Europe-Mideast-Africa Base Oil Price Report

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European base oil prices are showing ever weaker. Most majors and national producers are willing to talk numbers with serious buyers, to bring down prices from the highs seen over the last few months.

Private-sector refiners are least willing to discuss prices in expectation that demand will force prices back up to pre-summer levels. These producers say they are sold out for September and have healthy enquiries for October and forward. They anticipate growing demand in the near Middle East and North Africa as solutions are found to the political and economic problems experienced in those areas.

The European economic climate is having a profound negative effect on demand in areas of the Mediterranean where deficit cuts are accompanied by a downturn in industrial and commercial activity which is lowering demand for consumer products such as lubricants.

Fundamentals are little changed from a week ago, with Dated Brent crude trading in a narrow range around $112 per barrel. ICE gas oil front month is relatively stable at $932 per metric ton in early week trading, although vacuum gas oil is showing signs of activity with demand on both side of the Atlantic. Feed stock levels therefore are not bringing any renewed raw material cost increases to bear on base oils, which are now forecast to come down in price over the next few weeks and months.

Sellers and buyers alike anticipate no dramatic falls in base oil prices, but rather a gradual process of attrition to current prices will bring levels down.

API Group l grades show a degree of weakness throughout Europe, with light solvent neutrals such as SN 100 and SN 150 between $1290 and $1380/t. Some sellers are holding on to offers at the high end, and others are prepared to discount and will sell below $1300/t for these grades.

Heavier Group l neutrals such as SN 500 and SN 600 are $1320 to $1415/t. At the bottom of the range these products are perhaps showing the most marked discounting of all the Group l grades.

Bright stock remains both elusive and in demand, but even this grade has seen an element of discounting applied to the published prices plus premiums levels seen in the past. Bright stock is between $1555 and $1620/t, very much depending on size of parcel, and whether sold alone or in combination with solvent neutral grades. Suppliers are awaiting the new Egyptian General Petroleum Corp. tender which will maintain bright stock demand with supplies of SN 600.

These prices refer to offered and confirmed deals of Group l grades FOB ex mainland European and North African sources, but it should be noted that the low end prices are very rarely applied to single purchases of one grade alone. The lower pricing occurs where buyers are lifting two or more grades as composite cargo lots.

In the Baltic regions, Russian and Belarus avails are being touted for October sale at levels marginally lower than those seen last week. The overall weakness throughout the market appears to be maintaining a range of deltas between Baltic numbers and European mainland prices.

SN 150 and SN 500 are available around $1240 to $1275/t basis FOB Baltic ports, with heavier SN 900 available around $1385/t. A number of large cargoes are being negotiated presently for destinations in West Africa and Central America. If these deals are completed, then availability from Russian sources could become tight for October onwards, with an added effect from the two large-scale turnarounds at Perm and Nizhny taking place during September.

Black Sea business has been brisk, with sellers trying to hold up price levels against buyers looking for large slugs of base oil for import to Turkey, Syria and Greece. These enquiries have involved a degree of price checking where Russian and Uzbek prices are being used to counter supplies of base oil from mainland European sources. The same process is happening in the Med, where Russian export prices are being used as a lever to weaken mainland producers FOB levels.

Prices in the Black Sea for 2,000 to 5,000 ton cargoes of SN 150 and SN 500 are now being quoted at $1230 to $1275/t, basis CIF main Turkish ports, slightly lower than previously, although the discounting of these grades has been relatively small compared to Baltic and mainland European numbers.

In the Middle East Gulf, avails of Iranian Group l SN 500 are proving difficult to place due to low demand from the normal catchment areas such as India, Vietnam and China. Some offers have been made into distant markets such as South America and West Africa, but the cost of freight is limiting. Even with prices of $1185/t FOB UAE ports, sellers are finding it difficult to find a home for these grades.

East African buyers have shown some interest, particularly at the lower prices around $1280 to $1310/t CIF for the solvent neutral grades, but they are shackled by quality issues which prevent the use of Iranian material with its high colour and low VI. These buyers prefer to purchase prime quality material from Red Sea suppliers, either through traders or directly from Luberef.

Delivered prices into East Africa tend to yield high netbacks and attractive realisations, and delivered prices for mainstream material are now $1455 to $1485/t for solvent neutral grades, with bright stock around $1650 to $1700/t.

These are attractive markets for both South African and Red Sea suppliers, with some players targeting these regions for new supplies of Group III material from Middle East Gulf producers.

West Africa continues to import the whole range of Group l base oils from the Baltic and mainland Europe, with one rumour this week that a sizeable cargo of bright stock had been sold from an East Coast U.S. producer for destination Nigeria. Price was unconfirmed but estimated around $1670/t, basis CFR Apapa port based on FOB levels and freight costs.

Spot price levels into Nigeria have fallen from the peaks, and for Baltic material are $1460 to $1495/t for SN 150 and SN 500, with SN 900 around $1555/t.

European mainstream cargoes are priced some $65 to $80/t higher than the Baltic prices for Group l solvent neutrals, with bright stock from these sources being quoted higher than the U.S purchase at $1690/t.

European Group II prices have been largely unscathed by the activity around Group l material, with Far Eastern and U.S. imports priced at $1460 to $1550/t for light vis products and $1525 to $1700/t for heavier vis grades.

Group III is still in short supply within the European mainland, and will remain so until the flow commences from new Middle East Gulf sources. Prices appear to be stable between 1385 to 1450/t for the light 4 cSt grades, with the 6 cSt material sold ex tank at 1390 to 1475/t.

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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