Base oil prices continue to spiral downward throughout the EMEA despite a rally by crude and feedstocks which has lent a positive impetus to raw material costs.
Some European refiners say it is more advantageous to sell now, rather than hope that base oil prices might rise in line with other petroleum products. They comment that clearing base oil stocks now rather than later appears to be a wise move.
Buyers insist that current base oil prices reflect the feed stock market at its lowest, when Dated Brent crude fell below $90 per barrel and ICE gas oil fell to $800 per metric ton. With this rationale, the expectation will be for prices to rise again within the next few weeks, but this aspect of the buyers theory seems to be missing.
Dated Brent is showing at $104 per barrel, and ICE front month gas oil at $890/t, having moved up as high as $925/t at the end of last week. This has widened the gap between base oil numbers and gas oil, prompting more than one producer to intimate they will start to limit base oil production, having overestimated demand for the remainder of 2012.
European levels for export of API Group l solvent neutrals have declined to $870/t for one parcel of SN 150 and SN 500. Whilst these levels are extreme, others are following for prompt sales. The ranges have narrowed over the last week, with high ends being shattered by counter offers to exploit what some see as the bottoming out of the market. Levels for light neutrals are now $870 to $1010/t, with high-end offers coming from one supplier who insists the price is achievable.
Similarly, heavier grades such as SN 500 are priced close to other neutrals with no gap really appearing between the grades. Prices of $870 to $1020/t are being offered.
Bright stock has dropped significantly and is available at $1025 to 1045/t, but maintains its position over SN 500, perhaps due to the drop in solvent neutral price levels.
Domestic prices within the European mainland have also dropped, and sales have fallen by more than $100/t equivalent. Group l numbers are still $50 to $80 higher than mean of export, but the lower the overall market moves, the closer these two prices appear to come together.
Baltic and Black Seas
Russian and Belarus prices in the Baltic have taken on two fronts. Some sellers acknowledge they will drop prices to move barrels out of storage and are willing to negotiate prices of $860 to $885/t for large quantities to load during August.
Other distributors are holding fast at $900 for SN 150 and SN 500. With deals being struck in mainland Europe for premier quality product at less than $900/t, it is difficult to see higher prices. SN 900 is also available, and is priced at a normal premium to the two main grades at $945/t. This level could also come under pressure with other suppliers willing to discuss levels less than $900/t.
Black Sea business has been brisk, with many Turkish buyers sensing the market may be at its low point, and the offers for SN 150 and SN 500 may not be around forever. Other players might snaffle these opportunities, leaving their competition in a market with rising prices. SN 150 and SN 500 have sold at $880 to $910/t for CIF Turkish ports, netting back to $840 to $875/t basis FOB Azov, Odessa, or Theodosia.
Again rumours of large cargoes are circulating for lifting ex Black Sea with the destination either West Coast India or UAE. The quantities of SN 150 and SN 500 are believed to be around 4,000 and 6,000 tons, respectively.
In Middle East Gulf areas, Iranian prices have failed to respond to changing levels in the Far East and in Europe. Prices are still quoted at $1075 to $1085/t FOB for SN 150 and SN 500, which sellers say is still being taken in UAE, where the demand is relatively firm. Should a large cargo of Russian material find its way into this region, Iranian prices may have to follow. With exports to areas outside UAE extremely difficult due to sanctions, limited availability may deteriorate further.
Group l prices throughout the Middle East Gulf have fallen, although not by quite the same magnitude as in Europe. The levels are now assessed at around $1025 to $1055/t for solvent neutrals on basis of landed prices, with bright stock being delivered at $1135 to $1220/t.
Africa
The lack of Iranian base oil becomes more evident with traditional Iranian receivers in East Africa such as Kenya, Tanzania and Sudan enquiring about supplies of Group l grades. Some of these enquiries are for large quantities, for example 10,000 tons of three grades required for Sudan delivery and multiple requests for delivery of material in flexibags.
South African producers have reviewed prices, according to one Gauteng wholesaler. Prices may change after Aug. 1, with discounts to all the Group l grades. Levels will now be $1290 to $1320/t for solvent neutrals with bright stock at $1360/t.
West African sources state that they are still negotiating for cargoes for Nigeria, Cameroon, and Ghana, with buyers insisting that the market has further to fall. It appears they are waiting to make final decisions on buying large cargo quantities from the Baltic, Northwest Europe and the Mediterranean. Target prices into this region, particularly Nigeria have been set at below $1000/t delivered, which netbacks to FOB levels between $880 to $920/t for SN 150 and SN 500, and in some cases (the Baltics for example) will have to be less than $875/t to make these targets feasible.
Cargoes presently arriving in West Africa are showing CFR levels at $1085 to $1120/t for solvent neutrals, with European bright stock at $1165/t. These numbers lend further evidence to the rate at which the market has fallen
Group II and III
With Group l prices in freefall, Group ll levels have been affected in the same vein.
Additional discounting of almost all grades has been applied, with the latest changes being advised to buyers August 1. These adjustments will bring Group ll prices in line with recent Group l levels, but with Group l reductions looming, further retrenchment may be necessary for Group ll grades. Prices this week are established at $1020 to $1045/t for the light vis grades, with heavier material being sold ex tank at $1085 to $1155/t
Middle East Gulf Group ll prices for August delivery have fallen drastically after downward adjustments from Far East suppliers, with levels now at $1030 to $1070/t for 150N and 500N offered at $1085 to $1120/t. These numbers confirm the discrepancy between local Iranian Group l prices and the new levels for Group ll imports from the Far East.
In Europe, the Group lll market in Europe is changing, and where material was short and in demand, both these variable have been reversed. Group lll grades are freely available. At the same time, demand within mainland Europe appears to have dropped in line with all other base oil off take. The result has been that prices for Group lll grades have fallen, and are continuing to fall.
The downward slide has not been directly proportional to that experienced by Group l and Group ll grades, but the momentum is building, and prices are now recorded at between 1180 to 1200/t for sales of 4 cSt grades, with the 6 cSt material selling at 1220 to 1235/t.
With Aug. 1 approaching, further discounts may be applied to keep the differential between Group lll and Group l at the adopted level of $500/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.