Europe-MidEast-Africa Base Oil Price Report

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The EMEA base oil market is being fed a number of contradictory signals. Some sellers are cutting prices to attain sales; some mainstream producers are holding out for higher prices, particularly for bright stock and very heavy neutrals.

Dated Brent has fallen from over $111/barrel a week ago to around $106, and with crude prices forecast to fall lower, some stormy days may lie ahead. ICE gas oil front month numbers have crashed more than $50 per metric ton in one week. Vacuum gas oil remains in demand, with the crack against Dated Brent closing.

The picture is confusing for base oils. Refiners want to recapture value for their products by pushing prices higher, but with demand in the doldrums, this is increasingly difficult. At the same time, distributors in the Baltic and Black Sea regions who have long term contracts with Russian, Belarus and Uzbek refineries have to keep the barrels flowing. To achieve this, their only course of action is to cut prices to attain creditable sales.

With this background, European API Group l price ranges are extended to take account of the extremes within the market. Light vis solvent neutral grades now lie between $1010-$1085/t, with heavier neutrals offered between $1145-$1210/t. Bright stock remains relatively short and in demand, and is available between $1175-$1225/t, unchanged since last week.

These FOB prices refer to cargo sized parcels sold ex mainstream producers in the European mainland or North Africa.

Local sales of base oils have not been affected to the same extent as export barrels. The differential between local sales and export offers has grown over the last week, with the slight downward trend of exports, and is now around 100-120/t.

Baltic & Black Seas
Russian sales of SN 150, SN 500 and SN 900 ex Baltic suppliers has been relatively quiet. Only a few traders are looking at large cargoes for destinations such as West Africa, whilst others are looking for smaller short-sea trades into Northwest Europe and U.K. Prices have come down at the high end of the ranges, and SN 150 is now offered at $965-$975/t, and SN 500 at $985-$1000/t, all basis FOB Baltic load ports.

SN 900 is still available around $1060/t FOB, with at least two distributors offering parcels of around 3000 tons of this grade for prompt loading.

Black Sea trade appears to be weaker than business in the Baltic, with uncertainty still hanging over Turkish buyers. It seems the Turkish government will have all base oil imports reported through an exchange system, which will weed out the cowboy imports used for diesel fuel dilution and other nefarious practices involving tax and duty avoidance. This will entail receivers registering with the exchange, which will report to the government on all base oil imports.

Meanwhile prices for Russian and Uzbek material have dipped in this region. SN 150 (I-20A) from Fergana is offered around $940/t FOB basis ex Azov or Batumi. Russian SN 150 is priced a little higher around $955/t, with SN 500 only available from Russian sellers at $975-$980/t.

Middle East
Near Middle East base oil imports have all but disappeared with the exception of Egypt and Israel. Parcels destined for Lebanon appear to have been delayed, and some routine enquiries have come out of Jordan for Group l and Group II. Syrian blenders appear to have accessed supplies through Turkey, although quality may be questionable.

Red Sea exports from Yanbu and Jeddah continue, with Sudan and Tanzania importing quantities of material both from Saudi Arabia and U.A.E. suppliers.

The Middle East Gulf offers the best news, with base oil in demand and annual growth predictions approaching pre-2008 levels at around 6 percent. Blenders here have issued enquiries for imports of European and Russian material to assuage shortages due to limitations on Iranian exports.

Small 3000 to 5000 ton parcels, mainly SN 500, are reportedly available ex BIK port in southern Iran. Prices have firmed up with steady demand and less availability, to around $1060/t basis FOB. SN 150 is around $10/t higher, but with less availability. When this material is imported to U.A.E. and then re-exported, a premium of $15-$25/t applies. Other Gulf Cooperation Council areas also report a growing base oil market; Bahrain and Kuwait are using local Group l in addition to new Group III production.

Exports of GTL from Qatar continue, with the Shell-Qatar Petroleum Pearl unit operating at around 95 percent of capacity. All Pearl production is under the auspices of Shell affiliates, so only secondary sales of these grades are offered within the region.

Africa
East African receivers continue to shop for alternatives to Red Sea and U.A.E. sellers but with little success. European barrels plus freight do not meet the arbitrage, and Far East supplies of Group l have been hiked in price and are no longer competitive. Prices are still relatively high in East Africa, with Group l solvent neutrals landing CIF at $1145-$1170/t. Bright stock in bulk is $1265-$1300/t on the same basis. For all imports in flexies, add about $60/t for packaging and transportation.

With winter approaching, South Africa has slowed, but local finished lubricant markets are still buoyant, with traders trying to organize another cargo from the Baltic into Durban. Traders are also looking at Black Sea as an alternative source, but with Suez transit costs for stand alone vessels high, and piracy risks in the Red Sea a real problem for smaller vessels, this may not be an option.

West African buyers are reticent to commit to deals at the moment. Two receivers in Nigeria say prices for finished lubricants have not been raised, and thus base oil imports at current levels are not feasible. These traders can wait until the market improves to purchase and resell. Blenders do not have this option, and some are facing closure due to a lack of base stocks.

Prices into West Africa have not changed since last week, and no new deals are reported from the Baltic or mainland Europe, although a number of negotiations are under way.

Levels in West Africa are $1175-$1200/t for Group l solvent neutrals up to SN 650. Higher vis grades are priced variably higher, with SN 850 and SN 900 around $1225/t. Bright stock ex Europe or U.S. is $1290-$1325/t. These prices refer to cargoes landed into West Africa on a CFR or CIF basis.

Group II/III
European Group II supplies are growing as requirements expand. April 1 brought some upward revisions to both Far East and U.S. import prices. Lighter grades such as 70N through to 220N are now $1155-$1220/t, with higher vis material $1280-$1310/t.

Some Group II offers to Middle East Gulf receivers are competitive against Group l material, particularly for light vis grades. This is due to the very competitive levels being shown by Far East suppliers going into the west coast of India, where competition is fierce. The Middle East Gulf is closely associated with Indian markets, and similar pricing is often expected.

Group II light grades are now $1090-$1110/t, and the heavier grades are around $1170-$1195/t, basis CIF southern Middle East Gulf ports.

Reports have circulated in the European Group III market of offers of blended base oils which may or may not contain Pearl Group III base stocks. No sales or offers of stand-alone GTL base oils have been made by Shell affiliates, who control the entry of these grades into the market.

Other Group III material is freely available and in oversupply. Prices have not altered since last report, and both 4 cSt and 6 cSt are between 1010-1070/t, on an ex rack or ex tank 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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