Europe-MidEast-Africa Base Oil Price Report

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The EMEA base oil market continues to languish in a flat period of activity with only a few buyers showing any real interest to procure product at this juncture.

Sellers have made few offers, some commenting they would rather sit tight with stocks in tank than sell at levels which could produce negative netbacks. The demand driver is still missing, and without this factor the market will remain dull, with few transactions.

There are exceptions to every rule, and with one large 9,000 ton Russian cargo of mixed grades sold out of the Baltic Sea for West Africa, Nigerian receivers may at least benefit from the last of the low numbers being offered up until now ex Baltic ports.

Dated Brent crude stubbornly hovered between $113 and $116 per barrel, slightly off recent peaks, and closed at $114.50 per bbl in Tuesday trade. ICE gasoil has retreated by $10/t this week to $993 per metric ton. The raw material cost pressure on base oils has not increased this week, and producers are saying they be able to increase prices more slowly, ensuring a fairer reflection on the market for buyers.

API Group l prices have moved up very slightly from last week, but low business volume has not illuminated the market. FOB levels are $1030 to $1075/t for light neutrals from Northwest Europe and the Mediterranean, with heavy neutrals at $1050 to $1085/t. The market has restored bright stock to its former league position firmly above SN 500, which is $1090 to $1130/t, depending on supply location and whether it is purchased alone or as part of a mixed cargo.

Bright stock has gone tight, with usual demand from West Africa and Egypt supplemented by enquiries from Turkey and the Middle East for various sized parcels of 1,500 to 5,000 tons. This demand has shortened supply to the extent that some buyers are finding it hard to lay hands on suitable parcels.

Local European Group I prices have remained almost static the last couple of weeks. Sellers are keen to push base oil supplies, since in a shrinking European finished lubes market, it is deemed important to retain market share for base stock. This is becoming increasingly more difficult following lower offers from Russian and other Eastern European sources that can adequately compete on quality with the more traditional suppliers.

Price levels are around 50 to 65/t higher than the cargo sized parcels reflected above.

Baltic and Black Seas
Russian and Belarus supplies from the Baltic rose again this week and could increase $35 to $50/t this week in response to demand and higher FCA prices. Prices this week for SN 150 and SN 500 could reach $1040 to $1065/t FOB Baltic ports, with the heavier SN 900 grade in demand as a substitute for bright stock at $1100 to $1125/t.

Distributors are talking about higher prices for October loading, due to increased FCA costs and slightly higher transportation costs from rail companies. Levels are expected to remain firm for the remainder of September.

There are diverse ideas on pricing and suppliers targets in the Black Sea region. Turkish buyers are unwilling to entertain prices above $1045/t CIF Gebze for either SN 150 or SN 500. At the same time, sellers are pushing offers of $1090/t for 3,000 tons of I-20A, a Russian industrial grade akin to SN 150. The price discrepancy has been due to short supplies and demand from Turkish buyers who have returned to the market en force.

With material in short supply and a number of enquiries particularly for SN 150 not yet covered, the only direction for numbers in the Black Sea regions would appear to be upwards.

Middle East Gulf
In the Middle East Gulf, Iranian base oils exported into UAE for re-exporting are still being sold on an FOB basis in dollar equivalent values at $935 to $950/t for 5,000 to 6,000 tons of SN 500, which would be re-sold FOB UAE at $1010 to $1020/t.

Long-term availability of Iranian grades is doubtful because of Western sanctions. Sellers within Iran continue to offer material that varies enormously in quality and may not always contain the three main export grades, SN 150, SN 500 and SN 650. They also offer weird and wonderful suggestions as to methods of procuring cargoes from Iranian southern ports, via UAE.

With Far Eastern Group l prices collapsing, there could be new arbitrage for Group l material into the Middle East Gulf, with CIF/CFR prices at $1100/t for solvent neutrals. This market could open for suppliers sourcing from locations such as Singapore.

Africa
Offers from UAE for SN 150 and SN 500 in flexies for South African delivery have been quoted at $980 FOB. How this can be achieved is difficult to contemplate, since the cost of flexi-bags, handling and land transportation, prices would netback to around $920 ex tank, which would make little sense in todays market. This offer was unconfirmed at the time of reporting.

East African receivers are interested in these offers, since they are similar to the $1225 to $1280/t offers for similar material delivered to ports along the Eastern seaboard, such as Dar-es-Salaam, Mombasa, and Durban. Offers of Russian material from Baltic suppliers are reported at $1265/t delivered CIF Durban in containers. With the local market some $60/t higher for SN 150 and SN 500, these are attractive propositions, even after local import duty has been levied. Interest has been raised for some SN 900, which may be used in Mombasa as a bright stock substitute.

West Africa states, including Ghana, Nigeria and Cameroon, have enquired about Group l base oils for October/November delivery. It would appear that re-stocking now rather than later is preferred, and with healthy cash flows from the sales of material in tank, receivers are once again coming to the market to buy base oils.

Enquiries have been received by almost all the main suppliers in North West Europe and the Mediterranean, along with Baltic sellers. Some East European suppliers have targeted West Africa as a potentially new market, but with the incumbent difficulties of logistics and freight, this market may just be out of reach.

Prices for Baltic and European mainstream cargoes arriving into West Africa are now expressed at $1085 to $1120/t for SN 150 and SN 500/600, with SN 900 at $1160/t, and bright stock at $1195-$1225/t. All the aforementioned are on basis of delivered CFR.

Future levels will reflect higher FOB numbers. For cargoes negotiated now, and lifted before September ends, levels will be around $30/t higher.

Group II/III
Group ll prices in mainland Europe have remained relatively static, but with Far East sources starting to increase Group ll levels, and U.S. producers looking at higher numbers, these prices will have to be jigged carefully alongside Group l numbers to maximise selling levels. The levels remain as per last weeks report at $1100 at $1125/t for the light vis products such as 150N and 220N, with heavier grades such as 500N selling at $1145 to $1170/t. All prices refer to ex tank sales, either North West Europe or Mediterranean storage.

Group ll prices in the Middle East are creeping upwards, but are meeting resistance. With producers increasing levels at source, there will be renewed attempts to push higher. But with September sales flat lining in the Middle East, and with few take ups for new expanded October deliveries, it is hard to see how sellers can hoist levels. Cargoes loading at the moment for contracted business are being pitched marginally higher for the top end of the vis range, with lower vis grades slightly lower. Levels are now between $1040 to $1090/t for the light vis grades, with 500N being offered at $1120 to $1155/t.

Group lll activity remains clam, with the market merely rolling over from one month to another. September price are around the same levels as August, with no shortage of material in the market. This scenario will make it hard for producers and importers to increase prices. With Group l levels remaining relatively static, the pressure is off Group lll levels to rise in tandem.

Levels remain as reported last week at between 1150 to 1165/t for 4cSt grades with 6cSt material loading ex tank at 1195 to 1210/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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