Europe-MidEast-Africa Base Oil Price Report

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Demand is dreadfully weak in the EMEA base oil market and appears to be waning even further. Finished lubricant sales are becoming so depressed that many blenders are warning of dire times to come. Many economies are lurching from one crisis to another, with Euro contagion spreading to areas which have been so far relatively unaffected.

With crude and feedstock levels rising, there might be some rationale for expecting base oil prices to stabilise or swing upwards. This does not appear to be the case. Dated Brent crude is $99 per barrel, and ICE and vacuum gas oils have both increased 10 percent over the last two weeks. ICE front month traded at $875 per metric ton early week, with vacuum gas oil showing a similar trend, begging the question why these increments would not be applied to base oil pricing.

In the European base oil market, some refiners are resisting lower prices, whilst other producers appear to have determined that selling at previous levels is no longer an option, due perhaps to inventory or storage limitations, and their reported prices have plumbed to new depths this week.

Because of varied reactions, ranges for API Group l base oils have widened. Light solvent neutrals are at $980 to $1110/t, with heavier grades such as SN 500 and SN 600 at $980 to $1130/t.

Bright stock has turned the corner with higher demand due to the Egyptian General Petroleum Corp.s three-month tender which may take up slack in supplies. Current demand also stems from some receivers in West Africa, where prices have been maintained around last weeks levels. Offers this week have been noted at $1195 to $1225/t for bright stock parcels within mixed cargoes.

Locally delivered Group l base oils within the European mainland are priced 65 to 90/t higher than the above spreads, reflecting this markets higher cost structure. Suppliers have cut prices for all avails within Europe due to extremely low demand, which shows no signs of improving over the next few months. One large blender commented it would halt base oil purchases until September, since inventory is higher than normal and forecasts are unsettling for finished lubes during the upcoming European holidays.

Baltic and Black Seas
Russian and Belarus base oil stocks have been growing in the Baltics, but have been accompanied by some aggressive selling, and a number of deals for sizeable cargoes appear to be either closed or nearly closed. All this activity has not been without adjustments to previous prices, with numbers now being talked at sub $1000/t levels for SN 150 and SN 500 FOB Baltic ports.

One supplier has reportedly discounted prices to $955 and $965/t FOB for 2,500 tons of SN 150 and 4000 tons of SN 500, with additional quantities of SN 900 being loaded at $1015/t. Other distributors have tried offering material at $1000 to $1020/t for SN 150 and SN 500, but these levels have been countered downwards.

Black Sea business is unfortunate in that no matter how heavy the discount, there is still a lack of overall demand from local markets for Russian and Uzbek base oils. This region can only cater to large cargo loading from a limited number of storage facilities, thus restricting the size and destination of base oil cargoes loaded ex Black Sea ports. The reliance on Turkish imports to support this market has been very important, and with the low demand from Turkish buyers this market has stagnated.

Prices are still being offered, but with little buying interest. Offers of $990 to $1020/t CIF/CFR have been mentioned, but with only one confirmed cargo being taken up this week. Some 1,000 tons of SN 150, along with 2,000 tons of SN 500 have been sold into Gebze.

Middle East
With northeast Europe and the Mediterranean cargoes destined for the Middle East Gulf, arbitrage for supplies into this area appears to have reopened. A contributing factor is the limitations imposed by sanctions on Iranian exports.

Parts of the Middle East Gulf are feeling the effects of the sanctions, with prices for SN 150, SN 500 and SN 650 exported from UAE higher than surrounding markets. With restrictions on the availability of material and corresponding by high prices, traditional export markets in East and South Africa are opening up to alternative source supplies such as Russia, Europe and the Far East. Material delivered in flexibags to ports such as Mombasa and Durban are being priced at more than $1330 to $1350/t for all grades, some $75 to $80 higher than similar spec material being shipped from Europe and Far East.

How far this incursion into traditional supply areas will continue remains unknown. But with places such as Tanzania and Mozambique dependent on Middle East Gulf imports for national use as well to supply base oil to states such as Zambia and Zimbabwe, these markets could significantly change should the sanctions against Iran continue. This is not stating that all supplies into these regions originate from UAE and /or Iran.

With Middle East Gulf prices remaining high at FOB levels of $1120 to $1140/t for the main solvent neutral grades, further imports into the region may start from Europe. At least this may increase demand from outside the region and may be a lifeline for the base oil markets in the Mediterranean and elsewhere in Europe where supply is currently long.

Africa
With an imports tax and duty regime which can be altered to penalise imports of foreign produced base oils, the market in South Africa and surrounding areas is protected to an extent. Prices for Group l solvent neutrals in this region are $1370 to $1425/t ex rack or FCA sales, with bright stock offered at $1550/t.

West Africa awaits new cargoes arriving from Europe and the Baltic. Price levels are expected to be sub $1100/t for the range of Group l neutrals from most supply points, with perhaps one or two major supplied cargoes being priced some $40 to $50/t above these levels. These cargoes will be used for formulated blends which can only utilise approved grades.

Bright stock has been loaded ex Europe, which will discharge into Lagos at $1275/t, but this price level may rise for further cargoes due to increasing demand, and also a reversal of heavy discounting which was latterly required to push sales.

Group II/III
Group ll imports into Europe are being maintained but at lower levels both in pricing and in quantity. Demand has fallen for Group ll grades in step with Group l activity. Distributors in Europe have recognised that they have to be competitive and suggestions that Far East suppliers have slashed prices at source will be appreciated by those third-party sellers in Europe.

Levels have dropped to $1145 to $1170/t for the range of light vis grades up to 220N, with higher vis grades being sold ex tank at $1185 to $1220/t.

Middle East Gulf prices for Group ll base oils have fallen and are destined to fall further with Far East producers cutting prices by $30 to $50/t and supply outstripping demand. New offers for supplies on basis of CFR Middle East Gulf ports are now at $1120 to 1130/t for light grades and $1220-$1230/t for heavier vis 500N material.

Group lll grades are moving steadily downwards, with prices coming under pressure during the last few days, mainly in the light of poor demand. Truck prices on basis FCA northwest Europe have fallen again by 25 to 40 for 4 cSt grades to 1225- 1245/t. The higher 6 cSt grade is selling at 1255 to 1285/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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