Europe-MidEast-Africa Base Oil Price Report

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A dull week in the EMEA base oil markets, with very little new trade being announced. With demand missing from almost all parts of the region, there is little stimulus to generate activity.

Deep-sea locations where export demand can be targeted are just not buying. West Africa is almost fully replenished, with no further buying interest. India and the Middle East Gulf are relying on local production, while the Far East and South America are exporting from areas which would normally be target destinations for European and Russian base oil.

Local markets are showing little appetite for finished lubes, which is critical to base oil demand. With purchasing curbed on a national and continental scale, the future is not as bright as some would have it.

Behind the scenes, the fundamental criteria remain buoyant, with Dated Brent crude oil rising $2 per barrel to $115. Gas oil last week spiked to $1025 per metric ton before retreating to $997 in early week settlements. Vacuum gas oil remains in demand, and with API Group l base oils and ICE gas oil narrowing yet again, many refineries prefer to maximise gas oil runs and minimise base oil production. To the extent that is feasible, decisions such as Essars to cease base oil production at Stanlow after fulfilling contractual arrangements is another nail in the coffin for Group l production within Europe. Even with a number of major turnarounds taking place now, base oil production appears to be still too high versus off take demand.

One result of the negatives has been to lower prices for all Group l material. Sellers are unwillingly eroding levels, anxious to move stocks out of tank to minimise inventories. FOB prices for Group l solvent neutrals are $1040 to $1055/t for lighter grades, with heavier material such as SN 500/600 at $1050 to $1065/t, both ranges falling $20 to $25/t over the week. Bright stock strangely remains relatively higher, with offers ranging from $1085 to $1110/t, depending on location of seller and quantities required.

The prices above refer to bulk sales of cargo sized parcels, loaded to sea ex mainstream production refineries in Northwest Europe, the Mediterranean and North Africa.

Local sales are in the doldrums. Many suggest that alternative supplies from Eastern Europe and Russia have diluted sales, but blenders deny that this has played a major part in the downturn, since strict formulation and approvals limit the amount of ancillary material which can be utilised. The simple answer appears to be that demand for finished products is down across the board, from engine oils to industrial oils with no sector showing signs of improvement.

Prices have dipped slightly again, and the differential between export barrels and locally sold material is $65/t (50), possibly only just covering the additional costs of storing and delivering these base oils.

Baltic and Black Seas
Russian and Belarus sales through the Baltics have all but ceased this week, with one or two enquires for supplies to West Africa, but only for November loading. SN 150 and SN 500 are still being offered at $1045 to $1060/t, down $10 to $15/t against last quoted figures. Most traders still comment that these levels are too high, and that prices should be $1000 to $1020/t. These levels might just open up trade possibilities to Central America and even the United States. SN 900, although in short supply, is being offered at $1065 to $1080/t in bulk, and at a premium of $55/t in flexies FOB.

Russian Black Sea trade has been slow, with Turkish buyers potentially waiting for lower prices. Sellers are still looking for FOB levels of $1030 to $1090/t for SN 150 and SN 500, a large spread reflecting aspirations of sellers at the high end and the reality of buyers at the other end.

One 13,000 ton clearance cargo of mixed grades has been cited as sold FOB Brazil to a European trader via Turkish receivers. The grades include SN 150 and SN 300, which were indicated to be priced at particularly low levels of $970/t FOB, allowing a deal to be struck with receivers at $1040 to $1060/t CIF Gebze.

This reversal of normal trading routes may become more prevalent as refiners in places such as India, Brazil and China run into oversupplies and have to find homes for these surpluses. In this instance Group l base oils were the issue, but with current overproduction of both Group ll and Group lll oils, quantities of these products could be traded outside local markets at knock down prices, going into unrelated distant locations which can utilise these grades.

Middle East
Middle East markets remain subdued with problems in northwest Syria limiting trade, and Irans and Israels rattling sabres does not augur for re-establishing of base oil business within the region. On the other side of the peninsula, business continues but at a slower rate that in the past. With no demand from Indian receivers, Iranian exports into UAE are starting to slow, and attempts to tender some 10,000 tons of Iranian grades appear to have been shelved.

Prices are weak, but remain $1060 to $1070/t FOB UAE ports, for SN 500, although SN 150 appears to be again in short supply. Quantities of SN 650 and SN 150 are possibly being used within UAE by local blenders, whilst the SN 500 grade is long enough to encourage exports to East African and Indian receivers.

Saudi plans to expand Yanbu to produce Group ll grades have been confirmed over the past week, and with this new additional production presumably being targeted at the Gulf Cooperation Council, the Middle East Gulf and Indian markets as well as domestic use, there could be an implosive effect on Far East imports into these regions.

Africa
South African and other African markets will be the subject of the regions first base oil conference next month in Durban. Although prices will not be discussed formally, discussions will certainly gravitate to this subject, with the interface between local production and imported base oil will be an interesting one to follow.

Many enquiries are currently being received for flexies into Tanzania, Kenya and South Africa, which may suggest that the normal supply patterns from hubs in UAE and India may have been disturbed. Prices continue to be attractive to suppliers and are being offered at $1285 to $1325/t for SN 150 and SN 500 CIF main ports.

West Africa remains almost dormant with some 40,000 tons of base oil programmed to arrive into Nigeria, Ghana and Togo in October. The market seems to be sated with few enquiries for mainstream European barrels, with only a couple of traders looking to Brazil and the Baltic for further cargoes to arrive in November.

Prices for parcels arriving currently are as reported last week, and are quoted as landing CFR at $1125 to $1155/t for Group l solvent neutrals, SN 150 and SN500/600, with bright stock at $1210 to $1230/t.

Group II/III
Group ll business within mainland Europe is falling back in line with the Group l scenario. Several distributors are complaining that rising stocks and lower sales coupled with rather dull forecasts for the ensuing period, the picture does not look positive. The change from the past few weeks when this sector appeared to be buoyant is marked and can only be attributable to the sharp downturn in demand for finished lubes.

Prices are starting to drop, and although ex tank prices for these grades may not change as frequently as Group l numbers, the trend is downwards. Light grades are $1160 to $1185/t, with the heavier vis material selling at $1200 to $1265/t. All ex tank.

Middle East Gulf Group ll supply is reflecting the oversupply from the Far East, with material being offered for November arrival at lower numbers to attract contract and spot business alike. Offerings are $1035 to $1080/t for light grades, with high vis material at $1120 to $1155/t, CFR Middle East Gulf ports. Some lighter grades are now competing with Group l SN 150.

Oversupply is the name of the game when it comes to Group lll in the European market. Within nine months this once lucrative market has changed from being short to being extremely long and getting longer. Suppliers are being forced to lower prices in the face of increasing competition and are unable to maintain the healthy differentials between Group lll and Group l prices.

Levels have fallen this week by some 20/t for the 4 cSt material and as much as 50/t for supplies of large parcels of 6 cSt grades. Reported selling levels and offers are 1075 to 1090/t for lighter grades and 1100 to 1120/t for the heavier 6cst grades. Additional grades such as 5 cSt and 8 cSt are being priced on a relative basis against the two main product viscosities.

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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