Europe-MidEast-Africa Base Oil Price Report

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The EMEA base oil market reflects a weak and forlorn picture, with few signs of any meaningful activity to stem the negatives of demand and falling prices.

Business is very slow with plentiful base oil supplies to cherry pick. Very few buyers and sellers are showing any inclination to test the market, let alone starting serious negotiations to purchase material. That this oversupply is set against base oil production cutbacks by many European producers lends even more weight to how dire this situation has become.

With year end approaching fast, many players are planning to wait until January before replenishing inventories, at which time they can take stock of what little demand exists in the finished lubricant markets to gauge future requirements for base oils. The outlook appears somewhat grim with few economic or political triggers being forecast to lift the market.

Against a background of a relatively stable crude market, although Monday trading spiked to a new high at just below $112, Dated Brent stands at $109.70 up $1 from last week. ICE gas oil has strengthened slightly to close Tuesday at $942 per metric ton, up $14 from last week, but with seasonal colder weather being forecast for mainland Europe, this may increase over the coming weeks.

European Group l prices have fallen this week, and whilst ranges have widened between sales and offered prices, very few transactions have taken place. And the reported deals have all been at the lower end of the pricing bands, whilst some sellers are maintaining offers at the higher levels. Export grades such as light solvent neutrals are $915 to $995/t, with heavier neutrals $980 to $1025/t. Bright stock has been offered at $1035 to $1060/t, but only in combination with other grades.

SN 150 grades appear to be particularly long, hence the pressure on the previous lower end of that range of prices.

The above prices refer to bulk cargo sized parcels, offered or sold ex mainstream European or North African refineries.

Local prices have not been affected to the same extent as export numbers, but realistically with low trade volumes, perhaps it is only a question of time before levels start to fall in line with larger parcel avails. Prices for local supplies are maintained at a differential of 80/t over the mid points of the spreads above, but with many supply options available to buyers, the word in the market is that suppliers are open to bids and will entertain much lower levels for spot sales.

Baltic and Black Seas
Two large cargoes of Russian and Belarus material out of the Baltic have been reported, one of which is certainly bound for Nigeria. Some 7,000 tons of mixed grades has loaded ex Liepaja, and with further top-up parcels to be loaded ex North West Europe, the cargo is expected to total 11,000 to 12,000 tons. The other cargo may be bound for Central America or U.S. Gulf of Mexico. Prices have dipped since last reported and unconfirmed rumours suggest that SN 150 and SN 500 are now below $900/t. Most distributors deny showing barrels at these levels, but one P&C deal for early December loading could reflect such levels.

SN 150 and SN 500 are $885 to $940/t basis FOB Baltic ports opening up a number of arbitrage options for delivery into the United States, Mexico and South America. The Far East could also be an alternative for some traders with receivers in China and Taiwan looking for Group l material at attractive prices.

Black Sea operators have not experienced the same activity as the north, and with this hiatus in the market due to slow demand from Turkey, prices appear to have remained a little firmer. Levels are being offered at $985 to $1000/t on basis CIF Istanbul range ports. This would yield FOB equivalent numbers of $935 to $965/t. But should Turkey recommence buying, these levels will no doubt come under the same pressures as Baltic supplies.

Middle East
Near Middle East problems have escalated this week, with the Hamas/Israeli conflict adding to the regional strife that includes Syria, Lebanon, and perhaps now Egypt. Regular base oil imports have all but ceased into these areas, with the exception of Egypt and the national supply tender for bright stock and SN 600. Supplies are being made cross-borders, with Turkey, Jordan, and Iraq supporting remote supplies of finished lubes, base oils and additives.

On the other side of the Arabian Peninsula, local Iranian exports are still flowing in and out of UAE. Prices have dropped in line with European, and cargo quantities of SN 150 have been offered out of BIK at $850/t FOB, with SN 500 being pushed on an ex tank basis in UAE at $850 to $870/t. One large cargo of around 9,000 tons of mixed grades has been shipped to UAE from Livorno, giving rise to speculation that FOB prices from that refinery have been discounted to allow the export to UAE.

Africa
East and South Africa are also quiet. The base oil market normally picks up this time of year due to spring and summer time, and their higher demand for finished lubricants. Prices for imported material from the UAE and Red Sea remain as noted last week, although with falls in FOB levels in both these source areas, delivered prices may be expected to fall for December business.

The Durban base oil conference would appear to have been a success, but the absence of North African and West African players remains a mystery, although one attendee noted that those markets align themselves more with European trade than with Sub-Saharan Africa.

West Africa awaits December cargoes, one with Baltic roots and subsequent North West European top-off, one from the Mediterranean, and another from the Americas. With freight estimated to be $70/t for the large Baltic cargo, and with similar freight from the Mediterranean, albeit for a smaller parcel, landed prices are $1060 to $1085/t for Russian and European mainstream solvent neutral grades, with Baltic SN 900 landing at $25/t higher. Bright stock parcels should be landing at $1120 to $1145/t, the variance depending on source.

Nigerian buyers have issued enquiries for Baltic and Black Sea supplies of Russian grades, looking to purchase material at what some perceive as the bottom of the market. The prices above could be discounted $35 to $50/t for cargoes being negotiated now, due to the downward trend in prices during the past two weeks.

Group II/III
Europes Group ll prices are declining in line with source decreases and overlying Group l numbers which are dragging down other prices. U.S. producers have discounted posted prices at the refinery gate, whilst Far Eastern sources have cut levels in line with their local markets. Margins may be preserved for distributors at the moment, but eventually these will also come under pressure. Levels are reporting over wide bands, with some alterations to prices only taking effect after further deliveries of material have taken place. Historical prices are much in evidence for Group ll, and do not necessarily reflect current levels

Bands are estimated at $1075 to $1100/t for the lighter grades, with heavier grades selling at $1120 to $1175/t on the basis of ex tank sales within the European mainland.

Middle East Group ll supplies have also fallen, although many Group II suppliers to this region maintain that prices are already low, and that they should not be discounted further. They comment that the levels reflect refinery gate values plus freight, and are not inflated to take account of the market. Current landed selling prices, on CIF/CFR basis are $1010 to $1040/t for light grades, with material such as 500N and 600N at $1090 to $1130/t.

Europes Group lll prices are taking a beating, with buyers able to select the best deals for these grades, where each purchase bid results in eroding prices further. The name of the game appears to be market share, with both importers and domestic producers bending over backwards to protect their slice of this once lucrative market.

Describing the situation as a price war may not be far from the truth, with levels falling again this week. Prices for 4cSt are 975 to 1010/t, and with both viscosities converging on price, 6cSt material is selling at 985 to 1045/t, all on an ex tank or ex rack basis.

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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