on a particularly positive note, and so it may be wise to brace for another week of the same.
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.