Europe-MidEast-Africa Base Oil Price Report

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Its a very weak and almost dispirited market for EMEA base oil trades. Cries of woe are echoing across the producer ranks; many refiners are declaring that base oil prices do not meet feedstock realisation levels.

Sellers attitudes are mixed. Some have material in tank which can be sold at a margin at the lower levels of pricing, but others say they cannot continue to produce base oils at current costs.

There are two scenarios which can solve the situation. The first is lower feedstock and hence raw material costs applied to production, and whilst this would appear unlikely at the moment, it has to be considered as one possible solution to the problem. The other is for base oil prices to increase, which is being forecast by almost every producing facility within Europe and the Middle East.

Crude oil and feedstock levels have remained static over the past week with dated Brent at $110 per barrel in late trading on Tuesday. ICE gas oil has remained firmly within a scoped range at $945 per metric ton, ensuring that alternatives to base oil production are very prominent in refiners eyes. This pricing anomaly where API Group l base oils are priced below gas oil numbers has happened previously, but has not been allowed to continue for any significant length of time.

Oddball situations have occurred, such as the loading of Iranian barrels from U.A.E. at very low numbers for delivery into Turkey, along with a capitulation by some distributors in the Baltic and Black Sea regions to sell at prices which are virtually unobtainable in the mainstream market. These prices reflect levels at which stocks cannot be replaced.

Some players say either producers will start to apply realistic costs to base oil production which will necessarily push prices upwards in December, or runs will be cut and production of Group l base oils in particular may be severely curtailed.

Prices have fallen from last weeks levels by some $10 to $20/t, but most of these prices are in the form of bids from buyers who are looking to push the market further downwards. Export levels for Group l solvent neutrals are now $910 to $955/t, with heavier grades commanding a lofty price premium of some $50/t, resulting in a spread of between $960 to $985/t. Bright stock has dipped in line with the other grades and is assessed at $1020 to $1045/t.

The variation between the lows and highs of the ranges merely reflects sellers attitudes to the market, with some sellers willing to appease buyers at the lower ends to move material out of tank, whilst the upper levels are perhaps the more realistic numbers being offered by suppliers who either do not have to sell, or do not want to incur losses on sales.

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

The local European market appears to have ridden the last few weeks fairly well, with prices for truck and barge delivered Group l grades holding up. It must be emphasised however, that demand has been dire and that many blenders have simply not been buying base stocks. Based on comments received from blenders throughout mainland Europe, there is still a tenuous premium to export prices of around 90/t, although the word on the street is that, were buyers to return to the market in force, this premium would come under substantial pressure.

Baltic and Black Seas
Russian and Belarus Baltic business remains as a trigger for European base oil business, with a large number of opportunistic enquiries from West Africa and Turkey for both Baltic and Black Sea barrels accompanied by bids which are not always being taken seriously by sellers. Prices for the two main grades SN 150 and SN 500 are confirmed this week at $870 to $910/t basis FOB. With bids from Turkish buyers looking to reduce these FOB levels by some further $25/t, SN 900 has been offered at $965/t for both Black Sea and Baltic loading in quantities of around 4,000 tons.

Middle East
Iranian barrels have been reexported ex Hamriyah in U.A.E., at levels of $850/t for SN 500, and some smaller quantities of SN 150. These cargo lots are destined to Turkish receivers, giving landed CIF prices between $900-$930/t.

Material continues to flow from Iran in to U.A.E. where international purchases can be arranged by some receivers without incurring the wrath of Western sanctions. Local purchasing methods are in place to ensure that the parcels of Iranian exports continue to flow from BIK.

Prices are deemed to be around $835 to $845/t basis FOB BIK port, with transhipment and storage charges being applied after landing in U.A.E.

These barrels are also being used to supply flexi deliveries of material to East African and South African receivers.

Africa
The South Africa base oil markets appear to be almost in balance with locally refined material available from Durban and Capetown meeting demand from buyers within this vast region. Imported base oils are finding their way in to the market but with import duties and tariffs, prices are supported on a reasonably high platform. Group l SN 150 and SN 500 are assessed ex tank at $1045 to $1070/t, with quantities of bright stock selling at $1100 to $1145/t

West Africa has initiated an enquiry frenzy, with many receivers and traders looking to take advantage of what is perceived as the bargain time of year. Enquiries are being received by suppliers in the Baltic and Black Sea regions for Russian barrels, whilst mainstream European producers willing to sell at lower levels are being canvassed by traders and distributors in Nigeria, Ghana and other receiving nations such as Togo and Cameroon. The ultimate outcome of these attempts to procure at what must be considered to be the bottom of the base oil market still hangs in the balance with many sellers digging in their heels and stating that they will not discount any further for these or any other cargoes.

Suppliers in the U.S. Gulf, U.S. East Coast and South America are also being approached with target prices being bid for any available material at very low levels. Its reported this week that SN 150 and SN 500/600 should be landed around $1000/t CFR Apapa port, with SN 900 some $25 higher. Bright stock has been bid at $1065/t delivered.

Many players in the region have confidentially agreed that these price levels will almost certainly not be achievable but others are convinced that anything and everything is possible!

Group II/III
European Group II prices have in the past declined in line with Group l levels, but surprisingly, prices for these grades appear to have stabilised this week. Perhaps with a smaller number of sellers in the market, it has been possible to instil an informal measure of control on pricing which may protect these grades from unnecessary erosion. Levels for Group II grades within the European mainland are $1065 to $1100/t for the lighter grades, with heavier grades being sold at $1115 to $1175/t on the basis of ex tank sales

Middle East Group II supplies into Middle East Gulf regions from Far East are unchanged from last weeks levels of $1010 to $1040/t for the lighter grades, and with material such as 500N and 600N between $1090 to $1130/t.

Group III supplies within European mainland have taken another pricing hit this week. Due to the oversupply situation of some grades (not all grades are long in the market) price levels have fallen this week by another 10 to 20/t. Both 4 cSt and 6 cSt grades are now banded together and are available ex tank within a range of 965 to 1025/t. Importers and European domestic producers of Group III base oils are showing concerns, not about the oversupply in the market, but rather that demand for all finished lubricants is down, and is forecast to fall further.

This simple reasoning summarises the main concern for the whole EMEA base oil scene.

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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