Europe-MidEast-Africa Base Oil Price Report

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Another anemic week for EMEA base oil markets, with little good news. The base oil scene remains static, reflecting a rather “laissez faire” attitude by producers and sellers, with buyers notably absent.

The scenario of crude values and feed stocks remains largely unchanged. Dated Brent fell to $106 per barrel over the weekend, but rallied to trade at $111 per barrel, almost identical to last week. ICE gas oil had seen new recent lows of $920 per metric ton for front month settlement, but Tuesday trading sent prices to finish at $951 per metric ton, which is higher than some base oil selling numbers!

Price pressure is still being exerted on base oils however the market is viewed. Sellers are digging in their heels and refusing to discount prices to move relatively small quantities which are the subject of few enquiries, buyers and are sitting back waiting for when production reaches tank top levels.

This may not happen this year, since refiners are cutting back API Group l base oil production to the lowest levels in many years, excess inventories may not develop. Buyers are insisting that producers will cave in and capitulate on year-end prices, when traditionally there has occurred a clearing of inventory. With stocks exceptionally low now, this December may not be like others before it.

Group l prices are more notional than real, with few offers and even fewer sales occurring this week. Levels are slightly lower than quoted previously, with light solvent neutrals between $1020 and $1040 per metric ton, and heavier grades such as SN 500/600 at $1030 to $1045 per metric ton. Bright stock has followed the trend downwards, with one solitary offer this week of $1060 per metric ton for some 2,500 tons. With this new report as an offer, this grade should set at $1060 to $1085 per metric ton.

The above prices refer to cargo-sized parcels of base oils being offered or loaded ex mainstream in North West Europe, the Mediterranean or North Africa, where availability of the material permits such offers to be made.

Local prices have also stumbled along this week, with some buyers asking for further discounts and lower pricing effective Nov. 1. Sellers, however, claim they cannot allow price levels to drift any lower. The pricing gap has again narrowed between locally delivered material and export numbers being offered. The gap now is only some 40 per metric ton, only just covering the extra costs involved in despatching smaller quantities around the European mainland.

Baltic and Black Seas
Baltic price offers have dipped again this week, with sellers signalling they need to make sales to ensure the supply chain keeps moving from FCA sales ex Russian and Belarus refineries, to FOB status ex shore tanks in Baltic ports. FOB levels from one supplier are gauged at $925 to $940 per metric ton for SN 150 and SN 500. This FOB level is based on a CIF offer, which includes a freight element of $120 per metric ton.

Black Sea levels are $975 to $990 per metric ton CIF Turkish ports, but with few takers other than one small parcel into Izmir at a $20 per metric ton premium due to higher freight costs. Attempts are still being made to take Iranian SN 150 and SN 500 from the Middle East Gulf to Turkey, but no confirmation of shipping has been received yet. With the lowering of Russian sourced prices, it is difficult to figure out how Iranian exports can be economically shipped to Turkey.

The last bastions of proactive trade in Turkey have kicked into touch by new government regulations designed to avoid diesel road fuel being diluted by light vis base oils. The somewhat draconian measures will affect Turkish lube blenders by increasing capital funding arrangements of individual companies. The prolonged period for repayment of taxes and duties, which now have to be paid up front and then reclaimed against the proven production and sale of finished lubricants, will have an adverse effect on cash flow.


Middle East Gulf
Near Middle East trading is quiet with the civil strife and violence in Syria and Lebanon. Incumbent suppliers have retained a Jordanian tender, and Iraq base oil production may have reached levels which would open up this supply source for export. Confirmation of details is being sought.

It appears that something of a mini boom is occurring in the Middle East Gulf. Demand for finished lubricants is rising, and local blenders and distributors report brisk business with new orders for a variety of lubricants from marine and industrial to motor oils. Blenders are seeking new sources for Group l supplies with Far East and Russian supplies in contention. Group ll demand has also seen an uplift.

Iranian material still enters UAE for re-export and local use, with prices dipping a little to compete with alternative material from Pakistan and India. Prices are $1010 to $1025 per metric ton for SN 500 basis FOB UAE ports. SN 150 appears to be in short supply, but some smaller quantities of low spec SN 650 are being offered at $980 to $990 per metric ton basis FOB UAE ports.

Africa
East African receivers will be looking to replenish during December, with supplies of both bulk and flexibagged base oils being required. Prices to Dar es Salaam and Mombasa for Group l material are still attractive to UAE and Saudi Arabia suppliers, but most receivers in these regions require mainstream spec base oils, for which they are prepared to pay a premium. Prices for Group l supplies are expected to land CIF at $1085 to $1125 per metric ton for the range of solvent neutrals, with bright stock at $1145 per metric ton.

South Africa is hosting the first base oil conference to be held in Africa, and with many regional players attending, the effect of such a networking opportunity are eagerly awaited. Many West African players are attending the Durban conference, and were unable for input comment this week. The West Africa base oil market remains relatively subdued, but some players reported last week that they would be active in the market following the conference, looking for cargoes arriving towards year end or early January.

With prices in the Baltic falling again, many Nigerians have enquired about replenishment cargoes loading from Baltic ports. If successful, these cargoes could land at $1020 to $1040 per metric ton for Group l solvent neutrals, with quantities of SN 900 around $1060 per metric ton. If bright stock is co-loaded with Baltic material on the basis of a two-port load, this grade could land CFR at around $1155 per metric ton.

Group II/III
Group ll prices remain unaltered after Nov. 1, with importers ensuring that market share is preserved and where possible extended into Group l territory. However it is extremely difficult to increase Group ll market share in the current climate with European demand for finished lubes facing a continual downward spiral. Prices remain unaltered from last week at $1130 to $1160 per metric ton for light vs grades, with heavier material such as 500/600N offered ex tank at $1185 to $1230 per metric ton.

With Middle East Gulf levels at $1025 to $1060 per metric ton for light grades of Group ll base oil and heavier vis 500N being delivered at $1110 to $1145 per metric ton, the market appears to be turning, with Group l demand going in the right direction. This is good news for Far East source sellers who are still looking for local markets to turn around and for domestic demand to be reinstated.

The European Group III market has recognised that further erosion of prices is almost inevitable. Given over supply and lower demand than forecast, these grades are being pilloried by buyers who are calling the tune regarding price levels. Prices are weaker again this week, with net values between 1040 and 1060 per metric ton for the 4cSt grades, with 6cSt material selling at 1055 to 1070 per metric ton. All on an ex tank basis.

Further imports of Group lll base oils are being planned for 2013, in line with primary forecasts that were revised some two years ago. Current estimates are that this market has expanded to its zenith, and only substantial economic growth throughout the Eurozone will ratify original market.

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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