December 6, 2017
Volume 17 Issue 49
EMEA Base Oil Price Report
December has arrived without any fanfare over prices on the European base oil front. Even local buyers, who expected markups on API Group I oils at the start of the month, appear to feel that that threat has passed. On the other hand, there is little sign of year-end bargains, as the spot market seems relatively tight and few large spare cargoes are on offer for export.
The Middle East Gulf is witnessing a huge surge in exports both from Iran and from Group III producers. Its not clear if this reflects inventory reduction efforts or a more fundamental shift, but the scale perhaps involving more than 100,000 metric tons has certainly not been seen before.
In the background, crude oil and feedstock values have flattened, even after OPEC and Russia agreed broadly to extend crude production cuts through 2018. dated deliveries of Brent crude oil posted at $62.75 per barrel in London trading late yesterday, for February front month delivery, while West Texas Intermediate was $57.55/barrel, still for January front month settlement. Both marker crudes were recording almost the same levels as last week. ICE LS Gas Oil was showing marginally lower at $555 per metric ton, still for December front month settlement.
European Group I exports are stable to firm again this week, with some suppliers trying to move price levels slightly higher, almost by stealth. These tweaks and small changes have not moved the markets higher, with buyers almost insisting that prices remain unchanged and that the market is stable, without any signs of upward movements. Light solvent neutrals therefore remain between $695/t-$730/t. Heavier SN500 and SN600 have steadied and now range between $775/t-$795/t. Bright stock inquiries have initiated a number of offers at higher prices, but none of these deals has been reported as fixed clean, suggesting that buyers are still looking for numbers to remain flat and perhaps even to dip toward the end of the year. Bright stock is priced between $845/t-$870/t.
One observation has been gleaned from the market: Not many Group I suppliers can offer reasonable quantities of all grades, as some are longer on light neutrals and others the opposite. All grades can be found, but this often requires two-port loading arrangements involving extra costs that are also acting to keep FOB levels in trim.
The prices above refer to large cargo-sized parcels of Group I base oils supplied or offered FOB ex-mainland European supply points.
As mentioned previously, local or domestic prices have not seen any significant changes from Dec. 1, and many suppliers are looking to maintain prices at status quo. Marginal changes have been announced by some sellers, with small increases to grades described as relatively short supply. Looking across the European mainland however, all Group I grades can be found with no real shortages or limitations to supplies.
Local prices are therefore maintained this week with the differential for domestic FCA prices over spot export levels remaining between 50/t-70/t.
European Group II prices also remain stable with no upward pressure from production costs or from a market where both buyers and sellers appear content with a period of price stability. This creates a much better environment for the pricing and production of finished lubricants. With the European scene recognizing the future importance of Group II base stocks for OEM-approved lubricants. This sector, along with Group III grades is set for significant growth between now and 2025.
Prices are held at existing levels, with light-viscosity grades maintained between $680/t and $695/t, and 500N and 600N at $775/t-$815/t. These nominal imported CIF prices are for large bulk cargoes being landed CIF into Antwerp-Rotterdam-Amsterdam. FCA or locally delivered prices remain at 770/t-800/t for light-vis oils and higher-vis grades at 850/t-885/t.
Group III prices throughout Europe are gradually going through a stage of adjustment, with producers trying to raise prices for large bulk deliveries to distributors or major receivers, whereby these prices will ultimately be passed on to the smaller end-users, who are taking delivered material or are lifting FCA from storage in northwestern Europe and Antwerp-Rotterdam-Amsterdam. At this time it appears to be a question of trialing prices to see how high levels can be pushed before buyers start to question these increases and get into negotiations with alternative suppliers.
At least one supplier advised that prices are not considered to be out of line, and that satisfactory returns and contributions are being made from sales of Group III grades. This does not mean that sellers would turn down the opportunity to push prices higher, but on the basis of feedstock prices and other marketing costs, netbacks appear to be adequate and acceptable at this point in time.
Prices landed into Northwestern Europe in bulk are assessed at $785/t-$825/t, basis CIF, for 4 centiStoke and 6 cSt grades, with local euro FCA sales priced between 695/t-720/t, FCA Northwestern Europe. Grades with full slates of finished lubricant approvals, offered on an FCA basis for Antwerp-Rotterdam-Amsterdam, are 790/t-825/t for 4 and 6 cSt grades and 765/t-785/t for 8 cSt.
These prices refer to ex-rack sales or truck delivered quantities of Group III base oils and are not to be confused with large bulk cargoes delivered to majors and distributors.
Baltic and Black Seas
Russian exports through the Baltic ports report a couple relatively large parcels being moved into Antwerp-Rotterdam-Amsterdam during early December, with another cargo of around 8,000 tons being already loaded for Nigeria. Buyers are pushing a number of inquiries around this market, predominantly for cargoes to load during December for Nigeria and other West Africa ports. Sellers are indicating that they may not have sufficient stocks to cover all the inquiries, but since a number of these appear to be exceptionally flaky, chances are slim that all will need to be supplied.
Separating the wheat from the chaff is a major hurdle in establishing which inquiries are genuine and which are not, and experience is the only real tool available to sellers. Because most of these deals are done on a delivered basis, the crunch comes when a letter of credit has to be opened; in many cases deals collapse at this point. Some Nigerian buyers, for example, still face problems financing their trades. Recognizable blue-chip West Africa buyers and traders are few compared to the numbers and levels of inquiries received by sellers in the Baltic.
