The arguments for higher base oil prices have been thrown out, leaving sellers wondering which way to turn now that buyers are looking for lower numbers.

Dated deliveries of Brent crude have moved downwards sharply to $55.25 per barrel, now for April front month settlement. This is almost $4/bbl lower than last week. West Texas Intermediate crude has also dipped to $50.75/bbl but still for March front month. ICE LS Gas Oil has come below the $500 per metric ton resistance level and is now showing at $487/t, still for February front month, $20/t lower than last week.

Traders feel markets could move even lower over the next few days, and with no signs of a recovery there is a resignation creeping in that these levels are here to stay for now. Prices were obtained from London ICE trading late Monday.

Europe

European Group I export prices are in flux with some sellers holding on to levels which had seen increases, but pressure from buyers is building to re-examine these prices in light of lower feedstock costs. There is sufficient stocks now to cover most requirements. Offers have not come off the high prices just yet but can be negotiated lower.

The market appears to be responding faster than base oils would normally adjust, but this could simply be a case of action and reaction in a volatile situation.

FOB prices are almost maintained this week because not enough time has elapsed to effect changes, although the top ends of the ranges are seen slightly weaker. Solvent neutral 150 is assessed between $585/t-$615/t with SN500 at $595/t-$640/t. Bright stock prices are assessed at $665/t-$695/t.

These levels refer to cargo-sized parcels of at least 2,000 tons of Group I base oils, sold on an FOB basis ex mainland European supply points, always subject to availability.

Group I trade within Europe is in a state of flux with buyers accepting higher prices from the beginning of February. These prices were fixed for at least the rest of the month, but now buyers are requesting adjustments through discounts and TVAs against their monthly prices. Some suppliers are standing firm, commenting that the fall in crude and feedstock prices levels could be temporary. Buyers dont agree and see the Chinese virus situation as a long term issue.

The price differential between higher priced domestic selling levels and export numbers has settled at 65/t-85/t but could possibly be adjusted.

European Group II prices have remained firm with no signs of reversal for increases initiated towards the end of January. Levels may remain around current levels unless the weak fundamentals situation continues.

The EU quota system is clouding an otherwise healthy marketplace. Some importers are asking when quota limits will be reached, but little or no information is available. Some have commented that it may be months before importers are informed that they have become liable for duty, meaning selling prices may have to be adjusted.

Prices for the full range of Group II grades are maintained this week, with FCA levels at $765/t-$810/t (695/t-760/t) for the two lighter vis grades (150 neutral and 220N), with higher vis grades (500N and 600N) at $800/t-$845/t (730/t-770/t).

These values apply to a wide range of Group II oils, including those from Europe and the U.S. with full slates of finished lubricant approvals and those with partial slates or no approvals from the Middle East, the Far East and the U.S., some of which may be imported in flexitanks.

Group III markets may be starting to rebalance with any oversupply less apparent than at the end of last year. Suppliers who are going into turnaround still appear to have ample supplies available, and comments received from one of the main protagonists suggest that coverage of the market will be eminently achievable when maintenance is underway. Eleven thousand tons of Group III base stocks has been exported from the Mediterranean to the west coast of India, covering for supplies ex South Korea where maintenance may be affecting supply chain availability.

Prices are maintained this week although a couple of distributors representing Middle East Gulf exports in Europe are said to be looking at pushing prices higher, although perhaps this decision was considered prior to the collapse in crude and feedstock values over the past few days. Partly approved Group III base oils are at 650/t-725/t for 4 centiStoke grades, with 6 cSt and 8 cSt base oils at 665/t-740/t. Prices refer to FCA supplies ex Northwestern European hubs.

Fully approved Group III base oils also remain unchanged at 740/t-810/t for 4 cSt base oils, with 6 cSt grades at 770/t-840/t and 8 cSt oils at 755/t-820/t.

