Europe-MidEast-Africa Base Oil Price Report

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With crude oil and feedstock prices falling quickly over a short period, pressure on EMEA base oil prices is renewed across the regions.

Dated Brent crude oil fell below $98 per barrel during the last few days, and WTI dipped around $83/bbl in the U.S.; the downward trend is not a regional phenomenon but is global by nature.

ICE gas oil has descended to its lowest level for more than a year with front month settlement for July around $845 per ton, only marginally off the low at $843/t on Monday close.

Buyers say they are meeting offers from suppliers with counters commensurate with the falls of some 10 percent in crude and product values. If these ratios are extended to the base oil market, then prices could start to dip by some $100/t.

The market is active from a buying perspective, with enquiries floated with bid prices attached, but suppliers are low key with offers only marginally below last weeks numbers. Perhaps they are trying to buy time to see how the fallout takes shape.

At this particular point in time prices for European API Group I base stocks have been marginally adjusted downwards, reflecting weakening within the market. Levels are now $1260 to $1275/t for the range of light solvent neutral grades, with heavier material at $1285 to $1300/t. Bright stock is still available in quantity, and as such is priced in a broader range from $1265 to $1310/t depending on method of delivery and quantity.

Some players comment that if the market undergoes a major price readjustment, then bright stock will again be valued above the heavy neutral grades such as SN 500/600, where those products are perceived as being overpriced.

Local and domestic buyers are really stoking the fires for radical changes in the prices being paid by European blenders. These prices have traditionally been kept high by suppliers, but with availabilities improving and demand slackening, more buying choices have come on the market. Some buyers have requested that sellers reduce their prices by more than 100/t for supplies delivered by truck.

Baltic & Black Sea
Baltic suppliers of Russian and Belarus base oils have come under enormous pressure to lower prices. The problem is that distributors have purchased material from the Russian refineries on an FCA basis and have waited for the material to arrive into storage for FOB sales. The purchases took place perhaps four to six weeks ago, when prices were much higher.

The ability to adapt to a changing market varies from one supplier to another, but many are now pushing to close prompt sales to try to sell the material in tank at a margin, before the seemingly inevitable happens regarding prices.

Offers have been made at $1180 to $1215/t for the two standard grades, SN 150 and SN 500, but counters have been fired between $1145 and $1170/t, where buyers believe the market to lie for prompt barrels out of this region. SN 900 has been put forward at $1220/t, again trying to provide an alternative to bright stock prices from mainland Europe.

These prices are some $25 to $40/t down from last week, perhaps a result of the efforts of the sellers to move material quickly out of tank.

Black Sea suppliers are facing the same logistical and financial nightmare when it comes to delays between FCA and FOB or CIF sales, but apparently there has been interest from both local buyers in Turkey and other traders to move quantities of Russian Group l neutrals. Interested buyers in India and UAE have expressed interest in Russian base oil coming out of the Black Sea area, and in parallel, European traders are looking at moving material from this region. Bids for large parcels of Black Sea grades have been received but declined by sellers. These levels are believed to be around $1100 to $1125/t basis FOB.

With these levels bandied around the system, Turkish buyers have responded to offers for CIF deliveries at $1200 to $1210/t, but these have been countered at some $40 to $50/t by firm Turkish importers.

Middle East
With the interest in Black Sea material for destinations in UAE and western India, the inference is that Iranian supplies are becoming rarer and more difficult to handle as each week goes by. With no apparent end to the nuclear debate between Iran and the West, a virtual embargo has been placed on Iranian exports, with shipping and banking becoming internationally impossible. The market is being left to locals in UAE who can trade small cargoes out of the Iranian system, but this is not ideal and hinders larger supplies to other parts of Middle East Gulf, East Africa and western India.

Prices have not moved since last week for avails basis FOB UAE ports, with Group l SN 150 and SN 500 available at $1240 to $1260/t.

Middle East Gulf receivers have been looking at supplies from either Singapore or from the European Mediterranean for a raft of grades for major blenders. These enquiries are possibly being floated to fill in the gaps left by the lack of Iranian material flowing out as exports.

Saudi Arabian supplies are maintained throughout the Kingdom and parts of the Middle East Gulf, but no price changes have filtered through this week. Levels are between $1275 and $1320/t for Group l solvent neutrals. Unlike in Europe, bright stock is priced above SN 500 from this source at $1340 to $1355/t. These prices are FCA or FOB and apply to base oils moving out of the Kingdom.

Africa
East Africa and South Africa remain active with a number of smaller cargoes arriving in flexibags to ports along the eastern seaboard. Prices remain relatively high compared to Europe and Far East, but with declining fundamentals, many of the larger players have suddenly come to the market looking to replenish dwindling stocks.

Prices are gauged to be $1320 to $1365/t CIF/CFR for Group l solvent neutrals, with small quantities of bright stock sold into these areas around $1465/t on the same basis.

West Africa has arisen like a phoenix with many enquiries hitting the desks of suppliers in Europe and the U.S. The market here is responding to lower crude and feedstock levels and is expecting base oils to fall into line with other petroleum products. Many of the receivers in countries such as Ghana and Nigeria are also involved in the importation of other petroleum products and are insistent that base oil prices come down at the same time as imported fuels such as motor gasoline, kerosene and gas oil.

Base oil offers have remained in line with last weeks prices, around $1375 to $1415/t for Group l neutrals, with bright stock at $1370/t basis CFR Apapa port. However new bids are some $150/t less. FOB prices ex Europe on bids already seen have been around $1100/t for solvent neutrals, with bright stock some $25/t lower.

Depending on loadport location, these FOB prices would yield delivered numbers around $1230/t for the neutrals and $1200/t for the bright stock. This report is not stating that these prices are feasible or are confirmed, but merely that these figures have been bid by more than one buyer from this region.

Group II/III
With a number of blenders increasing finished lube prices in regions which produce Group II grades there could be conflict ahead if those Group II producers wish to keep their prices high for European import barrels. This could lead to Group II grades being priced out of the market against the backdrop of declining Group l levels.

At this time Group II prices are maintained at last weeks levels of $1345 to $1385/t for the light vis grades, with heavier grades between $1425 and $1485/t. But with a weak Group l market, these numbers will come under pressure over the next few days and weeks.

Middle East Gulf Group II levels are not under the same pressure as those in Europe. June deliveries are assessed at $1275 to $1385/t for all grades across the spectrum.

Some European prices for Group III barrels have been adjusted downward again, with decreases of 10 to 15/t with effect from June 1. Levels are now 1360 to 1425/t for the lighter 4 cSt material, with 6 cSt material selling at 1425 to 1450/t. This move perhaps reflects the adequate supply scene within Europe, where few buyers have difficulty in getting hold of as much material as they require.

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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