August 23, 2017
Volume 17 Issue 52
EMEA Base Oil Price Report
Demand for European exports of API Group I base oils remains strong, featuring large inquiries for deep-sea locations from West Africa to Central and South America, but arbitrages to the Middle East Gulf and India are firmly closed, mainly due to lower priced, local products.
The unseasonably high demand is causing some confusion about the market’s outlook for coming months. Demand seems to be sustaining prices that are higher than European blenders expected, and the looming end of summer holidays could bring more upward pressure. This would run against all previous forecasts, which suggested prices would retreat during the third and fourth quarters to give buyers the run of the market.
Further muddying the waters, Group I prices outside Europe appear to be static or falling, and a number of main Group II suppliers announced across-the-board markdowns.
Crude oil markets offer another anomaly: Dated deliveries of Brent crude rallied a bit, apparently due to slightly improving demand. Brent posted at $51.90 per barrel yesterday for October front month settlement, some $1.50/bbl higher than last week. West Texas Intermediate, meanwhile, was essentially flat at $47.85/bbl, also for October front month. The widening of the spread between those benchmarks probably stems from the swelling of crude storage stocks in the United States, but base oil buyers will be watching the scene closely in coming weeks.
LS Gas Oil was $473 per metric ton on the London ICE market, almost the same as last week.
Despite the healthiness of demand, Group I prices within Europe are mostly flat this week. Light solvent neutrals are positioned between $680/t and $695/t amidst a number of large inquiries – unusual since export markets normally favor heavier solvent neutrals and bright stock. SN500 and SN600 are $765/t-$785/t, while bright stock dipped some $10/t to $795/t-$845/t.
The prices above refer to large cargo-sized parcels of Group I supplied or offered on an FOB basis from mainland European supply points.
Local buyers will only return to work in proper fashion after Sept. 1, but those who have already ended their seasonal break offer divergent views of the pricing outlook. Some called for Group I cuts in line with markdowns that they expect for Group II oils, noting that if Group II values fall and Group Is do not, then Group II light neutrals will cost less than corresponding Group I grades. Other blenders anticipate that the high export demand may push up prices beginning in September, though they expect them to fall back during the fourth quarter.
The differential between domestic ex-tank or FCA prices and exports remains the same as last report, assessed at €65/t-€95/t.
Group II prices may have reached their zenith for now, given cuts announced in home markets by a number of importers to Europe. Some observers have suggested that the normal summer slowdown in Western may have loosened availability of Group II oils, particularly those from the U.S., and the markdowns may be a sign that this segments is moving longer not long after producers talked up the possibility of price hikes. The decreases ranged from around $15/t for light-viscosity grades to up to $60/t for heavier grades. These numbers will take time to filter down to field sales in the European arena, but will be noted by buyers looking to restock inventories after the summer recess.
Light Group II neutrals are unchanged this week at $655/t-$685/t, while 500N and 600N are $825/t-$865/t, CIF Antwerp-Rotterdam-Amsterdam. FCA prices ex-European supply hubs remain at €755/t-€790/t for light grades and heavy-viscosity oils at €855/t-€890/t.
The European Group III segment remains stable on limited activity. Sellers and buyers acknowledge that the market will soon once again have more of these oils available than can be sold at returns acceptable to refiners.
For now, 4 centiStoke and 6 cSt grades remain priced at $795/t-$825/t, which translates into €690/t-€717/t for euro sales made FCA Northwestern Europe. Group IIIs with full slates of finished lubricant approvals, sold FCA Antwerp-Rotterdam-Amsterdam, are €790/t-€825/t for 4 cSt and 6 cSt and €765/t-€785/t for 8 cSt. Large buyers receiving bulk deliveries may gain discounts of $60/t-$75/t from FCA prices. Euro-to-dollar exchange rates continue to exert downward pressure on refinery gate prices.
Baltic and Black Seas
Sales of Russian exports from the Baltic ports continue unabated with news of two more large cargoes to be loaded for Nigerian receivers. Prices appear stable to firm, though, for all cargoes including those being delivered on a regular basis into Antwerp-Rotterdam-Amsterdam and the East Coast of the United Kingdom. Short sea traffic appears to have picked up again this week, with a number of cargoes between 3,000 and 5,000 tons being announced for loading for late this month or early September.
Prices have been reviewed in light of new offers into West Africa and calculations made on a netback basis to reflect FOB levels. SN150 is now assessed at $665/t-$685/t, SN500 at $740/t-$765/t, SN900 at $835/t-$860/t and bright stock at $905/t-$945/t, all FOB.
Russian exports of SN500 and SN150 are the mainstay of cross Black Sea trade this week. With more offers for cargoes loading during first half September, there appears to be a flurry of shipments coming into receivers in Gebze, Turkey, from Kavkaz, Russia.