Baltic and Black Seas

Following firmer Baltic prices for Russian exports, market participants are waiting to see how prices will be affected over the next couple of weeks. Some cargoes were negotiated at prices valid prior to the latest round of increases, and now buyers have returned, asking for lower numbers again due to crude oil pricing. Russian refineries have not adjusted prices downwards as yet; therefore, Baltic FOB levels are going to be difficult to compete with if current levels are maintained.

Demand is stronger in Russian and Ukrainian domestic markets, where prices are more attractive, than selling exports out of the Baltic ports. One large cargo of around 12,000 tons loaded out of a southern Baltic port and also topped off with bright stock in Gdansk before sailing for Nigeria. Another two potential parcels of around 15,000 tons each are being negotiated out of the Baltic for Apapa. These will not load until later this month.

Additionally, cargoes of between 5,000 tons and 8,000 tons are loaded and are now being shipped to Antwerp-Rotterdam-Amsterdam and the United Kingdom out of Kaliningrad, Riga and Liepaja. A rather oddball enquiry was issued for 12,000 tons of Russian export barrels to load from Riga and to discharge in Aqaba. The economics of such a movement are intriguing because closer supply points for Group I grades are possible and would be competitive.

Prices in the Baltic rose, but this week and next will see where levels gravitate, since if mainstream European prices start to erode, Baltic levels will follow. SN150 is maintained at around $530/t-$540/t whilst SN500 is still heard at $535/t-$545/t. Bright stock loading out of Gdansk is indicated between $655/t-$685/t FOB.

Black Sea prices for Russian Group I exports and also cross Black Sea Turkish supplies had risen, but rumors are that prices for loading out of the STS facility at Kavkaz, Russia, are still extremely competitive and have not risen in line with Baltic numbers. STS prices for Russian export grades are deemed higher, but not to the extent of the northern tariffs. Levels are indicated between $485/t-$499/t for SN500, with smaller parcels of SN150 at around $475/t.

However, Russian export barrels offered out of Azov for Gebze, Turkey, are indicated at around $545/t for SN500, with SN150 at $540/t CIF. Local Turkish prices moved in line with European Mediterranean levels, although talks last week suggested the local supplier in Izmir was pushing numbers higher. This may have been amended in the light of events over the past few days.

Offers of Group I base oils from suppliers in the Mediterranean were higher, with one Greek supplier moving around 4,500 tons of Group I grades to Derince. Indications are based on prices heard this week for Mediterranean Group I material, and are $645/t for SN150 with SN500 at $655/t basis CIF Gebze, Turkey or Derince. SN600 is indicated at around $660/t. The validities of the offers are dated Feb. 10, although it remains to be seen the extent of price counters as a response.

Group II and Group III grades on the basis of ex-tank Turkish ports are priced higher, with levels lifted to $795/t-$835/t for the range of Group II grades, with partly-approved Group III base oils at $810/t-$845/t.

Middle East Gulf

The Red Sea region is becoming one of the prime hubs for the supplies of Group I and Group II base oils to receivers in the Mediterranean, Sudan Indi and Middle East Gulf. Cargoes of Group I and Group II base stocks are moving out of Yanbu and Jeddah for supply into Middle East Gulf, Pakistan and the west coast of and southeast India. Large parcels are assembled for these destinations, with cargoes up to 18,000 tons of mixed grades going to Indian receivers.

Supplies to cover the Egyptian General Petroleum Corp. bright stock contract are loading out of Yanbu, with a larger than normal cargo of some 5,000 tons – two combined cargoes – marked for loading during the first half of February.

Aqaba supply from the Baltic is the other talking point this week, with 12,000 tons of Group I grades SN500 and SN150 offered to cover this requirement, which is much larger than the more usual supply of around 4,500 tons.

Base oil exports out of Iran disappeared off the grid, with no reported cargoes moving either through United Arab Emirates ports or on a direct sailing basis from Bandar-e Emam Khomeyni or Bandar Bushehr. A parcel of 6,000 tons may move out of Jebel Ali, but this is not thought to be Iranian material. Iranian activity has been slow to negligible, with no reported exports coming to market. Indian receivers looked at alternative sources such as Saudi Arabia for Group I base oils.

