Europe-MidEast-Africa Base Oil Price Report

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If it were actually possible for an incredibly weak EMEA base oil market to descend to even greater depths, then that is exactly what has happened over the last few days.

With almost fanatical year end dumping of material throughout the global base oil scene, prices have tumbled to lows which would have been impossible to contemplate some couple of months back.

Almost irrespective of how costs are allocated against sales, these new price levels suggest that producers are selling material at a considerable write down to true production and handling costs.

With crude levels remaining relatively tight, Dated Brent is trading at just above $107 per barrel, marginally down $2 from last week. ICE gas oil for January front month settlement has retreated to $907 per metric ton, in spite of healthy demand because of a cold snap hitting Northwest Europe. This level is down some $25/t from last week. Ultra-low sulfur diesel as an alternative to base oil production has fallen in line with gas oil, but still maintains a positive option to base oils when pure barrel economics are taken into account.

With this background of relatively stable crude and product prices, the base oil scenario beggars belief, with reports of API Group ll material selling long out of the U.S. Gulf Coast, yielding landed prices into mainland Europe, Middle East and West Coast of India of $930 to $970/t. These fire engine sales do nothing to reinforce the logical reasoning that base oils have no further way to fall in price.

Similarly within the European mainland, Group l prices have again come under pressure to fall inline with buyers renewed expectations and with competition from imports of low priced Group ll and l material.

FOB prices have dipped another $5 to $10/t during the week, with light solvent neutrals now bidding at $880 to $915/t, with heavier grades at $920 to $945/t. Bright stock has sunk to $985 to $1020/t. All the above numbers refer to FOB bids or offers, with buyers bidding ever lower and sellers offering prices around $10/t higher in the vain hope of extracting almost anything out of any sales confirmed.

The prices above refer to bulk sales of cargo sized parcels of base oils sold ex mainstream facilities in Northwest Europe, the Mediterranean and North Africa, where availabilities of each individual grade allow.

Local prices within Europe continue to converge with export cargo levels, due in no small part to the options available to smaller buyers in mainland Europe. Sellers who previously would not consider delivering smaller quantities to domestic blenders are now open to almost any sale, due to the oversupply which has created a buyers market. Prices for truck and barge delivery now only reflect the additional costs of handling and transportation, with cost items such as storage now being discounted as part of a universal selling campaign to find receivers for local material.

Local European prices are now only 20 to 30/t over export numbers, and it is anticipated that two-tier pricing may now be over, with future dealings being on a single market basis plus premia where applicable.

Baltic and Black Seas
Some Russian and Belarus Baltic prices have descended to new lows this week, in spite of sellers resistance. A two-edged sword is producing problems for distributors and traders. On one hand many of the distributors tanks are almost full with inventories running high. With year end approaching, there is a grave temptation to move material out of tank at whatever prices can be achieved. The second point is that replenishment is becoming a problem, since Russian FCA prices plus transport costs to FOB supply points are almost outweighing selling prices.

Some players are saying that they will discount to clear stocks by year end, but will have to hike prices for January due to replenishment costs. Others are stating that they will not sell below breakeven and will retain material in tank without replacing stock, at least until they can sell at a positive margin.

The spread of prices has been enlarged with low numbers being countenanced by some whilst others continue to maintain higher levels. Prices for SN 150 and SN 500 are now $835 to $885/t, FOB Baltic ports, with one supplier offering both grades above $900/t, but with no takers.

The Black Sea regions echo the same situation as the Baltic, but with a distinct lack of potential buyers chipping away at prices and looking for supplies. Turkish buyers have imported material from Iran at very low numbers, some comment as low as $860/t landed CFR. These purchases have been made in spite of Western sanctions by traders based in locations such as Azerbaijan, who can use local currency and owned vessels to transport these cargoes, thus avoiding the imposed limitations to which international traders must adhere.

Middle East
Middle East Gulf cargoes of Iranian SN 150 and SN 500 have been lifted from Bander Bushire and BIK, some traded locally into UAE for re-export, and others destined for Turkey. Three cargoes have been lifted for Turkey so far, totalling some 21,000 tons in all. Prices FOB have been anticipated at $810 to $820/t, although these numbers cannot be confirmed.

Prices for bulk cargoes of SN 500 are offered at $835/t, basis FOB UAE ports, whilst flexibags in containers for the same grade along with SN 150, are being priced at $880 to $910/t basis FOB.

Africa
South African receivers have initiated taking Group l cargoes from Northwest Europe, with traders loading a mixed parcel of SN 150, SN 500 and bright stock, totalling 6,000 tons for discharge into Durban. Local buyers have been tempted to take advantage of the lower European FOB levels, which can be landed into South Africa between $1055/t and $1075/t for SN 150 and SN 500, with bright stock landing CFR at $1240/t. These levels can more than compete with local delivered prices, with differentials of $50 to $75/t.

It is rumoured that some East African buyers are evaluating similar arrangements but which would have to compete with supplies being currently delivered from UAE sources.

West African trade has been brisk with many enquiries to suppliers in the Baltic and Black Sea, to traders and majors in the U.S. East Coast and U.S. Gulf Coast and to South American suppliers who are heard to be offering Group l solvent neutrals on an FOB basis at $835 to $850/t. Nigerian buyers have agreed to some six cargoes from Baltic and European sources, and are looking for further supplies to be lifted prior to year end.

Those cargoes will vary depending on source, with Baltic levels appearing CFR at $940 to $980/t for solvent neutrals, with bright stock from Northwest Europe and the Mediterranean landing at $1075/t. Other mainstream material from the Mediterranean and from Antwerp-Rotterdam-Amsterdam will be priced $10 to $20/t higher. Baltic supplies of SN 900, which have been utilised in West Africa as a part substitute for bright stock, will be landing at $995/t CFR.

Group II/III
Future European Group ll prices may be distorted by FOB sales from U.S. Gulf Coast suppliers which could depress mainland European imports. To date these rogue imports have not started to flow, hence Group II levels this week are marginally down, but still represent acceptable margins for re-sellers. Levels are $1050 to $1075/t for light material, with heavier grades selling at $1085 to $1145/t.

Middle East Gulf Group ll prices are being hammered due to low price selling into West Coast India from the United States, with Korea suppliers trying to fight back to retain market share. Levels have tripped downwards this week for forward business in January to below $985/t for both light and heavy grades. Current levels are still $1000 to $1025/t for the lighter grades, with 500N and 600N between $1075 and $1115/t, but with renewed pressure from U.S. exports these levels may have to fall until the market re-stabilises itself.

Group lll levels are weak but holding up relatively well compared to Group l and ll material. Prices have dipped around 5/t for both viscosities from last week, and the pricing bands for both 4cSt and 6cSt are 960 to 1020/t. The same supply/ demand scene is hitting this sector of the base oil market, but where other base oil types are suffering from a lack of demand and creating an oversupply, the industry itself has initiated the deluge of Group lll avails which has flooded the European market scene.

Traditionally January avails of Group l European base oils have been priced at lower levels than December year end sales with an uptick in numbers occurring during February of each year since 2008. With this premise in mind, some buyers are stalling and are prepared to wait until January before looking or committing to purchase material from the market. This time around may not follow the historical pattern, since with current prices already at an all-time relative low, it is difficult to see why numbers might not increase after stocks are decreased prior to year end. Thus January may be the turning point for the base oil market, not just in EMEA regions but on the global stage.

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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