EMEA Base Oil Price Report

Prices for API Group I base oils continue to come under pressure from a wave of availability that is building slowly but surely towards the years end. Producers are finding local demand slowing and export opportunities difficult, due to coverage of these outlets by sources in the United States and East Asia.

To emphasize how difficult it has become to keep the arbitrage open for European suppliers, there is presently a new shipping inquiry to move 12,000 tons of Group I base oils from the Red Sea to West Africa at the end of November, the West Africa region being a first time target for material moving out of Yanbual Bahr and Jeddah, Saudi Arabia.

With markets slowing for the seasonal downturn, prices for Group I material currently available ex storage are being discounted by sellers trying to maximize throughput. Buyers, meanwhile, are taking smaller quantities, trying to run down inventories, and the combination of these forces is proving problematic for suppliers.

Group II prices in Europe are also under pressure as alternative sources offer material into a market already bordering on over-supply. Complications may be ahead as the European Commission prepares to extend an import tariff waiver for Group II oils. It is now expected that a quota system will be put into place for a quantity of Group II imports that will be tariff free, but at this time the quantity and the workings of the quota are unknown.

API Group III prices are eroding due to the large quantities of material available to the markets. New suppliers are continually joining the fray, while fight for market share.

Crude and feedstock costs have remained relatively stable. Dated deliveries of Brent crude posted yesterday $62.60 per barrel, for January front month delivery, while West Texas Intermediate was at $56.40/bbl, still for December front month. ICE LS gas oil weakened a bit to $579.00 per metric ton for November settlement. These values were obtained from London ICE late yesterday.

Europe

European export prices for Group I weakened this week, squeezing margins yet again for producers of these grades. Local markets are shunning normal supplies, adding to the quantities available for export. The difficulty is that typical export destinations such as West Africa are being captured by supplies from other markets like the U.S.

Were it not for a number of maintenance turnarounds during the past few months, the European market would have been vastly oversupplied, and as it stands availability is pronounced as good, although suppliers are concerned about what might happen toward the end of December. Producers are targeting specific markets. For example, one European source along the Mediterranean sold as much as 15,000 tons of Group I base oils to receivers in Aruba.

Offered prices for Group I exports fell to between $545 per ton and $580/t for solvent neutral 150 and $555/t-$580/t for SN500. Having been the weakest of the Group I grades over the past few months, bright stock prices appeared to remain stable at $625/t-$660/t.

These values refer to cargo-sized parcels at least 2,000 tons of Group I base oils, sold on an FOB basis ex mainland European supply points, always subject to availability.

Prices for Group I sales within Europe are slipping because buyers are buying smaller quantities than normal in order to reduce their own inventories. Prices fell an another 5/t-10/t the past week, but this was not enough to entice buyers back to taking large quantities.

The differential between prices for intra-regional sales and exports narrowed again this week so that the former are now 65/t-85/t higher.

Buyers and sellers are now negotiating contracts for next year, and many blenders seem relaxed and confident that plenty of Group I will be available when business picks up in the first quarter.

Group II prices have responded to the large number of choices facing buyers of these grades, with incumbent suppliers trying to protect market share in the face of alternative supplies that are coming on the European scene. Small parcels of Imports from the Far East and the U.S. are gaining popularity with buyers, who, whilst maintaining regular purchases, are taking supplemental quantitites at very attractive prices. Some European blenders claim to be saving up to 100/t through such purchases.

The market - especially established suppliers - is anxiously awaiting the European Commission's decision on the import tariff waiver. Inside sources say a quota of around 800,000 tons is being considered and that imports exceeding this total would be subject to a tariff of 3.7 percent.

Group II prices dipped to $685/t-$790/t (640/t-730) for 100 neutral, 150N and 220N and $765/t-$815/t (705/t-750) for 500N and 600N. These pertain to imports and oils produced within the region, with and without full slates of finished lubricant approvals.

Group III base oils prices are described as weak, with established players determined to defend market share. The difficulty is that new suppliers are approaching mainstream buyers and offering unapproved oils at much lower prices. The market is no longer has just two tiers - approved and unapproved grades - but has become multi-faceted after the arrival of oils that carry no European approvals but that do have approvals from the U.S. or East Asia.

Values for Group III oils with partial slates of approvals are at 665/t-740/t for 4 centiStoke grades and 680/t-755/t for 6 and 8 cSt, on an FCA basis ex sales hubs in Northwestern Europe or delivered prices for material in flexies.

Prices for fully-approved Group III base oils are at 755/t-820/t for 4 cSt, 785/t-855/t for 6 cSt and 770/t-835/t for 8 cSt, basis FCA Antwerp-Rotterdam-Amsterdam.

Baltic and Black Seas

Baltic trade may have been handed a lifeline from Russian refiners who appear to have marginally dropped their selling prices, a move that could make their products competitive again and which could help finish some outstanding negotiations.

There are reports of more cargoes being planned for both Antwerp-Rotterdam-Amsterdam and the United Kingdom, possibly coming into discharge ports in early January. This would avoid high year-end inventories but at the same time, in the U.K.'s case, allow delivery before its departure from the EU. Talks regarding cargoes for Nigeria may also come to fruition with FOB prices becoming more attractive.

Prices fell to $465/t-$490/t for SN150 and $470/t-$498/t for SN500, basis FOB. Levels for lower-spec Russian bright stock are at $585/t-$610/t for flexi-bag deliveries. Bright stock in larger quantities ex Gdansk, Poland, is maintained at $630/t-$655/t, again FOB.

