February 11, 2020
Volume 3 Issue 7
EMEA Base Oil Price Report
The coronavirus outbreak has paralyzed much of the Chinese economy, putting a dent in global demand for crude and petroleum products and causing energy prices to plunge. Given their traditional lag behind crude and feedstock prices, base stocks may still face downward pressure.
Dated deliveries of Brent crude oil continue to move lower and now sit at $53.75 per barrel for April front month settlement, around $2 lower than last week. West Texas Intermediate crude has fallen through the $50 resistance mark and posted at $49.80/bbl in Monday trade for March front month.
ICE LS Gas Oil remains below $500 per metric ton, showing at $493/t, still for February front month. Strangely this level is slightly higher than last week, but may still follow crude downwards in days to come. Prices were obtained from London ICE trading late Monday.
European Group I export prices are softer with some sellers trying to hold on to existing levels but being countered by buyers saying the drop in fundamentals is key in finding new price levels. There appears to be reasonable availability, quashing the tightening in the market towards the end of January.
FOB prices have dipped this week with some buyers commenting that current levels may have to drop further to reflect the price movements in crude and feedstock. The price ranges are showing weaker levels all round with solvent neutral 150 now assessed between $565/t-$600/t with SN500 at $575/t-$620/t. The solvent neutral grades are down around $20/t, although bright stock has not seen the same weakness and is priced at $655/t-$685/t, some $10/t off last week. Those sellers holding reasonable quantities of all grades are able to hold prices towards the upper ends of the ranges allowing buyers to avoid two, or even three port loading, which can become expensive from a freight angle.
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.
Local markets for Group I base oils are preparing to adjust prices with buyers firmly demanding revisions to levels negotiated towards the end of January when the market appeared to be firming. Prices which came into force on Feb. 1 are now said to be outdated and requiring discounts or at least forms of TVAs applied.
Those sellers who have tried to maintain prices have seen buyers switching to alternative sources offering lower prices.
There appears to be a realization that the situation in China is far-reaching and will not change in the immediate future, and therefore base oil prices will have to be addressed. The main problem seems to be finding acceptable levels at which to pitch prices, since the goalposts keep moving.
With changes to February contract prices happening daily, the price differential between domestic or local levels and those applying to exports is adjusted upwards this week, since export prices have moved lower faster than regional numbers, hence the differential is now assessed at 85/t-110/t.
Group II prices have also come under pressure, although many of the latest source increases have remained in place. Buyers are more than aware that firstly, European prices for Group II grades are higher than most other global markets, and secondly, that raw material costs are drifting lower by the day, piling pressure on suppliers to review selling prices.
Importers are paying duty on most Group II base oils at the moment and then reclaiming 3.7 percent under the quota limits which are up to a maximum of 200,000 tons during the first six months of this year. The situation is far from clear as to when the quota limit will be breached. Meanwhile importers are continuing to support their customer base by offering competitive prices which have to be pitched against regional production and imports from sources which have qualifying free trade agreements.
Some prices for Group II base oils are showing weaker this week, although a few sellers are still maintaining prices. FCA levels are now assessed at $755/t-$800/t (690/t-755/t) for the two lighter viscosity grades (150 neutral and 220N), with higher viscosity grades (500N and 600N) between $790/t-$825/t (730/t-755/t).
Discounts are appearing to existing contract prices with sellers trying to minimize any downward price movements until absolutely necessary, making the point that the situation with the economic downturn could be short lived and that fundamental prices may start to flatten out or rise as a result of OPEC agreeing to cut back on crude production.
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 are more stable than in pervious months, although competition is still rife throughout Europe. The expected reduction in availabilities during the turnaround season may not be evident with copious quantities of Group III base stocks being made available from various alternative sources in addition to traditional outlets for these grades.
Prices may be starting to feel softer but at the same time some suppliers are actually trying to push levels higher citing low margins and unacceptable netbacks. Prices are therefore taken back at the top ends of the ranges while maintaining the lower numbers.
Partly approved Group III base oils range at 655/t-710/t for 4 centiStoke grades, with 6 cSt and 8 cSt base oils at 660/t-720/t. Prices refer to FCA supplies ex Northwestern European hubs.
Prices for European original equipment manufacturer approved Group III base oils are also adjusted lower and are now between 740/t-800/t for 4 centiStoke base oils, with 6 cSt grades between 770/t-815/t and 8 cSt oils between 755/t-810/t.
Baltic and Black Seas
Baltic prices appeared to peak a couple of weeks back and have started to come lower against the backdrop of lower raw material costs. The moves were not dramatic, however, with only small discounts offered for some grades. Some resellers commented that availabilities are tight in the light of a few large enquiries for cargoes to load during February.
Replacement barrels purchased from Russian refineries have receded in price, and it is assumed that these levels will be reflected in FOB numbers over the coming weeks.
Demand is still showing high in the Russian and Ukrainian internal markets, although most of the term supplies were agreed for the next few months. This allows scope for export quantities to be considered through Baltic ports.
Enquiries are maintained for around 65,000 tons of material to load out of the Baltic between now and the end of March. Large cargoes are considered for Nigeria and still the 12,000 tons parcel to load out of the Baltic for supply into Aqaba in the Red Sea.
Short-sea trade cargoes are loading for Antwerp-Rotterdam-Amsterdam and the United Kingdom, with contract replenishment cargoes moving into northwestern Europe from Baltic traders.
Baltic prices came off the recent highs of the past few weeks with the main grades such as SN150 now selling at around $510/t-$525/t, with SN500 between $520/t-$535/t. Bright stock, which can load out of Gdansk, is indicated lower, between $645/t-$675/t FOB.
