Whilst over the last three to four months sellers have been desperate to move barrels at almost any cost without success, now they are playing hard to get, and are stubbornly maintaining their positions regarding prices. Bid levels below $350 per metric ton for Group I neutrals have been taken as tongue-in-cheek by producers. One offer at $320/t FOB Baltic, for two parcels of SN 150 and SN 500, was summarily dismissed as derisory.
Suggestions have been made today that product availability in Europe and the Middle East is actually shorter than has been perceived by the market, and that if all buying demand was met, then there would be little, if any, material left for March sales.
At this stage it is important to draw a distinction between buyers pricing ideas and those of the producers. Group I neutrals are being seen from $350/t basis FOB for spot, lower specification, material, and up to $405 to $420/t for prime Group I production. Only at the upper end of this range, $380 to $420/t, will sellers consider responding positively.
The only anomaly to this stand-off seems to be bright stock, whose prices have been eroded even further and are being talked at levels of around $620 to $650/t. But bright stock cannot be looked at in isolation, since it is being used to add value to the other grades when shipped in composite cargoes.
This scenario has appeared almost overnight, perhaps as a result of ear whispering from refinery managers who are seeing very acceptable netbacks for almost all other products, whilst probably losing revenue by selling base oils at demand price levels. Low sulphur vacuum gas oil is trading around the $280/t level, whilst barges are showing $5 to $6/t lower, suggesting that there is not too much of this feedstock around. ICE gas oil has rallied to $375/t for front month March, so we are seeing a strengthening in the fuels and feedstock market, even with crude languishing at around $41 per barrel for Dated Brent and WTI showing $3 less at around the $38 mark.
This situation is not exclusive to the European mainland. It is also being observed in the Middle East. Iranian Group I is offered around $465/t, basis FOB Bander Khomeini. As well as being taken by the usual UAE buyers, this material is also being sold into India and to Far East receivers.
Black Sea base oil from Russian, Uzbek, and Kazak production is not showing excess barrels, but with the import duty for base oils going into Turkey being changed yet again, there may be scope for further quantities of all grades coming on to the market. Prices reflect the quality and the smaller quantities in these areas, with the main Group I grades SN150 (SAE 10) and SN 500 (SAE 30) being sold between $350 and $400/t.
Its business as usual where Group II and Group III grades are concerned. These oils appear to be maintaining their price levels and have not been forced downwards to the same extent as Group I material. This is partly due to the smaller quantities being sold in the market, and of course the way in which these volumes are sold. The majority of sales of Group II and Group III material are promoted under contract, or longer term arrangement, rather than the spot sales and purchases associated with Group I production.
The pricing for this method of supply can, in many cases, be more efficient than talking cargo-size parcels and using a break-bulk operation to supply many smaller receivers. For example, European Group I solvent neutrals can be delivered CIF to the locations above at prices in the range of $550 to $650/t. This is a more economic option than having to purchase local supplies of Group I or Group II/III material whose prices can be in excess of $700/t delivered.
The activity at last weeks I.P. meetings and the ICIS base oil conference in particular may have focused many players minds on the current situation in the region, and may indeed have promoted some of the discussions regarding how fast prices have fallen, and how far these levels still may fall before levelling out or even moving back up. With the sore heads and the bleary eyes forgotten, is there a now a harsh realisation that we have arrived?
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.