Europe-MidEast-Africa Base Oil Price Report

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This week has produced differing levels of activity in the EMEA region, ranging from frantic enquiries for supplies of light neutrals into Turkey, and at the other end of the scale, no new export cargoes reported from Iran.

In mainland Europe, some suppliers are now appearing with limited availabilities. However, there are few enquiries from the buying fraternity who believe that prices from European refiners are still too high.

There is almost a mutual understanding in continental Europe where buyers do not expect sellers to be able to supply their new requirements, and producers do not anticipate enquiries from potential buyers, who have been told time and time again that no availabilities exist. Now with some small pockets of availability, the tide may be turning.

Producers were keen to move prices upwards to reflect rising raw material feedstock costs, caused by substantial crude oil increases over the last two weeks, but now many sellers have stated that they are content to keep price levels as they are, and are not looking to increase numbers substantially at this stage. Perhaps this being year end, with inventory levels to be adjusted, or perhaps the looming spectre of losing market share to supplies from other areas may just have kicked in.

Marker crudes were seen to approach $90 per barrel last week, but levels have fallen back now due to reports that demand for crude and petroleum products may have been overstated by the major economies of the world.

WTI is currently showing down at $83.50, and Dated Brent marginally higher at around $85/bbl. Prices have retrenched some $4/bbl since last week, and may fall further on global economic news. Feedstock values have been similarly affected, and have drawn back to levels seen some three weeks ago before the recent price hikes. ICE gas oil is now showing weaker, around $725 per metric ton for December front month, some $25 lower than one week ago. Vacuum gas oil, as a primary feedstock for base oils, has fallen back from the spike of last week, perhaps lowering the immediate requirement for producers to cover higher costs.

Prices therefore have remained locked down around last weeks reported levels, with European API Group l prime supplies ranging from $1,020 to $1,060/t for light solvent neutrals, and $1,050 to $1,125/t for heavier grades. Bright stock has been sold at slightly lower levels than the bottom of the spread for last week, but still maintains prices in the range of $1,295 to $1,345/t, depending on size of parcel and method of delivery. These prices pertain to FOB numbers ex mainland European suppliers.

Turkish buyers are once again back in the market, looking for large quantities of SN150 or other light neutrals, and they appear to have woken up to the fact that prices have moved upwards from their expected low levels of around $970 delivered. Offers for December delivery are reported CFR $1,050 to $1,075/t for cargo sizes between 1,500 and 2,500 tons. These price levels realistically relate to FOB numbers ex Russian and Ukrainian ports in the Black Sea, plus the freight element.

Group ll/ll+ base oil prices have moved marginally, with perhaps another $5 to $10/t added for material being delivered this week. This is mainly as a result of increasing demand for the limited supplies of all Group ll grades in Europe. There are reports that Far East suppliers are trying to rack up imports into the European mainland to take advantage of this demand, but whether these further quantities have arrived, or have been already soaked up by the market is not clear. What is certain is that there still exists a healthy demand for more Group ll material throughout the EMEA region.

Group II prices vary from the Middle East Gulf, to mainland Europe, to South Africa, with European levels between $1,065 and $1,100/t for the light vis material, and $1,095 to $1,160/t for heavier oils. Levels are basically the same for imports into the Middle East Gulf, with East and South African importers paying a premium of some $40 to $50/t, reflecting smaller parcel sizes, method of delivery, and higher freight costs from source.

Group lll grades still continue their climb in prices with producers adding $10 to $25/t to these grades at source. Imported prices in Europe have still to reflect these increases, although the small quantities of domestically produced Group lll base oils are now being sold at slightly higher numbers. The overall effect of these increases will be to push levels for truck delivered material to around 1,250 to 1270/t for the lighter 4 cSt grades, with the heavier 6 cSt base oil being supplied at 1,290 to 1,325/t throughout mainland Europe.

Some West African buyers are looking for less expensive base oils from sources such as the Far East, Middle East Gulf and Russia. This has promoted enquiries for a few large cargoes of slightly lesser quality material being arranged from these FOB locations. Prices out of the Baltic have been reported between $980 and $990/t for SN 150 (or equivalent) and around $995 to $1,000/t for SN 500. Some very heavy neutrals, classed as SN 850/900 are available ex Russian refineries and are being promoted as bright stock substitutes for use in certain West African destinations. These grades are being priced around $1,070/t, all basis FOB Baltic ports loading.

Ultimately, those importers and blenders who cannot, or will not, use these secondary type grades are facing much higher prices which will be based on European mainland FOB levels, plus freight, plus selling margins, which have to include cover against possible demurrages and delays in discharging cargoes.

Prices will be in the area of $1,125 to $1,175/t for Group l solvent neutrals, with bright stock landed into West Africa at $1,390 to $1,435/t, all prices on the basis of CFR delivered.

Strangely there have been no reports of further Iranian cargoes lined up for export, but traders in UAE are still offering material which has to be stored and reloaded out of that area. Prices for these parcels obviously take account of secondary costs for handling, storing and re-exporting this material, offered around $895 to $915/t for SN 500 in bulk.

The EMEA base oil market is changing again, and with prices moving upwards in the Far East, there could be a recommencement of trade between the Middle East Gulf and Asia, particularly for Group l base oils. At the same time there are reports of cargoes of Group l material coming into the Middle East Gulf from the U.S., whilst European prices are limiting the flow of exports to the traditional receivers in Africa and the Middle East.

This constant state of flux makes the base oil supply scene one where change is always taking place, and is unlike most other petroleum product markets. There would appear to be countless outside influences which seem to play a part in continually reshaping the global base oil market, such as a sudden gas oil shortage in China, growing political sanctions in Iran, and sovereign debt problems in a number of EU economies.

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

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