Europe-MidEast-Africa Base Oil Price Report


The European base oil scene has witnessed some amazing reversals on pricing over the last ten days.

Stocks are rising in the refineries, and buyers are scarce. The market is unfolding downwards, just as it progressed quickly upwards during 2010.

Dated Brent crude oil for November settlement has fallen to $99.84 a barrel on the London-based ICE exchange and is trading now around $101/bbl. This is its first dip below $100 since February. The European benchmark contract is at a premium of around $24.50/bbl to WTI, which has also fallen as Libyan exports return to the market and crude stocks in storage rise. ICE gas oil prices have followed the markets down, with front month showing at $874.50 per metric ton in early week trading.

Buyers are waiting as long as they can, believing that numbers for base oil in Europe have further to fall.

Prices offered this week show a market growing long, as producers entice players to move material through their tanks. API Group l light solvent neutral grades are now between $1200 and $1265/t, and $1220 to $1280/t for heavier SN 500 and SN 600s. Bright stock has come crashing downwards to $1425 to $1470/t, dropping by $50 or $60/t in one week. All prices are FOB ex mainland European and North African ports.

Although offers have been made within the pricing bands above, not all have been accepted. Where deals have been struck, prices have been towards the lower ends of the ranges. The top of the range is under severe pressure, with several buyers commenting that they are holding out, anticipating that in days rather than weeks levels will fall again.

Russian Baltic sellers are offering prices which are being rejected by nearly all buyers. Offers are $1165 to $1200/t for both SN 150 and SN 500, whilst buyers are countering below $1100/t. The feeling within the market from both sides is that it is only a matter of time before numbers below $1100/t are the norm. The heavier grade, SN 900, is now countered around $1255/t, about $100 less than last week.

Black Sea trade has been complicated by a recent import levy on all base oils entering through Turkish ports. This import tax has been introduced to try to differentiate between buyers purchasing base oil for blending finished lubricants, and those entrepreneurs importing for diesel fuel dilution, a common and profitable practice in this region. The levy may be refunded to importers only after final production of blended lubricants has been proven.

The overall effect has been to put the brakes on a number of cargo purchases of light neutrals from Azov and Ukrainian ports. The import tax, around 1,000 Turkish lira (U.S. $526) per ton, is proving less than a stimulus. It is impossible for traders to deliver cargoes at less than $1080/t CIF. As with all Turkish tax changes, this scene will take some time to sort itself out, after which business will probably return to normal.

In the Middle East Gulf, there was talk of large slugs of Iranian base oil loaded out of BIK and Bander Bushire for Red Sea and Suez transit to Turkey. Cargoes of 10,000 tons and 7,000 to 8,000 tons have been mooted but not confirmed. It is difficult to see how this business could work since cargoes of Russian SN 500 and SN 150 are being offered out of the Black Sea destined for the west coast of India at around $1275/t delivered, which is declined, whereas Iranian product could be landed into the same Indian market at around $1220 to $1235/t CIF.

Iranian sources confirm that it has been very difficult to move base stocks for export, not only due to the trading restrictions imposed by the West, but also because the traditional markets such as India and East Africa have been saturated with local and Far East material which has been higher quality and lower in price.

Prices for Iranian SN 500 are now stabilising around $1175 to $1190/t basis FOB southern Iranian ports. With additional storage and handling fees being added to avails coming out of UAE, levels from that source are now around $1200/t FOB. Iranian SN 650 has been offered at very low levels, perhaps part of a composite cargo along with quantities of SN 150 where both grades had to be lifted at the same time. The unconfirmed price for the SN 650 was $1115/t basis FOB.

Saudi Arabian prices for Group l have fallen back in line with mainland European numbers, and whilst this has helped against the lower priced Iranian material, buyers in Gulf Cooperation Council areas are still looking for lower prices from Yanbu and Jeddah. Levels have been mentioned around $1185 to $1225/t for SN 150, with SN 500 offered at $1220 to $1245/t, and bright stock moving at $1420 to $1450/t, all based on FOB or FCA prices.

Buyers in East Africa and South Africa appear to be waiting for prices to come down further, and a number of enquiries from normal bulk receivers were for deliveries in flexibags. Many players anticipate prices will fall by more than $200/t over the next few weeks. With delivered numbers showing around $1400/t for the range of solvent neutrals, and bright stock approaching $1550/t, all basis CIF, the savings could be enormous for a market that is hard pressed to charge realistic prices for finished lubes.

West Africa, and Nigeria in particular, is involved in some very interesting deals. Some traders are anticipating the market and looking to take short positions in this region, selling forward against falling prices which may or may not be attainable. Some are taking fixed price contracts for delivery in November and December at prices around $150/t lower than current numbers. Others are looking at fixing index-linked cargoes, but at much lower premiums than previously seen for deliveries into this market.

One reported negotiation involved fixed prices of some $1085/t and $1110/t for Group I solvent neutrals SN 150 and SN 500, with bright stock at $1365/t. These levels were based on accepting two cargoes of some 8,000 tons each, the first for delivery second half November, and the other for delivery during December.

These prices would netback to FOB levels around $1000, $1025 and $1270/t for three products mentioned, somewhat lower than current market. Without any hedge in place for this business, some say this is a recipe for non-performance, and that there are too many risks in this type of business.

Group II prices in mainland Europe have come under fire with some importers announcing decreases from October 1. These have not been as dramatic as the falls in Group l levels, but buyers are proposing that another review will be required during October, and certainly before November. Prices from Far East suppliers appear to be a little lower than the numbers being pitched by U.S. importers, perhaps mirroring the poor demand found at the moment in markets such as China. Levels for 150 N in Europe are now $1430 to $1475/t, and for 500 N prices are around $1495 to $1560/t

Group III grades seem to be immune lowering of prices. Demand is strong for all grades, with 4 cSt material sold at 1385 to 1450/t, and 6 cSt grades sold ex tank at 1390 to 1475/t. The falling value of the euro against the dollar has encouraged sellers to maintain prices, and with further weakness expected on the economic front, this is a main reason for not adjusting prices downwards for these grades.

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

Related Topics

Base Oil Reports    Base Stocks    Market Topics    Other