In the Black Sea, sources said the latest large parcel from the STS facility in Kavkaz, Russia, loaded last week - a 14,000-ton cargo bound for Antwerp-Rotterdam-Amsterdam, where it will be trans-shipped to South America or the Caribbean. Prices for these Russian export grades are unchanged at $455/t for SN500 and $435/t for SN150. These prices remain the lowest reported from any global market and are being proved attractive for buyers in India, the United Arab Emirates and, of course, South America.

Mediterranean-sourced Group I oils are being offered into Turkish ports where they compete with barrels coming out of Azov, Russia. Russian offers are exceptionally low, aligned with levels out of Kavkaz. Greek suppliers are trying to compete with these offers on the basis of quality, but Turkish buyers appear primarily motivated by price, having purchased a 6,000-ton parcel from a North African source. This source is unusual insofar that no base oils are produced there. Perhaps the oils in question were being stored in the loadport.

Mediterranean Group I price are at $559/t for SN150 and $567/t for SN500. SN600 is offered at around $575/t and bright stock at $692/t, all on a CIF basis. These imported cargoes are often used for resale on an ex tank or truck-delivered basis. Local prices for truck deliveries from the plant in Izmir, Turkey, are much higher but can be bought in Turkish lira and in small lots, thus avoiding finance costs and banking charges.

Group II and Group III base oils are being sold on an ex tank basis from Gebze, Turkey, at $780/t-$820/t for Group II grades and $775/t-$810/t for partially approved Group IIIs.

Middle East Gulf

Red Sea traffic includes a 2,500-ton Group I cargo moving out of Jeddah into a Sudanese port and bright stock supplies headed to Alexandria for the Egyptian General Petroleum Corp. fourth quarter contract. Another Alexandria cargo is planned for late December. An 18,000-ton shipment of Group I and II oils loaded last month to discharge in the U.A.E. and two ports in India. One interesting shipping inquiry emerged with charterers looking for a vessel to load some 12,000 tons of Group I base oils from Jeddah to West Africa - a trading route not explored previously.

Base oils from Yanbu and Jeddah will supply some of the mainstream blenders in the U.A.E., while other parts of the U.A.E. blending scene will continue to use Iranian Group I that apparently is still being exported from Bandar-e Emam Khomeyni and Bandar Bushehr in Iran. No reports of vessels or the cargoes are available from any source, although some players in U.A.E. have confirmed that they are still able to buy and resell Iranian material. Those same sources report that premium Iranian SN500 is priced at $510/t-$520/t, basis FOB, based on reported landed prices of $555/t into the U.A.E. $575/t into the West Coast of India.

A cargo out of the U.S. Gulf Coast is reportedly priced at around $583/t, CIF U.A.E. with an option to move the same parcel into the West Coast of India if the U.A.E. negotiation fails. It is said to consist of SN500 and a smaller quantity of SN150 at around $577/t. Bright stock offered to the same receivers is indicated at $678/t, CIF.

Group III base oils are produced at several Middle East Gulf refineries: at the Adnoc refinery in Al Ruwais, U.A.E.; at the Bapco-Neste joint venture in Sitra, Bahrain; and at the Shell-Qatar Petroleum joint venture in Ras Laffan, Qatar. Notional FOB prices fell this week due to slides in prices being achieved in markets such as Europe, India and the U.S. Values for partly approved grades sold by Adnoc and out of Sitra by Bapco are assessed at $655/t-$690/t for 4, 6 and 8 cSt oils being sold into Europe and the U.S. Eight cSt grades going eastwards will yield lesser contributions due to lower local selling prices.

Fully-approved grades offered by Neste are at $765/t-$865/t for all three viscosity grades, delivered into western markets. Nominal FOB prices on a netback basis are calculated using prices derived from regional selling levels, less marketing, handling and freight costs.

Group II base oil prices in Middle East Gulf regions fell due to a growing oversupply situation. Sellers in Saudi Arabia are competing against excess barrels that need to be moved out of East Asia. Values for Group II sold on an FCA basis ex U.A.E. hub storage are at $785/t-$900/t for 100N, 150N and 220N, while 500N and 600N are at $800/t-$910/t.

Africa

North African sources this week described a larger-than-normal Group I cargo to be loaded out of Livorno, Italy, for receivers in Mohammedia, Morocco. A parcel of some 4,000 tons will load during the second half of November at FOB prices in line with European exports.

Group I base oils are bound for to receivers in Tema, Ghana, where 5,000 tons of SN150, SN500 and bright stock will be delivered during the fist part of December.

An 8,000-ton Group I cargo of SN150, SN500 and SN900 is loading from the U.S. Gulf Coast for discharge into Apapa port in Lagos, Nigeria. Other traders are considering taking a large parcel out of the Baltic that would include the same grades of Russian exports plus bright stock from Gdansk. The total quantity has not been finalized but is reckoned to be around 10,000 to 12,000 tons. With Russian export prices dropping, Baltic cargoes are now a possibility even with higher freight rates.

Values for Group I grades landing into Apapa are maintained at $630/t-$645/t for SN150, $640/t-$655/t for SN500 and $720/t-$745/t for bright stock. SN900 is indicated at $650/t-$675/t. These prices are for cargoes of at least 8,000 tons being delivered into Apapa.

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