Demand is outstripping supply in Europes tight base oil market. Prices continue to rise, but perhaps more slowly this week as the Easter holiday took out a number of trading days.
Many traditional suppliers are offering few, if any, availabilities of base oils through the second quarter of the year. Some buyers have tried to initiate longer term agreements with current suppliers, but incremental business is being turned away by most producers due to limited quantities of material coming out of refinery runs.
Limited offers are being made for one month or two month forward sales, all linked to the highs of published numbers plus premiums.
Lack of availability is decidedly the main driver in Europe, since crude and feedstock levels have retreated this week, with Dated Brent falling back to around $120 per barrel. ICE gas oil front month numbers have decreased by some $40 since last week, to around $990 per metric ton, perhaps due to summers approach from a heating oil perspective. Even with the start of the driving season, demand appears to be lower. The result is weaker vacuum gas oil prices, which could take some of the heat off of base oil production.
In Europe API Group I light neutrals have risen to $1300 to $1340/t for limited offers during last week, with heavier grades such as SN 500/600 offered for May loading at $1320 to $1360/t. Pockets of bright stock remain available; a couple of producers are trying to move this grade with relatively attractive price levels for prompt sales. Prices range between $1335 and $1385/t depending on supplier, suppliers avails, and necessity to move material on a prompt basis.
All the above prices refer to FOB sales of mainline avails, ex European and North African refineries, and are subject to availability and prices outside the stated ranges at all locations.
Baltic & Black Sea
Baltic exports have zoomed up in price with current FOB offers at $1325 to $1335/t for SN 150 and SN 500, with small availabilities of SN 900 quoted around $1360/t. This area does have material available for shipment, with prices reflecting the values being attached to base stocks from Russian refineries where domestic demand and prices are high.
Reports last week of offers in excess of mainland European levels, around $1365/t for supplies of SN 150 and SN 500, were substantiated, but the offers were declined by all buyers. More realistic offers, albeit approaching these prices, are generating keen interest from European as well as deep-sea receivers in Central and South America, along with Nigerian buyers struggling to find suitable cargoes at acceptable prices.
Black Sea base oil business is very different from the Baltic with few Russian availabilities on the table at this time. Some traders say that the Russian sellers preferred to divert material to the north, where buyers are prepared to pay higher prices.
This may be hearsay, since the market in the Black Sea is served from different locations within the Russian Federation, although extended movement of material on rail is not impossible. The reality is that Turkish buyers faced with shortages have opted for supplies from outside the region, and they may now decline current availabilities from Russian traders.
Prices are difficult to define for the Black Sea market, with Turkey accepting offers for Group ll material which may not find its way into finished lube blending, but may be utilised as a fuel diluent, as with SN 100 and SN 150 before. Levels for Russian Group l offers on basis of delivered CIF are now around $1365 to $1380/t, netting back to FOB levels at $1320 to $1335/t.
Middle East
The Middle East scene is distinctly different from Europe and Russia. For example in the Middle East Gulf, supplies of Group l have been extended after the Iranian holidays for a couple of large cargoes lots totalling about 12,000 tons. One cargo will consist of SN 150, 500 and 650, totalling around 8,000 tons, with a further availability of some 4,500 tons of SN 150 and 500.
Prices here are lagging behind Europe. Whilst numbers have increased by some $25 to $50/t this week, levels are around $1180 to $1230/t FOB for SN 150 and SN 500, with the poorer quality SN 650 coming in at $1155/t on the same basis.
Saudi Arabian prices are trying to follow European levels, but even with an overlap in supplies from Iran and Saudi Arabia, differentials are maintained. Saudi Arabian Group I solvent neutrals are $1265 to $1300/t, and bright stock is $1325 to $1350/t, depending on quantity. These prices are FOB or FCA ex refinery.
Africa
East African buyers are looking east again for possible supplies from India or Far East, but Far East suppliers are few and far between. Thus the buyers are looking to sources in UAE for immediate replenishment, and some say they face shortages.
Prices are at premium levels going into East Africa, at $1390 to $1445/t for Group l neutrals, with some bright stock delivered CIF around $1530/t. This is excellent margin business from UAE or Far East, but no longer possible from Europe or Russian sources.
The South African base oil scene remains stable with some speciality base oils imported from U.S. and Far East. Group III from Far East and Middle East Gulf supply points continues to play a growing role.
In West Africa blenders have not increased finished lube selling prices. Some have tried, but consumer pressure has kept prices down. This is preventing base oil importers from paying higher prices for replenishment stocks.
Two importers have commented this week that the region, and in particular Nigeria, is short of base oils; current stocks are insufficient to keep the market supplied for more than one month. This means that buying has to proceed immediately even at what may be interpreted as unacceptable price levels, to combat a stock-out situation. The balance of power appears to be shifting in favour of the importers and base oil traders, rather than end user of finished lubes, with prices sure to rise in the future.
Taking current Baltic and Northwest European levels as guides, prices now being considered for Nigeria will be around $1475 to $1500/t for SN 150 and SN 500, with SN 900 $30/t higher, and bright stock around $1550/t, all basis CFR.
Group II & III
Group II imports into traditional European and Middle East Gulf markets have moved with Group l prices, but with a number of large cargoes loaded for destinations in Turkey and Central America, prices have started to move upwards from the source production centres in the Far East. Prices have climbed since last week to $1320 to $1365/t for lighter grades, with heavier vis material sold within Europe at $1395 to $1455/t, all basis ex tank sales.
In the Middle East Gulf, Group II is slightly lower at $1235 to $1270/t for the 150N, with heavier 500N around $1325 to $1360/t.
Group III prices are stable to firm. A number of suppliers are trying to increase levels on imported material in Europe. Others are leaving prices as they are at the moment. With the meteoric rise of Group l prices, all are closely monitoring the market and want to maintain a differential in Europe between Groups I and III of around $500 to $550/t in real terms.
Group III from the Middle East Gulf and Far East going into other parts of the EMEA has increased by $30 to $50/t across the board for 4 cSt, 6 cSt, and 8 cSt grades, reflecting increased feedstock costs and substantial demand.
Prices in Europe have risen overall by around 10 to 15/t with further rises expected this month and perhaps more on May 1. Levels are now 1425 to 1475 for 4 cSt, with 6 cSt at 1470 to 1485/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.