Europe-Mideast-Africa Base Oil Price Report

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The summer recess is underway, and many players are out of station. The market appears stable, with a few indicators pointing to weaker pricing for the months to come.

Will strong fundamentals override this tranquil scene? Dated Brent gained slightly to around $117.50 per barrel, and ICE gas oil put on a weekly gain of some $10 per metric ton in front month trading at $968/t. Vacuum gas oil prices have maintained their strength, and with feedstock levels running higher, some producers are considering increasing prices for API Group I base oils.

But buyers are unwilling to go along and are pressing hard at every opportunity to erode prices. Purchasers say demand has fallen for Group l within Europe and other parts of the region.

Offers from major suppliers are showing a degree of change, but not the dramatic downward shifts buyers want to see. The market is stable-to-weak at the moment, but availability is holding most prices just below where they have been for some months. Most requirements for base oil are being met, with a few exceptions for very light solvent neutrals and large quantities of bright stock.

Group l prices are being pared at the top of the ranges, but are holding relatively firm. Many producers declare they are sold out for July, and that August will be slow due to holidays and maintenance at a few refineries.

Mainstream European prices for light Group l stocks are $1410 to $1435/t, and heavier neutrals such as SN 500/600 are now $1425 to $1455/t. There are some unconfirmed offers heard this week at lower levels. Bright stock remains elusive in large quantities due to high demand from Egypt and West Africa, where some receivers are looking for approved bright stock which can only be sourced from one or two European producers. Taking account of this situation, prices are now $1585 to $1680/t depending on parcel size and supplier. Surprisingly, larger parcels are at the higher end of the spectrum.

Russian prices in the Baltic have fallen more than other base oils in Europe, down to $1300 to $1330/t for large quantities of SN 150 and SN 500, with SN 150 alone being negotiated below the level of $1300/t. Cargoes are still being assembled from the Baltic loadports for receivers in the U.S., Mexico and West Africa.

Black Sea prices and availabilities echo the Baltic scene with prices coming off the high levels witnessed some two or three months ago. Levels are now $1325 to $1355/t, basis CIF Turkish and other Black Sea discharge ports for 2,000 to 3,000 ton cargoes of SN 150 and SN 100. Cargo lots of light neutrals have become more available over the last couple of weeks but demand is still thin in Turkey for these products.

Perhaps production from the three Iraqi base oil plants is having an effect on the flow of base oils from Turkey, since these units are producing more base oil to serve the Iraqi market, which has been reliant on imported base oils for the last seven or eight years.

In the Middle East Gulf, Iranian material is flowing again as re-exports through U.A.E., and quantities of SN 500 in particular are being offered for sale in bulk at levels below $1300/t. One supplier was heard to offer a parcel of 4,000 tons of lower quality SN 500 at $1265/t, basis FOB U.A.E. ports. With few receivers in India and East Africa interested in this material, prices may fall further.

Saudi Arabian prices appear to be holding up against lower demand throughout the region with levels for SN 150 around $1365/t, SN 500 at $1385/t, and bright stock about $1565/t, all on basis of FOB or FCA sales Yanbu and Jeddah refineries.

Traders and receivers in West Africa are waiting, causing a depletion of inventories which will ultimately require a large swathe of imports to replenish stocks. Filling this vacuum may create artificial demand within the region and could lend weight to escalating prices. Many importers are confident that the market will move downwards during July, by which time it may be too late to find base oils required in August and September. Traders are trying to negotiate forward supply positions on an index-linked basis, which will allow the flexibility to supply should prices fall.

FOB prices being offered at the moment for August loading are reported to be at published levels plus some $50 to $70/t premium, but they are all being turned down by receivers and blenders in Nigeria, Ghana and other importing states such as Senegal, Cote dIvoire and Togo. Whether these premiums will fall further remains to be seen, but with a standoff in the market coupled with the uncertainty of accessing future supplies, there may be problems ahead for this region.

In West Africa, prices are currently quoted at $1530 to $1555/t for Group l solvent neutrals, a shade off the highs, but bright stock is still $1695 to $1750/t, showing continued strength. Because there have been some price concessions from mainstream suppliers of solvent neutrals to West Africa, buyers are stating that brightstock must come down in price, but this is unlikely, due to the peculiar demand patterns associated with this product.

European Group II/II+ price levels remain unchanged, protected by the lack of available material in the market. Supplies of most Group II grades remain tight, and prices reflect this scenario. Levels are $1480 to $1570/t for light vis grades, with the heavier grades and all Group II+ products between $1575 and $1690/t, on the basis of ex tank supplies.

Group III similarly remains in tight supply throughout Europe and the Middle East Gulf. This will possibly change in the coming months with Qatar and then Bahrain coming on stream this year. Prices have not moved much over the last few weeks, though. Numbers are still 1355 to 1410/t for 4 cSt grades, and 6 cSt is 1385 to 1435/t.

In the EMEA base oil market buyers are waiting in the wings, believing fervently that prices for base oils are going to drop over the summer months, and sellers, armed with strengthening fundamentals and rising raw material costs, are refusing to bend with the wind and discount to the levels requested by buyers. Producers say the longer the standoff remains, the more oil will be required for replenishment. That demand could shorten the market and protect prices. But if producers are too rigid to bend, might they snap, and prices plummet?

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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