FOB prices, often estimated by working back from CIF/CFR delivered prices, are assessed between $685/t-$700/t for SN150, $745/t-$760/t for SN500, $795/t-$820/t for SN900 and $885/t-$940/t for bright stock.
Price indications for parcels of Russian Group I base oils coming out of Azov and being delivered into Gebze, Turkey, are assessed at around $794/t, delivered CIF. This is an updated price from sources close to the trade. The large 10,500 ton cargo now loading on an STS basis at Kavkaz, Russia, has been identified as bound for Singapore, not Rotterdam as first thought. Prices and cargo composition are not yet announced.
Although few cargoes have been reported coming out of the Mediterranean for Turkish buyers, some say that this may be due to the exchange rate between Turkish lira and U.S. dollars, which has been going against imports and encouraging blenders and traders in Turkey to focus on domestic Group I oils. However, it appears a number of cargoes from Mediterranean and Atlantic-Mediterranean producers are being imported into Derince, Mersin, and other Marmara ports. Prices are only approximate at this point, since few deals have been closed, but light neutrals are assessed at $780/t-$795/t and SN600 and SN500 at $795/t-$835/t, CIF.
Red Sea shipping reports indicated that Saudi Arabian exports will be elevated during December and early January, perhaps reflecting some of the new Group II production starting to flow from Yanbu, although this is not confirmed. Shipping inquiries include another Sudanese inquiry for what appears to be the usual three-grade cargo for these receivers.
Middle East Gulf
As mentioned above, greater amounts of base oil appear to be moving out of and around the Middle East Gulf, and this reflects developments for the past few years. The biggest is that the region has changed from a net importer of base oils to an export hub, not just for regional trade but also for markets in the Far East, the United States and Europe.
December sales of Iranian exports appear to exceed 25,000 tons of Group I grades, mainly SN500 and premium SN500 traveling in in large parcels of around 3,000 to 6,000 tons each to receivers in Karachi, Mumbai anchorage and Sharjah, United Arab Emirates. Premium SN500 from Sepahan Oil is priced at $785/t-$795/t, FOB. The cargo of Group I grades sourced out of the U.S. Gulf Coast, which last week was offered into United Arab Emirates, appears to have been switched back to West Africa receivers.
Group III base oil exports from three Middle East Gulf plants would seem to exceed 70,000 tons during December, with cargoes being arranged into India, Pakistan, South Korea and Antwerp-Rotterdam-Amsterdam. The largest exports appear to be coming out from Al Ruwais, where large cargoes of 10,000 to 12,000 tons have been organized for prompt loading. FOB levels are assessed higher than previously calculated and are $725/t-$755/t for the 4 and 6 cSt grades loading out of Al Ruwais, depending on receiving location. These prices are for parcels delivered on a CIF basis to major buyers and distributors. Bahrain exports will be priced higher, thus providing higher netbacks for FOB levels.
Far East suppliers have offered a number of Group II cargoes for the West Coast of India and Middle East Gulf receivers. With availabilities from these suppliers well-balanced, prices have escalated in recent weeks, and U.A.E. sources say this is making the import of these products impractical. They have not offered clarity on alternative options, but consideration may be given to Group II expected to flow soon from Yanbu, Saudi Arabia. Offered prices are reported to be $695/t-$720/t for light grades and $865/t-$885/t for 500N and 600N, CIF Middle East Gulf.
Group II available on from the U.A.E. on an FCA or delivered basis are now priced at $830/t-$865/t for 100N, 150N and 220N, with 500N and 600N at $885/t-$945/t, delivered. Prices are variable and depend on distance, parcel size and method of shipment.
Apart from Nigerian trade, receivers in Guinea, Senegal, and Ivory Coast are looking to organize one or more cargoes during January or early February, and since business in these location often simpler and easier to process in terms of payment, more traders and suppliers are becoming interested in this business.
Nigerian receivers are queuing to try to buy last-minute, year-end, December cargoes from Baltic. European and U.S. sources, believing that they can purchase Group I base oils at prices up to $100/t below current market levels. Some of these players are bidding for cargoes at ludicrously low prices that sellers simply are not considering. Many e-mail bids are going unanswered and will continue to be ignored until buyers come to their senses.
One cargo has already loaded out of the Baltic and will discharge into Apapa port at Lagos, Nigeria, around the end of December. The other large parcel being sourced from the U.S. Gulf Coast is still taking shape, apparently offered first to Nigerian receivers, then U.A.E. buyers, and now seemingly to a different receiver in Nigeria. The Baltic cargo has been priced at levels which are contained within the ranges outlined below.
A couple smaller inquiries have come from a buyer in Onne, Nigeria, but it appears that the quantities are too small to constitute even part of a bulk cargo. They and may end up being covered by flexitank deliveries.
Prices for Group I base oils delivered into Apapa in bulk reflect current offers and completed deals made by suppliers on a CFR/CIF basis and are $898/t-$924/t for SN150, $927/t-$955/t for SN500, $992/t for SN900 and $1,033/t-$1,047/t for bright stock.
The prices above refer to quantities of Group I base oils delivered CIF/CFR Apapa, Lagos in minimum parcel sizes of 6,000 tons total.
Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly at firstname.lastname@example.org.