EMEA Base Oil Price Report May 22, 2018

By Ray Masson

With base oil prices continuing to rise, buyers are wondering how high they might go and worrying about the effects on finished lubricant prices.

Values are climbing steadily, seeming to firm with almost every offer, including fixed price arrangements and those linked to indices, which are being severely tested at this time.

Dated deliveries of Brent crude topped $80 per barrel at the end of last week before retreating to $78.35/bbl for July front month settlement during trading in London yesterday – not dissimilar from the price of one week ago. West Texas Intermediate crude has also marked time, posting yesterday at $71.60/bbl still for June settlement. ICE LS gas oil is also steady, having spiked up to over $700 before slipping to $670 per metric ton for June front month.

Europe

API Group I export prices throughout Europe continue to move upwards, with the price ranges moving further apart as some sellers try to push numbers to their limit while others appear content to accept lower levels in return for quick sales with prompt loading dates. Light solvent neutrals are now registering between $880/t and $905/t and heavier grades at $935/t-$965/t. Bright stock prices are being seen in really wide ranges with some lower-priced, lesser spec material at around $975 and mainstream versions at $990/t-$1,020/t.

The above levels pertain to large cargo-sized parcels of Group I base oils sold on an FOB basis ex mainland European supply points.

Group I prices for sales within Europe are continually moving upwards, and some sellers not waiting until month end to adjust prices, contending that they have to pay more for replacement products and are obligated to pass on the expenses. Sales are lively, possibly because many purchasers trying to beat further hikes.

The differential between exports and intra-regional prices is unchanged this week at between €30/t-€80/t, export prices being lower.

Group II levels are maintained this week, awaiting further developments. Light-viscosity grades are at $985/t-$1,025/t (€840/t-€876), and the heavier-vis grades between $1,065/t-$1090/t (€910/t-€930), basis FCA.

Group III prices are following the moves made by Group I and Group II, albeit on a slower advance than these other types of base stocks. Demand is healthy, and

buyers are being given individual pricing depending on their commercial relationship with the sellers. Some buyers are electing to pay earlier for lower prices, whilst others are negotiating on volume-linked contracts from which sellers can plan inventory and replacement stocks.

Values rose this week to $1,010/t-$1,040/t CIF for 4 centiStoke and 6 cSt grades discharging in bulk into Antwerp-Rotterdam-Amsterdam and Northwestern Europe, and FCA sales in euros are now moving ahead to between €940/t-€975/t for the same grades when bearing partial slates of finished lubricant approvals. Base oils carrying fully approved ACEA and European OEM credentials and are now assessed between €965/t-€990/t for the 4 and 6 cSt and €910/t-€935/t for 8 cSt, basis FCA Antwerp-Rotterdam-Amsterdam.

The latter prices are for ex rack or truck delivered smaller lots of Group III base oils and do not reflect material delivered in bulk to large users such as major blenders or additive manufacturers.

Baltic and Black Seas

Baltic trade appears to be brisk with a number of new cargoes for May being announced for discharge into the continent and the east coast of the United Kingdom, but again with a lack of large deep-sea parcels for receivers in West Africa. Nigerian traders and buyers were eager to point out that there are a number of ongoing inquiries placed with Baltic suppliers, but positive responses appear to have been missing.

Suppliers have said that prices indicated to West Africa buyers have been countered to such an extent that it makes the business unworkable, hence these large cargoes remain notional at this time.

Prices are still positive but at the same time have moved only marginally this week, perhaps due to a mid-month outlook. Rates are still very much firm. SN150 is now $850/t-$870/t, SN500 is $920/t-$945/t, while SN900 is $955/t-$980/t and bright stock $930/t-$1,055/t, all on an FOB basis.

Black Sea markets report a smattering of local traffic this week with some Uzbek grades making their way into Turkish receivers, the first of these movements seen for some time. Other large parcels on an STS basis from Kavkaz, Russia, are being primed for loading later this month according to sources, with the throughput for this operation now more flexible due to the use of a larger mother ship.

Sources have suggested that prices as low as $725/t are not credible for this operation since ex-gate prices for the Russian export grades would put prices above these levels by some $50/t or more. The figure of $725 was based on the assumption that delivered prices would have to compete with local material at destination.

Inquiries and completed deals for Mediterranean cargoes moving into Gebze and Derince, Turkey are around the market, with Spanish and Greek cargoes figuring in these operations. Prices heard in offers and completed deals for Mediterranean Group I cargoes are around $935/t-$965/t for light neutrals and $975/t-$995/t for SN500 and SN600, basis CIF. Fully approved Group III base stocks ex Mediterranean in bulk are assessed offered into Gebze at around $1,075/t-$1,100/t CIF, or the equivalent in euros.

Middle East Gulf

Red Sea reports are that a cargo into Aqaba has been covered locally by Saudi Arabian suppliers out of Yanbu. This is in addition to the Mediterranean supply confirmed last week. No further news is yet available regarding the Sudanese requirement, although local agent sources imply that the cargo will be delivered by incumbent suppliers.

Middle East Gulf sources report that Iranian cargoes are moving out of Bandar Bushehr and that a couple of parcels of SN500 will move out to the United Arab Emirates and to the West Coast of India during the next few days. No further news or speculation has been heard regarding the issuing of sanctions against Iran, which will obviously affect the movement of base oil cargoes should these sanctions be imposed.

One major oil company has withdrawn from further joint activity in Iran with regard to a large gas project, and at the same time ship owner and operator Maersk has ceased operations out of Iran, citing trade with the U.S. to be ranked ahead of a presence in the Middle East Gulf.

FOB prices for the exported Iranian SN500 base oil are expected to range between $855/t and $880/t.

Group III exports from Al Ruwais, U.A.E., are reported this week for the West Coast of India with two potential cargoes of around 18,000 tons total moving during the last part of May. The main news announced last week is that the Al Ruwais refining operations are to get a major investment injection of $45bn resulting in a new complex for the production of all petrochemical products and derivatives. How this massive project will affect base oils is not yet clear, but the effects may be minimal.

Actual and notional FOB rates are again posted higher this week to $895/t-$910/t both for 4 and 6 cSt grades from Al Ruwais and for Bapco-branded oils from Sitra, Bahrain. Sitra output branded by Neste, which has full slates of approvals, is selling around $935/t-$965/t.

FOB levels are established on a netback basis using published shipping freight rates, and taking into account advised CIF prices from a variety of sources.

Group II cargoes from Yanbu, Saudi Arabia, are being planned for receivers in the U.A.E. and India, both stand-alone cargoes and combined Group I and Group II shipments. At the same time, Group II base oils originally from the U.S. are available ex U.A.E. on an FCA, truck- or tote delivered basis. Prices for the latter are unchanged this week at $1,025/t-$1,060/t for 100N, 150N and 220N and $1,120/t-$1,170/t for SN500 and SN600.

Africa

There is news from West Africa that another large 10,000-ton parcel loading out of the U.S. Gulf Coast is en route to Nigeria. In addition, the Ghana tender will be delivered during June on a stand-alone basis and will not include Group I material for Guinea or the Ivory Coast.

Based on information received last week, this could mean another U.S. Gulf Coast parcel will be loading later this month or in early June for receivers in Apapa, Nigeria. It is rumored that the latter cargo will be larger, up to 16,000 tons in total, with the possible inclusion of Group II grades.

Prices for Group I base oils landing into Nigeria are indicated at the following levels: $943/t for SN150 and SN180, $998/t for SN500, SN600 and SN700, and $1,035/t-$1,060/t for bright stock from the U.S. Gulf Coast. These refer to large parcels of Group I delivered into Apapa.

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