Black Sea base oil prices for Russian Group I exports moved upwards, then stalled, and apparently now are pulled back close to original selling prices, which were almost static during the course of last year. These prices apply to material loaded out of the STS facility at Kavkaz, Russia, for which another large potential cargo of some 12,000 tons being assessed for receivers in the west coast of India, with options for discharging into the United Arab Emirates.
STS prices in respect of Russian export grades have levels pitched around $470/t-$485/t in respect of SN500, with smaller parcels of SN150 at around $465/t. Talks suggest that should the drift in crude and feedstocks continue, this could put pressure on these levels to fall further, although this is according to buyer sentiment.
Russian export barrels are quoted in offers to Turkish receivers in Gebze, Turkey, and are heard at around $525/t in respect of SN500, with SN150 at $520/t CIF. These are $20/t lower than 10 days ago, reflecting market sentiment. Internal Turkish prices have not moved downwards as yet, with the local supplier maintaining February prices, set at the top of the market at the end of January.
Group I offers from Mediterranean sources were adjusted lower, with indications seen this week at $625/t in respect of SN150 with SN500 at $635/t basis CIF Gebze, Turkey. SN600 is indicated at around $640/t. Offers received by Turkish receivers last week were dismissed as too high, since buyers were aware of a potentially weakening market.
Group II and Group III grades on the basis of ex-tank Turkish ports are maintained in pricing terms, since selling prices tend to be based on import levels plus costs and a margin to resellers. Most stocks were imported towards the end of last year, when prices were more competitive. Selling levels are heard between $795/t-$835/t in respect of the range of Group II grades, with partly-approved Group III base oils between $810/t-$845/t.
Middle East Gulf
Red Sea shipping reports contain news of large parcels moved out of Yanbu and Jeddah for points east. Receivers in India and U.A.E. look to take around 50,000 tons of mixed Group I and Group II base oils over the next few weeks, with large quantities loaded during the remaining days of February.
Other traffic includes a parcel of some 5,000 tons shipped to Alexandria in Egypt. The next tender for second quarter supplies will be issued by Egyptian General Petroleum Corp., with the incumbent supplier perhaps looking to remain in place.
Middle East Gulf base oil trade was confined to large quantities of material arriving into the region from Saudi Arabia, although a large cargo is under consideration from the Black Sea, which would arrive during March if successfully finalized. Prices are yet to be offered since buyers believe that the market is fluid at the moment.
Few offers are noted from U.S. sources for supplies of Group I base oils, since that market may be a little shorter than previous times with more local export opportunities into Mexico and West Africa. Last noted prices offered were deemed uncompetitive, with levels indicated at $665/t in respect of SN500, SN150 around $655/t, with bright stock at $745/t. All CIF Hamriyah, U.A.E.
Replacement barrels are always sought to cover for the lack of Iranian material available. There were no further reported cargo movements out of Iranian ports, although sources in U.A.E. commented that smaller lots of Iranian base oils find their way out of the country on an unofficial basis. Prices are not disclosed, although it is expected that levels will be equivalent of around $650/t in respect of SN500, landed into the U.A.E.
The shipping enquiry for a base oil cargo to load from Al Ruwais for Brazil is confirmed in the market, although it has not been possible to see if any tonnage was offered for this unusual voyage. A 6,000 ton parcel is considered to load during February, although receivers for this parcel have not been established.
Group III base oils exported from Middle East Gulf sources in Al Ruwais and Sitra have notional FOB prices adjusted lower this week. The movement of these FOB levels do not fluctuate on a week by week basis, and depend on the last cargo moved into a sales region.
FOB levels are assessed between $630/t-$675/t in respect of partly-approved Group III base oils selling into Europe, U.S., India and the Far East. Eight cSt grades sold into Indian and Far Eastern locations will produce lower FOB prices due to discounting of local selling prices.
Nexbase-branded Group III base oils produced at Sitra refinery in Bahrain, and marketed by Neste will have notional netbacks between $765/t-$825/t in respect of the three main Group III grades, 4 centiStoke, 6 cSt, and 8 cSt.
Notional FOB prices on a netback basis are based on prices derived and informally assessed from regional selling levels, minus marketing, handling and freight costs.
Middle East Gulf Group II base oils distributed and resold throughout the Middle East Gulf regions have selling price levels lower this week, and are assessed on an FCA basis out of U.A.E. hub storage between $785/t-$920/t in respect of the light vis grades 100N/150N/ 220N, and 500N/600N between $810/t-$925/t. These prices are based on FOB numbers from the Far East and Red Sea, plus freight, storage and handling, and distributor margins.
Group I and Group II base oils going into North African receivers in Morocco, Tunisia and Algeria. Cargoes are loading out of Sicily and northwestern Italy.
In West Africa trade, so far only one of the large Baltic Group I cargoes was completed for Nigeria, with another 15,000 tons parcel potentially booked for later this month. Prices were in discussions over the past few days, and with base oil markets softening, discussions may continue for another couple of weeks before final prices can be established for such a large quantity. These large quantities are thought to be bought to order from Russian refineries.
Prices in respect of API Group I base oils discharging into Apapa for Nigerian receivers are maintained this week since no new prices in respect of cargoes were released. Baltic prices may be changing, and it may be next week before getting a fix on these rates.
CIF/CFR levels continue to be indicated between $645/t-$660/t in respect of SN150, SN500 between $650/t-$665/t, with bright stock between $745/t-$760/t. Blended SN900 is maintained between $670/t-$685/t.
Prices are in respect of cargoes of a minimum of 10,000 tons delivered into Apapa port, Lagos, Nigeria.
Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly at email@example.com.
Historic and current base oil pricing data are available for purchase in Excel format.