Group I offers into Middle East Gulf receivers from U.S. Gulf Coast or U.S. Atlantic Coast have also dwindled since a tighter supply scene developed in the U.S. and has created higher prices which have become uncompetitive for cargoes going into U.A.E. Last numbers heard were higher, with levels indicated at $685/t CIF Hamriyah, U.A.E., for SN500, SN150 around $675/t, with bright stock at $745/t.

Another Black Sea cargo is under consideration to load out of Kavkaz, Russia, for discharge into the U.A.E. and/or the west coast of India. This may take some time to put together, given the ice situation on the Volga river system.

It has been some time since a shipping enquiry was floated for material to load from Al Ruwais for Brazil, but a 6,000 tons parcel is being proposed to load sometime during February.

Group III base oils that are exported from Middle East Gulf sources in Al Ruwais and Sitra have notional FOB prices maintained this week, after the increases applied last time around.

FOB levels are assessed at $640/t-$685/t for partly-approved Group III base oils selling into Europe, U.S., India and the Far East. Eight centiStoke grades sold into Indian and Far Eastern locations will produce lower FOB prices due to discounted local selling prices in those regions.

The range of Nexbase-branded Group III base oils produced at Sitra refinery in Bahrain should provide higher notional netbacks since these base oils will be sold at premium prices, due to these grades holding the full range of European original equipment manufacturer approvals. Notional netbacks for these premium base oils are established at $765/t-$825/t for the three main Group III grades: 4 centiStoke, 6 cSt and 8 cSt. The same grades are sold within Europe by Shell; however, these oils will not carry the full range of approvals, even although this material is the same production as the Nexbase material.

Notional FOB prices on a netback basis are based on prices derived and informally assessed from regional selling levels, less marketing, handling and freight costs.

Middle East Gulf Group II reselling price levels are maintained, and are assessed on an FCA basis from the U.A.E., with hub storage at $795/t-$945/t for the light vis grades 100N/150N/ 220N, and 500N/600N at $825/t-$955/t.

Africa

Large quantities of Group I base oil are primed for arrival into Morocco, perhaps because of the rapidly approaching spring, when local markets become busier. The material is sourced out of Sicily and Livorno. A large number of intra-company cargoes are routed between production sites and delivery hubs.

The large cargo of 18,000 tons is still awaiting loading out of Antwerp-Rotterdam-Amsterdam and U.K. for discharge into Durban and Mombasa. Another vessel will possibly load during February out of Antwerp-Rotterdam-Amsterdam and U.K. for Durban, with various types of base oils aboard. This is to supply a major’s distributor in South Africa.

One large Baltic Group I cargo has completed loading out of the Baltic; however, two new identically sized parcels touted to load during February are from Baltic sources. These parcels are under negotiation, with one vessel sought to go into Apapa and also other West Africa ports, which are readily identified as Conakry and Abidjan. Prices were in contention since Baltic levels escalated substantially over the last few weeks. Now, in typical Nigerian style, with crude and feedstock levels dropping, every advantage is being played to negotiate prices lower.

Prices for Group I base oils loaded and on the high seas for discharge into Apapa are pushed higher this week, reflecting higher Baltic prices that would have been paid for the most recent cargo. Also, freight rates into West Africa moved upwards as a result of the IMO 2020 regulations, which came into force on Jan. 1. With lower sulfur fuels used, bunker prices rose for a typical voyage from Baltic to West Africa.

CIF/CFR levels are indicated between $645/t-$660/t for SN150, SN500 at $650/t-$665/t, and bright stock at $745/t-$760/t. Blended SN900 remains indicated at $670/t-$685/t. Prices are for cargoes of minimum 10,000 tons being delivered into Apapa port in Lagos, Nigeria.

Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly atpumacrown@email.com.

Historic and current base oil pricing data are available for purchase inExcel format.