Europe-MidEast-Africa Base Oil Price Report

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Sellers appear to be winning the battle for higher base oil prices, as demand grows for limited avails in the EMEA regions.

The main driver behind the current price moves has been the cutbacks which many refiners adopted due to poor returns for base oils. Demand is also growing, although many agree this may be a spike caused by blenders running down inventory when prices were falling.

Export cargoes are badly affected by the limited quantities available from some of the main sellers. A number of traders are expressing doubt about covering all enquiries from areas such as West Africa and Turkey.

Dated Brent crude oil has found a new operating level around $109.60 per barrel and has been within this spread for the last couple of weeks. ICE gas oil futures are also steady around $922.50 per metric ton for front month settlement, giving the petroleum products markets some degree of stability during the last month.

Should these levels continue, with healthy demand for low and high sulphur vacuum gas oil, then base oils will have easily identifiable targets on prices.

There appears to be agreement that export sales of base stocks have to move another $75-$100/t higher to attain netbacks comparable with other petroleum products.

Prices for API Group l grades throughout Europe have strengthened again this week, with the lighter grades offered at $1025-$1075/t, and heavier neutrals such as SN 500 upped to $1035-$1090/t. Although the spreads for the neutrals are considerable, both ends of the range are achievable depending on size of parcel and whether these grades are bought with each other and/or bright stock. Bright stock moved further ahead at the end of last week to $1120-$1165/t. Bright stock sold independent of other grades in relatively large quantities is commanding the top of the range, since not many suppliers have material available to service these requirements.

These prices refer to cargo sized parcels of Group l base oils sold FOB basis, ex mainstream European and North African supply points, as availability allows.

Prices for local sales of base oil within the European mainland have also been boosted by the lack of avails. Many blenders have been scratching around for untapped supply pockets, such as certain suppliers in Eastern Europe and the Baltic. Some are also looking at Group II grades. Local levels have moved upwards and are now around 90-130/t higher than export cargoes which are coming to market. This differential takes account of the extra handling, storage and delivery costs attached to these grades, which are mostly dispatched by truck or barge.

Baltic & Black Seas
Baltic sales continue at higher levels with offers for SN 150 and SN 500 at $995-$1025/t for prompt FOB avails, but with April forward prices up to $1055/t for both grades. Offer prices for Russian and Belarus base oils have jumped dramatically over the last ten days.

Some 25,000 tons are currently under offer for destinations in West Africa, and one 7,000 ton parcel is destined for the western Mediterranean. This latter cargo may be a two-port load, with bright stock lifted to top off the cargo of SN 150 and SN 500 from Liepaja before heading for West Africa. SN 900 remains very tight, with almost all avails being mopped up for West Africa. Price levels for this grade are $1100-$1120/t.

Russian Black Sea business has seen the reverse of the Baltic activity, with many Turkish buyers sitting on the fence awaiting new regulations regarding importation of base oils, due to be announced April 1. Inventories are growing lower and lower, and assuming the new rules will not be unduly punitive, the market is bracing for a large buy programme during the first half of April.

Rumours are rife with some players predicting the proposals will be draconian, causing serious cash flow obstacles. Others say any changes will make little difference to base oil purchasing. These sources are confident that any changes will be cosmetic and will only affect parties who were engaged in fuel dilution.

Prices in the Black Sea for Russian offers last week, for FOB sales, were $995-$1025/t, comparable to CIF values of $1050-$1075/t, depending on credit periods and negotiated payment dates. One offer for 5,000 tons of Iranian SN 500 with U.A.E. origin documents was reported at $1070/t basis CIF Aliaga.

Middle East
The Middle East has seen some Black Sea cargos into Haifa, with 4,000 tons of mixed grades loaded during second-half March. Lebanese buyers are looking for particular solvent neutrals loaded only from mainstream production in the Mediterranean. With tight port restrictions for discharge, this cargo will possibly hold a premium for the small 2,000 ton parcel. Bid prices are around $1100/t basis CFR.

Middle East Gulf Group l business has been brisk with further supplies emanating from BIK into U.A.E. for domestic blending and also for re-export. One small parcel of 1,000 tons ex BIK is earmarked for Mumbai anchorage, and FOB levels are now assessed at $990-$1050/t for SN 150 and SN 500, in bulk and in flexies. Far East offers abound within the Middle East Gulf buying fraternity, with offers for mainstream Group l at $1010-$1025/t for solvent neutrals and bright stock around $1275/t CIF.

Africa
East African receivers have taken a large number of deliveries of U.A.E. base oils in flexies with Dar-es-Salaam, Mombasa, Beira and Durban in South Africa being the main delivery points. Prices are in line with U.A.E. FOB numbers plus freight and flexi costs. SN 500 is delivered around $1125/t.

West African buyers are again looking to Baltic supplies, with delivery of one West African index-linked cargo loading out of Livorno for some 8,700 tons of the three primary grades of Group l base oils, SN 150, SN 500, and bright stock, going into Tema.

With some 25,000 tons of base oils ex Baltic marked for Nigerian ports, along with a large slug of 11,100 tons of mainstream material loading ex Rotterdam, the West African markets are again soaking up any spare Group l material from Europe and the U.S. For March loading, SN 150 and SN 500 are now $1155-$1185/t, basis CFR, Nigerian or Cameroon ports, with bright stock around $1265/t. SN 900 where available will discharge around $1220/t.

Group II/III
European importers have hiked Group II prices in line with Group l increases. Levels are now around $1135-$1190/t for light viscosity material. Heavier vis grades such as 500N and 600N are selling at $1265-$1290/t, all basis ex tank, either from storage in Northwest Europe or the Mediterranean.

Group II base oils imported into the Middle East Gulf have reacted to price pressure from Far East exporters. Buyers are keen to move to Group II, since they are acutely aware of the limitations on Group l supply for now and for the future. With further avails from Yanbu refinery in the near future, and plans for Group II expansion in U.A.E., buyers are looking forward to Group II and III availabilities within the region, without dependence on Far East supply. Prices in these regions are $1075-$1100/t for light vis grades, with the higher vis range around $1140-$1195/t, all delivered prices basis CIF southern Middle East Gulf ports.

Group III oversupply continues, and producers hoping for demand resurgence have been disappointed, but they live in hope that one day the Eurozone will climb out of the doldrums and demand will return. Until that time pricing for these grades cannot reverse to when this material was short. The two main grades of 4 cSt and 6 cSt Group III base oils are freely available and can be purchased within a range of 1000-1065/t, loading ex rack within mainland Europe.

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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