Exports of Russian SN500 are reportedly being offered for around $785/t, basis CIF, but Turkish buyers maintain they can purchase this material for $20/t-$25/t less. The latter levels are unconfirmed and, subject to offered prices seen from suppliers, may be unachievable.
Mediterranean cargoes of Group I ex-Greek suppliers are reported at $695/t-$710/t for SN150 and $775/t-$795/t for SN500/600, basis CIF main Turkish ports. Bright stock offers from Mediterranean sources were heard at around $865/t-$885/t, CIF Turkish ports.
Middle East Gulf
Reports from various Red Sea indicate that the recent inquiry for Group I base oils to be delivered into Aqaba, Jordan, has been covered by traders taking material from a Mediterranean source. This news is unconfirmed so far, but shipping inquiries suggest that there is substance to it. Shipping sources also confirm new inquiries for shipments from Yanbu’al Bahr and Jeddah, Saudi Arabia, into the Middle East Gulf and the West Coast of India.
Middle East Gulf trade is returning to normal after the summer break. With ambient temperatures still exceptionally high, some blending and production units are reporting day-time work stoppages. After the launch of several new plants in recent years, the region now exports more Group I and Group III than it imports. It is still a net importer of Group II, though this could change with a looming upgrade of Luberef’s Yanbu plant.
Parcels of Iranian Group I base oils, mainly SN500 and premium SN500, are moving out of Bandar-e Emam Khomeyni and Bandar Bushehr for receivers in Hamriyah, United Arab Emirates, and to buyers in Pakistan and Mumbai anchorage. Sources contacted last week confirmed large quantities of SN500 being prepared for shipment from Iran and sales being made on a direct basis.
Other than re-exports from the U.A.E, it has been difficult to determine both quantities and prices. U.A.E. sources have postulated prices that appear to be keener than previously quoted: SN500 effectively being $625/t, FOB, based on netting back CIF prices delivered into Mumbai anchorage and applicable freight rates in the local market. There is also mention of some small parcels of SN150 going for $610/t.
Group III cargoes are traveling from the U.A.E. and Bahrain to Europe and the U.S., along with more regular exports to the West Coast of India and the Far East. Shipments from Qatar suggests Shell and Qatar Petroleum’s plant in Ras Laffan is running again.
Four and 6 cst Group III loaded out of Al Ruwais, U.A.E., are assessed at $635/t-$665/t, FOB, while Neste is reportedly selling its 4 and 6 cSt oils around $745/t and its 8 cSt oil at $710/t-$725/t, also FOB. Neste has a full slate of approvals for its branded oils, and European sources say approvals for Adnoc’s oils from Al Ruwais are almost complete. Once in hand, those approvals may enable a price boost for the Emirati company.
These FOB levels are once again netback estimates calculated using nominal freight, general handling and marketing costs.
There appear to be a number of Group II offers circulating around the Middle East Gulf, including rumors of U.S. offers for parcels of 6,000 to 8,000 tons for receivers in the U.A.E. This may stem from source markets going longer and producers trying to carve out market share in the Middle East Gulf. Far East suppliers are also making rounds, looking to deliver Group II in conjunction with large quantities of other oils moving into India’s West Coast.
Imported Group II from Far East and U.S. sources by way of a European hub is offered out of U.A.E. storage on an FCA or delivered basis. To date prices for these oils have not been affected by source markdowns, with light grades still at $825/t-$850/t and 500N/600N $885/t-$910/t, CIF Middle East Gulf locations. This region could become an excellent outlet for heavy Group IIs, which have been subject to the biggest source markdowns.
Large cargoes of base oil continue flowing from Europe to South Africa, but local companies are also looking for reasonably large quantities of Group I to be imported in flexi-tanks. There are inquiries – being circulated to U.A.E., Baltic and India traders – for up to 1,000 tons of SN500 and smaller quantities if SN150 and bright stock also included.
Cargoes were confirmed the past week loading out of Spain and Italy for Morocco, Egypt and Tunisia, whilse Greek suppliers continue to cover Libyan Group I requirements on a regular basis.
Nigeria continues the largest purchasing campaign seen in West Africa for some time, with more inquiries for large slugs of Group I to be imported during the next few weeks. Inquiries out of U.S. East Coast, U.S. Gulf Coast, Baltic and Mediterranean suppliers are all under review. Buyers in Guinea, Ivory Coast and Ghana are looking for smaller parcels that could be combined with Nigerian shipments.
After previous rumors of Nigerian buyers considering Group III imports, sources this week confirmed that others are looking at Group II for particular blending operations catering for OEM-approved automotive lubricants.
Prices for prompt loadings of Group I are now assessed at $770/t-$785/t for 1,000 tons or more of SN150, while SN500/600 is up to $858/t-$875/t, reflecting prices delivered into the port of Apapa, in Lagos. SN900 has been updated to $940/t-$960/t, bright stock is $1005/t-$1045/t.
All prices for Nigeria are for base oils delivered on a CIF/CFR basis to Apapa or Port Harcourt, 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.