Despite some signs of weakness, the EMEA base oil markets numbers stayed within narrow ranges this week, suggesting that sellers and buyers feel positive about stability.
A slight weakness has started to impinge on some sectors throughout the Europe, Middle East and Africa markets, perhaps mainly in the API Group II and Group III camps where production appears to be moving ahead of requirements, which causes concerns about whether price levels can be maintained long term.
Dated Brent has weakened by some $4 the past few days to trade around $105.50 per barrel for front month settlement. West Texas Intermediate follows this path to around $94 per barrel. ICE gas oil has broken through resistance set at $900 per metric ton to trade at $896/t late Tuesday, with weaker levels for the distillate markets possibly still to come.
Group I FOB levels are almost unchanged, with only a few tweaks to the ranges highs. Light solvent neutrals are offered between $970-$985/t, with the heavier vis grades such as SN 500 around $995-$1010/t. Bright stock, now at $1145-$1175/t, has weakened the most.
These prices refer to known FOB offers and sales of cargo-sized parcels of mainstream base oils supplied ex mainland Europe and North Africa supply points where availability permits.
Local European prices are showing a degree of weakness over the last few days, with the gap between export sales and supplies to local European mainland and United Kingdom blenders becoming more narrow. There is no evidence of large drops in paid prices, but more of a pruning effect on numbers, bringing a few of the top prices back into line with general levels for European receivers. For the range of solvent neutrals, a euro differential of 55-85/t is assessed over export prices, while bright stock is selling at levels almost identical to those of exports.
Baltic & Black Sea
Baltic levels are largely retained with a few large cargoes for West Africa either completed or negotiated. These parcels – one of which is reputed to be around 11,000 tons in total with a two port load – will load during the second half of November. Prices for SN 150 and SN 500 are still in last weeks bands of $930-$965/t. The variance reflects the demand for SN 500 in Nigeria where SN 900 is in demand as a bright stock substitute. Although its not confirmed, supplying parties suggest that an approximately 7,000 ton-parcel of this grade is being sold at around $995/t FOB.
Black Sea offers are being countered by aggressive bids from Turkish buyers convinced that the market is falling and that offered prices should reflect this. Despite signs that sellers will accept reasonable counters, they will not offer $40-$50 below established market levels. Offered prices for Russian SN 500 are $925-$940/t FOB, with added freight of around $35-$45/t giving landed CIF prices into ports such as Gebze and Izmit. SN 150 from Russian sources is some $5-$10/t lower, with Uzbek SN 150 showing around $925-$930/t CIF northern Turkish ports.
Middle East
Bright stock deliveries for Egyptian General Petroleum Corporation supply have started under the latest tender arrangements and will continue through December. Other Near Middle East trade has been thin with the impasse in Syria and Egypt dominating the regions commercial activity. All of Maghreb is suffering from the regions civil unrest.
Israeli producers continue to maintain output from Haifa, but with relatively few exports due to low availability and product prices being pitched higher than other Mediterranean suppliers.
Jordan has requirements for base oil, some of which will possibly be met by imports from Saudi Arabia, with news filtering out regarding the restart of production from Iraqi refineries which last produced base oil under the SOMO banner prior to the invasion in 2003. Red Sea exports from Jeddah and Yanbu appear to continue with a number of shipping enquiries for cargoes of Group I heavy solvent neutrals being loaded for locations such as Oman and United Arab Emirates with prices for the range of neutrals extending from $975-$1025/t on an FOB basis.
Middle East Gulf trade in Group I base oils has been limited to the continued availability of Iranian material, predominantly SN 500 which is again being primed for export to the west coast of India and East Africa. Prices, having been restored to acceptable levels, are once again under pressure due to Indian producers lowering local prices which will impinge upon Iranian imports. Levels are now back to around $975-$985/t basis FOB.
A great deal of Iranian exports were being placed via Turkey, but this has dwindled over the past few months, perhaps bringing more barrels back to BIK and Bandar Bushehr for export from the south. Quantities of SN 150 and SN 650 were also on the market this week, being offered on usual basis of FOB.
A small cargo of Pakistani-origin Group I was cited as landing into U.A.E. during the last few days forming some of the blended material which is often shipped to receivers in East Africa. Also, lower-quality bright stock with higher color and lower V.I. from the United States was being offered delivered into U.A.E. with a price tag of around $1145/tCIF, on basis of a parcel of some 3,000 tons.
Africa
African base oil players are assembled in Cape Town this week for the annual ICIS conference, along with other suppliers and many smaller receivers and blenders interested in gaining a foothold in these regions
East African importers are looking to extend their sources for Group I material with some considering Group II grades for the first time. The competitive prices for the light vis grades versus Group I SN 100 and SN 150 are fine, but higher vis Group II grades versus SN 500 tend to be too expensive for these regions. Given that some blenders are using recycled base oils at prices around $965-$1000/t delivered in flexies or drums, it is hard to see how Group II grades from Far East will compete.
West African receivers are hesitating, considering that the base oil markets is weakening, and that there may be scope for some year-end inventory clearances from U.S. and European Group I producers. They are also looking at lower Baltic FOB numbers which could benefit cargoes arriving during December.
Bright stock has been booked from U.S. for two receivers in Nigeria, with two large parcels from Baltic supply sources labeled for Apapa.
Forward delivered prices are now assessed in the region of $995-$1055/t in respect of European and Baltic solvent neutrals with SN 900 ex Baltic landed around $1070/t. Bright stock ex European suppliers is expected to land around $1120-$1145/t, with U.S.-sourced, lower-quality material around $1100-$1115/t. All basis CFR delivered.
Group II/III
Group II grades within European mainland are coming under pressure as buyers see large tranches of new production starting to appear in the market with a global oversupply scene possibly unfolding. Producers are pushing to compete with light solvent neutrals, and some reports are that more than one European Group I refiner will close light solvent neutral base oil trains and will resell imported rebranded Group II in their place.
This practice may become more common as the costs of producing light Group I grades outweighs the option to buy in and re-sell imported Group II material.
With more and more production coming on line during the first quarter of 2014, and targeted markets such as Europe and South America in the sights, Group II may get the boost that takes that base oil across the threshold. Suppliers from Far East sources are determined to retain European market share against the ever-increasing availability of material coming from the U.S. and may defend their supply positions with lower prices.
Prices at the moment are stable-to-weak between $1070-$1095/t with the rage of higher vis 500N and 600N material offered ex tank Antwerp-Rotterdam-Amsterdam at $1125-$1180/t.
Group II prices in Middle East Gulf regions are coming under the same pressures, with a number of buyers calling for reviews prior to further cargoes arriving before year-end. The forecasts were that production increases would start around now, with the resultant availability in the market moving upwards. Delivered levels for December cargoes are now being negotiated around $10-$25/t less than current CIF numbers, at $1035-$1150/t for lower vis grades and $1145-$1160/t for high vis.
Most suppliers producing Group III material, whether locally produced or imported, will sell this material on a grade-by-grade basis. But any material with GTL input is only being released into the third party market in the form of a blend with other intrinsic parts to the cocktail, thus preventing any specific third party from gaining an advantage through the purchase of a singular superior material.
This has caused some confusion for prices where straight sales of 4 cSt and 6 cSt products can be purchased between 975-995/t, but in the case of blended GTL compounds the prices can be some 70-120/t higher. Prices are all on basis of ex tank sales.
Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in East Grinstead, U.K. Contact him directly atpumacrown@email.com.
